“Delivery” v. “Furnishing” in the Mechanic’s Lien Context

Post-Covid construction practices present some changes that were not anticipated in 1969 when the core of the current North Carolina lien law, as it pertains to subcontractors and suppliers, was drafted. Those changes may present fodder for litigation in the future. With that in mind, owners, contractors, subcontractors, and suppliers need to think about these issues before they reach the dispute stage.

Throughout the COVID pandemic, supply chain issues wreaked havoc on the construction industry. Prices skyrocketed as availability dropped. Schedules were wrecked. As a result of these events, many contractors and larger subcontractors, and even some sophisticated owners, have begun ordering materials and equipment well ahead of when it should be needed. The materials and equipment are stored upon delivery awaiting its need. Storage may occur at the supplier’s facility or it may be warehoused by the party that placed the order. Whichever is the case, the questions that arise are, when do lien rights kick in? And, when is payment due to the supplier?

North Carolina’s lien law defines “Improve,” in pertinent part, as “To build, effect, alter, repair, or demolish any improvement upon, connected, with, or on or beneath the surface of any real property, . . . or to furnish materials, …, for any such purposes.” NC.G.S. §44A-7(3). And, “[a] claim of lien on real property granted by this Article shall relate to and take effect from the time of the first furnishing of labor or materials at the site of the improvement by the person claiming the claim of lien on real property.” N.C.G.S.§44A-10.

The question for which there is not a clear answer is “when does furnishing occur?” Like many words in the English language, until recently, everyone had a general understanding of the plain meaning of the word “furnishing”, but now that may not be the case. Case law has indicated generally that furnishing occurs when either the materials were delivered to the project, or delivered to the care and custody of the purchaser for purposes of use on the project. Now, there could be months between the arrival of the equipment or materials and its delivery to the project. It is unclear when the supplier is to be paid. It is unclear when the ordering entity is to be paid. And, maybe most importantly, it is either unclear or unknown when the equipment or materials are to reach the project. Therefore, the parties need to consider carefully how they will “paper” this transaction to confirm when “furnishing … at the site” occurs and when the 120-day clock for filing a lien starts running.

Usually, a law firm’s blog article would seek to provide definitive answers to legal questions, but in this instance, this article is a cautionary tale. Our lawyers have been asked to assist clients in attempting to create storage documents and other agreements that seek to clarify the status of the equipment and materials. The cautionary part of this tale is to remind parties to a construction project to ask detailed questions on the front end to avoid surprises at a later date.