Construction Projects

Church Law and Tax 1990-03-01 Recent Developments Construction Projects Richard R. Hammar, J.D., LL.M., CPA

Church Law and Tax 1990-03-01 Recent Developments

Construction Projects

In some states churches may have to pay for labor or materials twice if they fail to obtain “lien waivers” from subcontractors before paying their contractor. A North Carolina court recently addressed the issue of double payments for the same labor or materials. A Baptist church entered into a contract with a contractor for the purpose of constructing a driveway and parking lot on its property (at a total cost of $12,500, including all labor and materials). The church paid the contractor the full contract price, but the contractor failed to pay the concrete supplier for $6,500 worth of concrete. The concrete supplier sued the church, demanding payment for the concrete. The church in turn sued the contractor (who could not be located). A jury ordered the church to pay the concrete supplier for the concrete, and acknowledged that the church could sue the contractor if he ever was found. An appeals court observed that under North Carolina law the church’s full payment of the contract price to the contractor extinguished the concrete supplier’s right to a “materialmen’s lien” in the church’s property, but that the church had failed to raise this defense at either the trial court or on appeal. In many states, debts for subcontractor labor and materials can become a “lien” against church property despite the fact that the church has paid the contractor for such expenses. In other words, if an unscrupulous contractor pockets the money, the unpaid subcontractors can file a lien against the church’s property that can be satisfied by a sale of the property. This typically results in the church paying twice for the subcontractor expenses. Such an unpleasant result can be avoided by conditioning all payments to the contractor on receipt of authentic “lien waivers” from the subcontractors. Some states provide the property owner with greater protections. According to this case, a church in North Carolina that pays a contractor the full contract price may be able to extinguish the materialmen’s and mechanic’s liens of subcontractors. Concrete Supply Co. v. Ramseur Baptist Church, 383 S.E.2d 222 (N.C. 1989).

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