Mechanics’ liens and private projects: A primer

Reprinted from the Winter 2016 Bricker Construction Law Newsletter. Download the complete Winter 2016 BCL.

Getting Acquainted with Liens

Lien rights are governed by a statutory process that is littered with pitfalls and perils for owners, contractors, subcontractors and suppliers. Therefore, it is imperative that you are, or your legal counsel is, well-versed in the entire process. Because the intricacies of the lien law are complex, this article provides very basic information regarding liens on private construction projects and is intended to serve as an introduction to the topic, rather than a comprehensive representation of all the statutory requirements. It is wise to obtain the advice of legal counsel when dealing with any lien claim.

Who Has Lien Rights?

A contractor or supplier (called “materialman” in the statute) who performs work or labor on or provides materials for an “improvement” may have lien rights, according to Ohio Revised Code § 1311.02. The lien secures payment for the work that was performed or for the materials that were supplied. The key to whether a person has lien rights or if these rights still exist is whether or not the person has carefully and diligently followed the statutory process.

More than 30 years ago, a trial court in Hamilton County gave an apt description of the purpose of the lien process in Settle Builders Supply Co. v. Frankel Shore Partnership, 42 Ohio Misc. 13 (Hamilton County C.P. Court 1974), where it provided the following:

Taking up first the general spirit of R. C. Chapter 1311—its intent is to provide laborers and materialmen liens for work done pursuant to a contract with the owner and also provide protection to the owner by requiring affidavits and certificates from all subcontractors and materialmen, etc., on every payout and, by virtue of the sixty-day lien limit, prompt notice to the owner of any claim that has not for one reason or another been brought to his attention. If a materialman, who might be furnishing materials to a number of subcontractors working at different times on a job, could hold back until sixty days after the last material was furnished to the last contractor, an owner who had been taking every precaution the law provided him could suddenly find himself stuck with claims which should have been paid long before.

The Ohio Revised Code sections have been revised since the 1974 Settle Builders decision, but the basic purpose of the lien process is the same: to provide contractors and suppliers with a way to ensure that they are paid for their work and to protect owners from claims that could have been addressed early on. The process also provides protection to the owner by letting the owner know who worked on the project and when that work was completed. After all, nobody wants to receive a lien or claim for payment years after the project was completed.

Private owners are required to file a Notice of Commencement in the office of the county recorder for the county in which the project is located. The Notice of Commencement must include all of the following information:

• Legal description of the property that will be improved;
• A brief description of the improvement;
• Name, address, and capacity of the property owner contracting for the improvement;
• Name and address of the fee owner (if different from the owner contracting for the improvement);
• Name and address of the owner’s designee, if any;
• Name and address of all original contractors;
• Date the contract was first executed;
• Name of any lending institutions;
• Name of any sureties;
• Required statutory language;
• Name and address of the person preparing the Notice of Commencement; and
• Signed verification of the Notice of Commencement.

Only one Notice needs to be recorded. If there are any changes, then the Notice can be amended and will retain the original filing date.

It is, however, crucial that the information in the Notice of Commencement be accurate. When there is inaccurate information in the Notice, the owner can be held liable for any loss of lien rights of a lien holder and can be required to pay actual expenses and attorney’s fees that were incurred to maintain the lien.

Courts strictly enforce this requirement. In fact, at least one court held that a Notice of Commencement was not proper where an owner’s name was abbreviated on the Notice of Commencement because, “a lien claimant cannot be expected to search for all combinations and permutations of letters in order to cover every possible name under which a notice of commencement may be filed.” See Clinton Electrical & Plumbing Supply, Inc. v. Airline Professionals Ass’n, Teamsters Local 1224, Clinton App. No. CA 2005-08-016, 2006-Ohio-1274.

In that case the name on the deed to the property was “Airline Professional Association Teamsters Local 1224” while the name on the Notice of Commencement was “APA Teamsters Local 1224.” It seems like a small change—until you try to search the files at a recorder’s office to determine if a Notice of Commencement has actually been filed by an owner.

The owner’s failure to file a Notice of Commencement does not relieve the lien claimant from its obligation to file an affidavit for mechanics’ lien. If, however, the owner fails to file the Notice of Commencement, potential lien claimants are not required to serve a Notice of Furnishing on the owner and principal contractor as they would otherwise be required to do, as will be discussed later. A potential lien claimant’s failure to serve a Notice of Furnishing where there is a proper filing of a Notice of Commencement may provide an owner with a good defense to all or a portion of the lien claim. So, if the owner does not file a Notice of Commencement, the owner may be unknowingly exposing itself to significant risk.

The Notice of Furnishing

A Notice of Furnishing is the subcontractor’s or supplier’s way of telling the owner and primary contractor that it is performing work on the project. It must be served on the owner and the “original contractor” (the principle contractor who contracts with the owner), with a few exceptions. Contractors and suppliers who have a contract with the owner are not required to serve the owner with a Notice of Furnishing. Nor are subcontractors and suppliers who have a contract with the original contractor required to serve the Notice on that contractor.

The Notice of Furnishing must include specific information, but it is very easy to prepare, as the O.R.C. § 1311.05(B) provides the required language. Even so, that still doesn’t prevent some subcontractors or suppliers from making costly mistakes. In Structural Grouting Systems, Inc. v. Precision Wood Designs, Inc. (Feb. 28, 2001), Medina App. No. 3086-M, the subcontractor filed an Affidavit for Mechanics’ Lien three days after the Notice of Commencement was filed. The subcontractor argued that the Affidavit for Mechanics’ Lien was an acceptable replacement for the Notice of Furnishing.

The court rejected this argument, as the Affidavit was indeed titled “Affidavit for Mechanics’ Lien” instead of saying “Notice of Furnishing.” The Affidavit did not include the required language for a Notice of Furnishing that is provided in O.R.C. § 1311.05. As a result, the appellate court agreed with the trial court when it determined that the Affidavit could not replace the required Notice of Furnishing, so the subcontractor’s lien was not perfected.

Another potential pitfall is that the lien claimant must serve the Notice of Furnishing upon the owner within 21 days after the lien claimant first performs work on the project or supplies materials for the project. Failure to serve the Notice within 21 days can truncate a party’s lien rights, as the only work protected will be that performed in the 21 days immediately before the Notice was actually served. In other words, work done 22 or more days before service will have no security.

Failing to serve a Notice of Furnishing altogether effectively waives the potential claimant’s lien rights on any work done or any materials delivered. This is why it is important for owners to properly file a Notice of Commencement, as discussed above, to protect their interests and their property.

The Affidavit for Mechanics’ Lien

In order to have a valid lien, a lien claimant, assuming all of the prerequisites are satisfied, must file an Affidavit for Mechanics’ Lien in the office of the county recorder in which the project was located and must serve the Affidavit on the owner within 30 days after it is filed. Timing again comes into play, as the lien must be filed within a specific statutory time period, as shown below:

• Property: One- or two-family dwelling or a residential unit of condominium property.
• Time to file: Within 60 days from the date on which the last labor or work was performed or material was furnished by the person claiming the lien.
• Property: Oil or gas well facilities.
• Time to file: Within 120 days from the date on which the last labor or work was performed or material was furnished by the person claiming the lien.
• Property: Other property not described above.
• Time to file: Within 75 days from the date on which the last labor or work was performed or material was furnished by the person claiming the lien.

These time periods must be met because tardiness results in the waiver of lien rights, even if the filing of the Affidavit is just one day late. In State Street Bank & Trust Company v. Bare, Franklin App. No. 02AP-1263, 2003-Ohio-3332, there was a dispute as to which lien, a mechanics’ lien or a mortgage lien, had priority over the other. The lien had been filed 61 days—instead of 60—after the work finished. The court held that “a lien is invalid where it appears from the face of the affidavit that the last date of providing work or materials was not within the statutory period allowed for perfecting a mechanic’s lien.” The court also rejected an attempt to amend the lien because such an amendment is not permitted after the time period has run out.

Some lien claimants have been known to try to “stretch” the time for filing the affidavit. Some contractors may allege that a service call or that some other tinkering, performed months after their time to file an affidavit expired, was the actual “last date when work was performed.” The goal is effectively to revive the contractor’s time period to file its affidavit.

Courts have been on the alert for such tactics, dating all the way back to 1932 and the decision in Walter v. Brothers (Stark App. 1932), 52 Ohio App. 15. Although the date for substantial completion occurred in January of 1930, the plumber filed a lien affidavit nearly 180 days later, arguing that his placement of asbestos lining on a pipe in the garage in May revived his lien rights and re-started the 60-day countdown.

Looking at whether the repairs were a necessary part of the contract and were done at the request of the owner, the court decided that they were not and ruled against the plumber in Walter. The plumber had neither requested permission to do the work nor notified the owner when it was done. He had merely shown up unannounced to line the pipe six days after learning that the homeowner was bankrupt. The court decided that voluntarily performing unauthorized remedial measures, especially if the work is trivial, will not revive the period for lien rights.

In another case, a court determined that a contractor failed to protect its lien rights by belatedly filing its Affidavit. In Swim Rite Pool Company v. Strausbaugh (Sandusky App. July 14, 2006), 2006-Ohio-3612, the contractor completed the installation of a pool in October 2002 and returned in May of 2003 to install a solar cover and solar reel. The problem here was that the court, when asked to determine if the Affidavit was properly filed, determined that the solar cover and solar reel were not part of the pool installation contract but were part of a second and separate agreement. When the initial work was complete and the contractor failed to file within the 60-day period, it essentially waived its lien rights.

Notice To Commence Suit

Once the lien affidavit is filed and properly served, the owner must decide what to do. An owner should consider whether the lien claimant followed all of the procedural requirements, if the claimant actually performed work or supplied materials used on the project and if the amount of the claim is accurate. Under certain circumstances, it may be advisable to serve a Notice to Commence Suit on the lien claimant and properly record the Notice to Commence Suit. If the lien holder fails to file a lawsuit within 60 days after being served with the Notice to Commence suit, the “lien is void and the property is wholly discharged from the lien.”

What’s It All Mean?

Owners and potential lien claimants must know the lien statutes and know them well. An owner does not want to be hit with unforeseen lien claims, which can make financing difficult to come by and real estate transfers nearly impossible. By meeting deadlines and properly filing and serving the required lien documents, an owner of a private project can avoid many unwelcome problems, and claimants can protect their rights.