In the News

April 25, 2019

 

Filing Liens on Solar Projects: What’s the Deal?

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Trusting Supply Chains Means Understanding Security

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Small Businesses Looking for Faster Payments

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Don’t Run Out of Time to Run to the Courthouse: Understand the Statutes of Limitation Applicable to Construction Litigation

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Filing Liens on Solar Projects: What’s the Deal?

Solar panels as a form of alternative energy continue to grow in popularity, both on residential and commercial projects. As the demand for solar panels increases, so does the likelihood of a creditor grappling with a customer when securing lien rights on solar projects. Unlike traditional forms of energy, determining lien rights on properties with solar panels—like many caveats in construction credit—depends on the type of project.

“What’s of vital importance is to know who your contract is with—that’s the biggest thing,” said Chris Ring, of NACM’s Secured Transaction Services. “It depends on the type of solar panel project there is and what role the customer is playing in that project.”

When determining if a creditor has lien rights on a project, Ring advised looking into a few key features on the project: Are the solar panels affixed to a single rooftop, and if the panels span across a large plot of land, is the customer leasing that land from one or more owners, or does the customer own the entire plot of land?

If the panels are affixed to a rooftop and do not span outside the property’s address, determining lien rights becomes a straightforward process. Like other means of filing liens on a property, check with specific state laws and file a lien accordingly; solar panels do not have a direct effect on the type of lien filed, nor do the panels fall under specific lien guidelines—provided the state in question does not have any provisions.

The process becomes more complex when the solar panels sit within a large plot of land.

When gathering information about the project, creditors should understand who owns the land where the panels reside. Ring said to get a “general description of the property,” which indicates who the owner(s) of the land are. If the plot of land is big enough, Ring said there may likely be more than one owner, meaning a creditor would have to file multiple leasehold liens on what is supposedly one project. If the customer is also the owner of the land, then the creditor will not have to engage with lien rights under leasehold interests.

Creditors have another option outside of liening on a property or leasehold interest, provided the debt and the project are substantial enough.

“If you’re in a situation where you’re not getting paid, you can sue for judgment,” Ring said. “If it’s the owner involved, not only does the work on that one project come into play, but all the assets of the owner can come into play when you’re trying to enforce a judgment on that large owner entity.”

Ring said this option comes to fruition when the original value of the property dips for whatever reason such as economic downturn. When filing a lien, the creditor only has rights against the current value of a property, not the value when the sale was made, meaning a lien on the property would be worth less than originally anticipated. Suing for judgment brings all of the owner’s assets into question.

But, Ring said, suing for judgment only applies when the creditor is working directly with the owner.

“If they’re working for a general contractor or subcontractor, they can’t bring the assets of the owner into play because their only hook is into the actual piece of property they’re working on,” Ring said. “If any company has a direct contract with the solar array company who actually owns the entire project, then they can often do a lien on leasehold interest, or they could sue the judgment and bring all of the assets of the customer into play.”

Creditors have options when working with solar panels, but the options become limited when creditors do not know enough about the project.

“It all circles back to that original concept we talk a lot about, which is figuring out where the piece of property is that you’re supplying, and who that property owner is, and does the company who is commissioning your work, does the owner of that project, actually own that land?” Ring said.

—Christie Citranglo, editorial associate

Trusting Supply Chains Means Understanding Security

Being a credit professional requires a heightened level of trust. Creditors are extending lines of credit to other businesses on behalf their company, with an expectation of returned payment after a set period of time. However, the credit department’s trustworthiness reaches beyond just debt to an understanding that data is handled with absolute care in a supply chain. Otherwise, a security breach in the supply chain process may spell trouble back in the credit department.

Every day, news outlets are reporting about the latest security breaches in the business-to-business credit community, particularly cyber threats in moments of weakness when businesses are undergoing advanced technological changes. According to Supply Chain Dive, supply chain technology is not immune to such threats, which not only affect vendors and suppliers but also credit managers.

In an interview with Supply Chain Drive, Jon Boyens, of the government’s National Institute of Standards and Technology’s (NIST) Cyber Supply Chain Risk Management (C-SCRM) program, said the more technology businesses use, the “greater impacts” potential security breaches have on all parties. Boyens discusses how to improve cybersecurity in supply chains in the article, “As supply chains get tech savvy, is cybersecurity keeping pace?”

“Evaluating future partners and vendors is not just ensuring they’re trustworthy from an organization level, including basic due diligence that they’re financially sound, not in legal trouble, have a good reputation and have positive references,” the article states, referring to Boyens’ suggestions. “The evaluation should drop down a tier to look at standard practices they use for supply chain cybersecurity with their partners.”

Although outdated systems may still be effective in supply chain management, the security features of those systems are often prone to advancing cyber hacks. For example, older platforms may not require credentials to access information, whether it be credit card data or distributor information. Shane MacDougall, a principal threat analyst for cybersecurity services company Mosaid451, told Supply Chain Dive that before deciding on a supplier or vendor, it’s important to know where either party stands in terms of security.

“Helping to find a security vendor, and even offering to pay part of the cost, can make a difference,” the article states. “If the supplier can’t meet a company’s basic security requirements, ‘think long and hard about using them,’ MacDougall said. ‘If you don’t, it’s a matter of time before you get hacked.’”

—Andrew Michaels, editorial associate

Small Businesses Looking for Faster Payments

Light travels roughly 186,000 miles per second. The speed of light is in one of the world’s most famous equations: E = mc², where c equals the speed of light. It is one of the fastest things in the universe, nearly everything else plays second fiddle to light—all aspects of life trying to catch up. This includes payments in the consumer and business world.

It wasn’t that long ago when the peak speed of delivery was about a week and a half with the Pony Express. Now, delivery, while not as fast as light, can be almost instantaneous. Companies, businesses and the like are making the push toward faster payments. In general, this has seen the use of checks decline and the use of ACH, credit cards and wires increase.

Intuit QuickBooks is the latest company to make changes to help businesses receive payments sooner. On April 25, it was announced Intuit is using QuickBooks and machine learning to improve small business cash flow and deliver money faster to businesses.

“With the addition of Next Day Payments for credit card and ACH, we are giving small businesses and the self-employed a powerful suite of payments tools that allows them to get paid both fast and affordably,” said Rania Succar, Intuit Business Leader for QuickBooks Payments and Capital, in a release.

Creditors and small businesses waiting for payment from customers are impacted the most, where the company could be living one job at a time. One misstep or slow payment/nonpayment could put the business in extreme danger of going under. Receiving the payment is only part of the problem. According to “The State of Small Business Cash Flow” by QuickBooks, two-thirds of small businesses said the processing time after receiving the payment impacts their cash flow the most. Just over a third of small businesses reported payment outside of terms had the largest impact.

Nearly a third of small businesses said it takes more than 30 days to get paid, with 29 days the average. Also, a third of small businesses have more than $20,000 in outstanding receivables—the average at more than $53,000. Intuit and other companies are starting to bridge the gap between accepting payments, receiving payments and processing payments to allow small businesses to have their money faster.

“For me, having that initial payment processed the next business day is invaluable, as it allows me to order the supplies needed for a job without having to front the costs myself,” said Jim Torrey, owner of Rivertown Woodcraft of Grand Rapids, Michigan, in the Intuit release. “Ultimately, the faster the money is in my account, the faster I am able to do my work.”

-Michael Miller, managing editor

Don’t Run Out of Time to Run to the Courthouse: Understand the Statutes of Limitation Applicable to Construction Litigation

In most states, there are separate statutes of limitation for claims based on breach of contract, property damage and general negligence damages. Some states also have specific statutes of limitation that govern claims of professional liability against state-licensed professionals. Examples include doctors, dentists, medical providers and others. Some states also include surveyors, architects and engineers in their professional liability statutes. Unfortunately, some do not, and simply use the generic term “professional.” This can lead to confusion over which claims are subject to the statute. In any event, each statute sets a time during which a plaintiff must file suit. Often the time periods differ from claim to claim.

On a construction project, many “professionals” are engaged to perform various services. Typically, there is a contract specifying the scope of those services. Surveyors, architects, engineers and other professionals are usually engaged by contract. Often those contracts require the professional to perform their services in a “workmanlike” manner. Some even require compliance with certain specified professional standards.

When a problem arises with the professional’s performance, the first question a potential plaintiff must ask is, “What type of claim do I have?” As a recent federal case in the Southern District of Indiana highlights, this is not always a simple question to answer. In Generali - U.S. Branch v. Lachel & Assoc., Inc., there was a structural collapse on a bridge project. The contractor sued a contracted engineer claiming a flaw in the engineer’s design. The contractor alleged the engineer breached its contract by providing professional services below the applicable standard of care. The engineer moved to dismiss, arguing that the claim was for negligence in the performance of professional services, not a breach of contract. The distinction was important because Indiana has a much shorter statute of limitations for negligence claims than for breach of contract claims. The lawsuit was filed within the longer breach of contract statute but after the expiration of the shorter negligence limitation period. The court looked to the substance of the claim, rather than the title or label the plaintiff used when filing. Finding that the nature and substance of the claim was based on negligence, the court dismissed the complaint.

Generali is just one example of the importance of understanding the nature of a potential claim at an early stage. The case is also a warning against reliance on a mere general understanding of statutes of limitation. A plaintiff relying solely on a basic understanding might mistakenly believe it has much more time than it does to pursue a claim. As a result, the plaintiff may delay consulting outside counsel. This can mean the difference between an opportunity to pursue the case and being shown the courthouse door.

Those engaging “professionals” should understand that it is the nature and substance of the claim that determines the applicable statute of limitations. The mere fact that the work was done under a contract is not determinative. Neither is the fact that the professional’s performance may appear negligent. Recognizing this distinction and involving counsel early may save an otherwise valid claim from the trash heap of legal missteps.

Reprinted with permission.

Michael L. Meyer is an associate at Taft Construction. He has significant litigation experience in cases involving the misappropriation of trade secrets and violations of non-compete/non-solicitation agreements. He also has experience litigating construction contract disputes and construction defect claims.