Mechanic’s Lien Law Becomes More Lien-ient
A Publication of Skidmore & Associates, A Legal Professional
Association
By:
Eric E. Skidmore, Esq.
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”.
V. Conclusion
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).
-
Id.
-
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).
-
Id.
at *2.
-
O.R.C. § 1311.01(J).