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Ohio Mechanics’ Liens
How Contractors and Laborers Protect the Value of Their Time and Materials
Assume you are a subcontractor in Ohio who has been hired by a contractor to install wiring in a building under construction. Then, assume that the contractor goes out of business without paying you for the work performed. What can you do to protect the value of your labor and materials?
A “mechanics’ lien” is your answer. Mechanics’ liens are liens on real property (such as commercial real estate or a family home) held by contractors or laborers who improved the property. Mechanics’ liens exist to protect the value of the labor and materials the contractors or laborers put into the property. In the event that a contractor or laborer is not paid for the value of their work, the property itself can be sold off to ensure payment.
For contractors and laborers, obtaining a mechanics’ lien in Ohio is a complicated, multi-step process. Property owners who want to protect their property from mechanics’ liens face a similarly complicated legal process. Therefore, it is important for parties on both sides of construction contracts to understand the mechanisms at work in Ohio’s mechanics’ lien statutes.
Perfecting A Mechanics’ Lien: A Two-Step Process
Before a mechanics’ lien can attach to property it must be “perfected.” Perfection is not as intimidating as it sounds; all it means is that a contractor or laborer has complied with all of the legal requirements to secure the value of their work by attaching a lien to the property itself. The perfection process serves two goals:
- it notifies property owners that those involved in the construction process hold mechanics’ liens on their property and
- it puts potential purchasers and lenders on notice that the property is no longer free and clear of liens.
To facilitate these notice objectives, the perfection process revolves around two particular documents. One document is called a “notice of furnishing,” and the other is called an “affidavit of lien.” Subcontractors and materialmen must concern themselves with both notices of furnishing and affidavits of lien, while laborers and anyone directly in contract with the owner only have to worry about affidavits of lien.
Perfection, Step One: Determine Whether You Must Serve a Notice of Furnishing
A notice of furnishing is a document that subcontractors and materialmen must serve on non-residential property owners (and, sometimes, general contractors, if the general contractors and subcontractors are not directly in contract with the owner).
The notice of furnishing gives notice that subcontractors/materialmen are involved in a project. Notices of furnishing are only required for a subcontractor or materialman to perfect a lien on non-residential property (i.e. commercial real estate). They generally are not required to perfect a lien on residential property (i.e. land that the owner intends to use as a personal residence), or where the person seeking to perfect the lien is something other than a subcontractor or materialman. (It is prudent to consult an attorney on whether property is residential or non-residential. For example, houses being constructed by builders for resale (i.e., “spec houses”) are treated as commercial property under the Ohio Mechanics’ Lien Act even though the ultimate use will be for a residence.)
Ohio Revised Code 1311.05 sets out the required contents of a notice of furnishing. To protect the full value of work performed on non-residential property, a subcontractor or materialman must usually serve a notice of furnishing within 21 days of beginning work on the project. However, this requirement is subject to the property owner’s filing a “notice of commencement” with the county recorder at the outset of the construction which gives formal “notice” of the project’s official “commencement.”
If the owner has not filed a notice of commencement upfront but later provides one, subcontractors and materialmen then have 21 days to serve notices of furnishing on the appropriate parties. If a subcontractor or materialman fails to serve a notice of furnishing within the applicable 21-day period, he or she can still prepare and serve a late notice of furnishing. Doing so will protect part of his or her work and is better than nothing. However, the disadvantage of waiting is obvious; some work value will go unprotected in the case of default. To protect the full value of the work, a notice of furnishing should always be timely served.
Perfection, Step Two: Always Record and Serve an Affidavit of Mechanics’ Lien
After preparing and serving any necessary notices of furnishing, the perfection process next requires a subcontractor or materialman working on a non-residential construction project to prepare and execute an affidavit of mechanics’ lien. General contractors, construction managers, laborers and subcontractors and materialmen involved in residential construction projects also must prepare and execute affidavits of mechanics’ lien to perfect their mechanics’ liens (even if they did not need to serve notices of furnishing). Stated differently, in the mechanics’ lien perfection process, everyone must prepare and serve an affidavit of mechanics’ lien, regardless of whether they were required to serve notices of furnishing, and regardless of whether the property owner ever filed a notice of commencement.
Ohio law requires the affidavit of mechanics’ lien to be filed with the county recorder of the county in which the property is located. If the improved property is located in more than one county, the affidavit should be filed with the recorder of every county in which the improved property partially sits. The affidavit must be filed within a specified number of days from when the last day work is performed or material is furnished to the project, and the number of days one has to file the affidavit differs depending on the type of construction project at issue.
If the lien arises in connection with a single- or double-family dwelling, or in connection with a residential unit of a condominium, the affidavit must be filed within 60 days of the date on which the last labor or work was performed or material was furnished to the project. If the lien arises in connection with improvements to oil or gas well facilities, the affidavit must be filed within 120 days. Finally, if the lien arises in connection with any other real property improvements, including commercial property improvements, the affidavit must be filed within 75 days. Once the affidavit is recorded, a copy must be served on the property owner within 30 days of its filing. Once all these requirements are properly met, the mechanics’ lien has properly been perfected, and it will remain in force for six years.
How Owners Can Protect Their Property from Mechanics’ Liens
Property owners having improvements made or other construction done need to pay close attention to Ohio’s mechanics’ lien statutes. If a mechanics’ lien attaches to real property and the lien’s claimant is not paid for the value of their work, a court may order the property sold to ensure payment. With a small amount of pre-planning and attention to detail, however, owners can significantly reduce the possibility that a mechanics’ lien is filed against their real property in the first place.
File and Serve a Notice of Commencement
Non-residential (i.e., commercial) property owners seeking to lessen the possibility of mechanics’ liens must first record a “notice of commencement” before the start of any work that could lead to a mechanics’ lien. After recording, the notice of commencement must be served on the general contractor in a manner that provides evidence of receipt, such as personal service with a signed receipt or certified mail, return receipt requested. The notice of commencement must also be served on any materialman or subcontractor that requests a copy within 10 days of the request. A copy of the notice of commencement must also be posted at the job site.
Timely serving a notice of commencement in the commercial setting is critical because it makes subcontractors and materialmen responsible for timely filing of notices of furnishing, as discussed above. Without the notice of commencement, a subcontractor or materialman can place a mechanics’ lien on your property at any time without ever having to provide a notice of furnishing. By having the notice of commencement in place, the property owner forces contractors to act promptly or risk losing their lien rights.
Obtain Affidavits and Waivers for Any Payments Made
Regardless of whether property is residential or non-residential (which dictates whether or not an owner should file a formal notice of commencement), the “affidavit and waiver” stage is essential to protecting all property from mechanics’ liens. Therefore, all property owners should always take the following steps.
Obtain Affidavit: Before paying a general contractor, a property owner should obtain an affidavit from him or her. In his or her affidavit, the general contractor should swear to the identity of all materialmen, subcontractors and laborers that have worked on the project. He or she should also swear to the amounts still owed to those parties. This information is important because it tells property owners both who theoretically could attach a mechanics’ lien to their property and the total cost to which such liens could amount.
Obtain Lien Waivers: After identifying those who have worked under the general contractor, property owners should start to obtain lien waivers from them. Lien waivers are signed documents by which those otherwise entitled to place mechanics’ liens on property give up their right to do so. A property owner should get lien waivers from the general contractor, along with all materialmen or subcontractors identified on the general contractor’s affidavit. In the commercial real estate context, the highest priority should be to get lien waivers from any materialmen or subcontractors who served notices of furnishing, because they have properly protected their mechanics’ lien rights. However, regardless of whether the real estate is residential or non-residential, a prudent property owner should still get lien waivers from all materialmen and subcontractors who worked on the project, regardless of whether they served notices of furnishing. This becomes doubly important in the residential real estate context, where notices of furnishing are not required.
For payments other than final payments, materialmen and subcontractors will usually provide lien waivers dating through the last payment. However, for the final payment, a property owner should insist on full and complete waivers of lien. Doing so will extinguish the mechanics’ lien rights of those parties entirely. By extinguishing the mechanics’ lien rights of all parties involved, property owners will protect themselves (and their real estate investments) from preventable future problems.
Additional Protection for Residential Owners
Ohio Revised Code 1311.011(A)(1) affords special additional protection to owners of single or double family dwellings, or a residential unit of a condominium property, used by the owner as a personal residence, which prevents such an owner from having to pay twice on contracts. In general, the statute precludes mechanics liens by subcontractors if the owner has paid the contractor in full under the contract before the owner's receipt of a copy of an affidavit of mechanics' lien. Also in general, the statute provides that the owner is only liable to a lien claimant for an amount up to the unpaid balance of the contract, less the cost to complete the contract according to its original terms, including any warranty or repair work. If there is more than one lien claimant, they are to be paid pro rata from this amount. Exceptions and nuances to these general rules exist so each situation must be evaluated on its facts.
Practical Takeaways
If You Are a Contractor, Subcontractor, or Materialman: Ohio mechanics’ lien law provides powerful protection – but only if you follow the statutory steps. Missing a deadline can permanently reduce, or eliminate, your lien rights.
If You Are a Laborer: Laborers have mechanics’ lien rights in Ohio even though they are not required to serve notices of furnishing. However, lien protection is not automatic. Because lien deadlines are short and strictly enforced, early action is critical to protecting unpaid wages.
If You Are a Commercial Property Owner: Mechanics’ liens can significantly affect commercial property by clouding title and, in some cases, forcing a sale to satisfy unpaid claims. Filing and properly serving a notice of commencement and requiring contractor affidavits and lien waivers are effective tools.
If You Own and Live in a Residential Property: Ohio law provides additional protections for owner‑occupied one‑ and two‑family homes and residential condominium units. Residential owners should remain vigilant, carefully track payments and understand that exceptions and factual nuances can affect lien exposure.
A Final Reminder for All Parties: Because Ohio mechanics’ lien rights depend on strict compliance with statutory deadlines and notice requirements, early planning and prompt action are often the difference between full payment and no recovery at all.
Should you have any questions regarding mechanics’ liens, please contact Mr. Harper.
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Disclaimer: This alert has been prepared by Eastman & Smith Ltd. for informational purposes only and should not be considered legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney/client relationship.