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Timestamp: 2018-06-25 10:00:44
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Mechanics Lien Becomes More Lien-ient
Mechanic’s Lien Law Becomes More Lien-ient
The mechanic’s lien law is a tedious set of rules governing the process by which workers preserve, protect and secure payment rights in the furnishing of labor or materials in construction projects. The process depends upon a formalized means of communicating back and forth between an owner intending to improve real property and subcontractors who actually build the improvements or supply the materials. Ohio Courts have strictly interpreted these communication rules, which could have perilous consequences to an unwary and noncompliant subcontractor. Recently, the Ohio legislature enacted House Bill (H.B.) 514 relaxing some aspects of serving certain written communications between owners and subcontractors. H.B. 514 was signed by Governor Taft on December 13, 2002 and will become effective March 14, 2003. In order to understand the changes propounded by H.B. 514, I will first review the basic mechanics of the mechanic’s lien law and highlight the revisions to the rigid communication process. The overall effect of H.B. 514 is to provide some flexibility in the service of written communications by and between an owner and subcontractor, which should make it easier for a worker to get paid.
I. What is a Mechanic’s Lien?
A mechanic’s lien is a claim created by statute for the purpose of securing priority of payment of the price or value of work performed or materials furnished in erecting or repairing a building or structure.1 Article II, Section 33 of the Ohio Constitution authorizes the legislature to pass laws “to secure mechanics, artisans, laborers, subcontractors and material men their just dues by direct lien upon the property upon which they have bestowed labor or…furnished material”.2 In practical terms, the mechanic’s lien law is the means available to plumbers, electricians, roofers, excavators, masons, brickyards, lumberyards, etc. to preserve and perfect their payment rights. The mechanic’s lien laws governing privately owned land are contained in Ohio Revised Code (O.R.C.) §§ 1311.01 through 1311.22. O.R.C. §§ 1311.25 through 1311.32 governs instances where publicly owned land is involved.
II. What are the Routine Procedures of the Mechanic’s Lien Law?
The following is a summary of the procedure required to preserve and perfect mechanic’s liens relative to commercial construction projects located on privately owned land:
A. Owner Records a Notice of Commencement (NOC)
The owner of real property who contracts for the construction of an improvement must prepare and record a NOC.3 This should be done prior to anyone performing labor or work or the furnishing of materials at the construction site.4 The NOC must be in affidavit form listing original contractors, the legal description of the real property and a description of the proposed improvements.5 It shall be posted on the real property and served upon the original contractor and only upon subcontractors and material suppliers upon written request.6
B. Subcontractor Serves the Owner with a Notice of Furnishing (NOF)
If a NOC is recorded, then a subcontractor or material supplier who intends to preserve his right to payment must serve a NOF upon the owner of the real property to be improved.7 The subcontractor and material supplier must request service of the NOC from the owner. Recording the NOC triggers the subcontractor’s duty to prepare and serve the owner with a NOF. The NOF gives the owner notice that there are interests out there and they want to be paid. The NOF must be served before commencing work on the project or within the first 21 days after work or material deliveries begin.8 If the NOC is not recorded the subcontractors and material suppliers do not have to serve a NOF upon the owner to preserve their payment rights.9
C. Subcontractor Records an Affidavit of Mechanic’s Lien
A subcontractor seeking to perfect a right to payment for labor or materials expended on a construction project must execute and record an Affidavit of Mechanic’s Lien.10 The subcontractor must use the prescribed form and file it within the proper time period.11 The failure to file an Affidavit of Mechanic’s Lien is a fatal impediment to getting paid for labor or materials provided.
D. Subcontractor Enforces a Mechanic’s Lien by Filing a Foreclosure Action
If the owner fails to pay the subcontractor for labor or materials provided, the subcontractor will retain an attorney to prepare and file a Complaint for Foreclosure.12 The subcontractor’s right to payment secured by a properly perfected mechanic’s lien will be reduced to judgment and the owner’s improved real property will be ordered sold at a sheriff’s sale. The real property is liquidated in order to pay the subcontractor.
III. What Happens when a Subcontractor Does Not Comply with the Mechanic’s Lien Law?
The Ohio Supreme Court has concluded that the mechanic’s lien statute should be “strictly construed” with respect to the creation of the lien.13 Any defect in the creation of a mechanic’s lien could be fatal which may lead a court to disregard the purported claim and exclude it from the distribution of proceeds when the improved property is sold at sheriff’s sale. For example, a building materials supplier lost $37,738.24 by incorrectly identifying the owner of record of the improved property in its Affidavit of Mechanic’s Lien.14 In another case, a subcontractor furnished materials, equipment and labor for electrical work related to a proposed truck terminal construction project.15 The owner filed and recorded a NOC. The subcontractor mailed a NOF to the owner by first class mail, postage prepaid. The owner received the NOF, but the record did not indicate the date of receipt. A mechanic’s lien worth $117,975.56 was invalidated because first class mail is not a method of service that includes written evidence of receipt, which was required by O.R.C. § 1311.05(A).16
IV. What did the Legislature Do?
A. H.B. 514 Provides Some Flexibility in Serving Certain Formal Communications by and between an Owner and Workers
H.B. 514 relaxes the strict compliance attributes of O.R.C. § 1311.19 concerning service of notices, affidavits and other documents (i.e. NOC, NOF, Affidavit of Mechanic’s Lien). O.R.C. § 1311.19(A)(2) currently provides that service of these documents shall be by “[c]ertified or registered mail, overnight delivery service, hand delivery or any other method which includes a written evidence of receipt” (emphasis supplied). H.B. 514 adds subsection (C) to O.R.C. § 1311.19, which recognizes the proper service of a NOC, NOF or Affidavit of Mechanic’s Lien if “[t]he person served acknowledges [its] receipt [or]…[i]t can be proved by a preponderance of the evidence that the person being served actually received [it]…” This is a very low burden of proof to establish. Also, H.B. 514 establishes a presumption that the NOC, NOF or Affidavit of Mechanic’s Lien was received within three days after its mailing. Regardless of the elasticity of this revision, one will always have a valid service of a NOC, NOF or Affidavit of Mechanic’s Lien if one provides service in a manner that generates a written and signed receipt.
B. H.B. 514 Assists Subcontractors when an Owner Records a Late NOC
H.B. 514 protects a subcontractor and material supplier when the owner delays recording the NOC. The NOF is not required until the owner has recorded a NOC. Today, if a worker provides labor or materials prior to the owner’s recording of a belated NOC the worker’s payment and lien rights slip away with every passing day a NOF is not served on the owner within 21 days after the NOC was belatedly recorded. Under this scenario, the owner would not have to pay the worker and would benefit by filing the NOC late.
H.B. 514 protects the unsuspecting worker by excusing the worker from filing a NOF prior to the owner’s belated recording of a NOC. Pursuant to the revisions, if the worker provided all labor and materials prior to the belatedly recorded NOC, then the worker would preserve all lien and payment rights against the owner. If the worker provided labor and materials before and after the belated recording of a NOC then the worker would preserve payment and lien rights on labor and materials prior to the NOC, but would be required to serve the owner with a NOF within 21 days of the NOC to preserve payment and lien rights for work provided after the NOC. If the worker fails to do so, all payment and lien rights for work provided after the NOC could be precluded.
C. Expanded Definition of Improvement and Gender Neutral Terminology
Other changes to the mechanic’s lien statute include the expansion of the definition of “improvement” to include the excavation, cleanup or removal of hazardous material or waste from real property.17 H.B. 514 substitutes gender neutral terminology used in the statute such as “material supplier” for “material man” and “worker” for “workman”.
The mechanic’s lien law will continue to be a cognitive tease despite the amendments of H.B. 514. However, H.B. 514 does allow some flexibility in serving important written communications between the principal parties in a commercial construction setting. Some mechanic’s liens will survive to secure payment interests that would have been rendered defective prior to the passage of H.B. 514. As a result, more subcontractors will be paid “their just dues” and fewer owners will acquire the benefit of improvements without paying for the labor and materials.
Black’s Law Dictionary 885 (5th Ed. 1979).
Article II, Section 33 of the Ohio Constitution.
O.R.C. § 1311.04(A)(1).
O.R.C. § 1311.04(B).
O.R.C. § 1311.04(G) (posted); (D) (upon request of subcontractor, etc.); (H) (upon original contractor).
O.R.C. § 1311.05(A) notes the NOF shall also be served upon the original contractor named in the NOC.
O.R.C. § 1311.05(D)(1).
O.R.C. § 1311.04(K) (failure to post); 1311.04(J) (failure to provide upon request); 1311.04(H) (failure to provide to original contractor); 1311.04(M) (risk of hidden liens).
O.R.C. § 1311.06(B).
O.R.C. §§ 1311.06(B) and (C).
O.R.C. § 1311.16.
Robert V. Clapp Co. v. Fox, 124 Ohio St. 331 (1931); Crock Construction Co. v. Stanley Miller Construction Co., 66 Ohio St. 3d 588 (1993).
Hoppes Builders and Development Co. v. Hurren Builders, Inc., 118 Ohio App. 3d 210, 213-214 (2nd Dist. 1996) (did not comply with O.R.C. § 1311.06).
Carey Electric Co. v. ABF Freight System, Inc., 1999 WL 958476 (2nd Dist. 1999).
O.R.C. § 1311.01(J).