Highlights: Subcontractors and suppliers need some sort of protection to ensure they will be paid for their work on a construction project. Mechanics’ lien statutes provide that protection. Ohio, Kentucky and Indiana have their own versions of mechanics’ lien statutes. In this article, Jeff McSherry and Ben Hyden provide the basics about mechanics’ liens along with an overview of the mechanics’ lien statutes in Ohio, Kentucky and Indiana.
A mechanics’ lien is a statutorily created property interest that assists subcontractors and material suppliers with getting paid. (To simplify the discussion, this article will refer to “subcontractors” to mean both subcontractors and suppliers.) Mechanics’ lien statutes generally allow foreclosure actions, which permit a successful lien claimant to seize the property subject to the lien and sell it in order to fund payment of the lien claim.
Typically, mechanics’ lien claims involve the following two basic steps: (1) file and perfect the mechanics’ lien; and (2) file a lawsuit to enforce the lien. However, mechanics’ lien statutes vary drastically from state to state and are littered with pitfalls for the unsuspecting lien claimant.
Waiting until a dispute arises on a project before checking your obligations under the applicable lien statute may be a very costly mistake since complying with the mechanics’ lien statutes could be the difference between collecting on a judgment and losing your lien rights altogether.
Who Has Mechanics’ Lien Rights?
Mechanics’ lien rights are liberally created. Generally speaking, a subcontractor needs only to provide labor or materials on a project to create mechanics’ lien rights.
In Ohio, O.R.C. § 1311.02 provides every person who performs work or furnishes material in furtherance of any improvement by virtue of a contract with a lien to secure payment for work and materials.
Similarly, in Kentucky, K.R.S. § 376.010 provides any person who performs labor and furnishes materials, for the erection, altering, or repairing of a house or other structure by contract with a lien on the house or structure.
Finally, in Indiana, I.C. § 32-28-3-1 provides a contractor, a subcontractor, a mechanic, a lessor leasing construction and other equipment and tools, a journeyman, a laborer, or any other person performing labor and furnishing materials or machinery for the erection, alteration, repair of any buildings, and any earth moving operations with a lien.
A Mechanics’ Lien Is An Extraordinary Right - Subcontractors Beware!
A mechanics’ lien is an extraordinary right. Before the mechanic’s lien came along, the fact that an owner knew improvements were being made on its property by subcontractors did not subject the owner’s interest in the property to a lien as the owner was not a party to those contracts. The only remedy that an unpaid subcontractor had before the mechanics’ lien statutes were enacted was a breach of contract action against the party with whom it had a contract.
The passing of mechanics’ lien statutes by state legislatures changed this. The statutes created a mechanism, in most cases, for contractors and suppliers to provide an owner with notice of the work and material provided. Then, if the notice was properly provided, the mechanics’ lien statutes subjected the owner’s interest in the improved property to a mechanics’ lien.
In other words, instead of the subcontractor seeking payment from the general contractor alone, the subcontractor can now seek payment from not only the general contractor (breach of contract) but also from the owner (mechanics’ lien).
A mechanic’s lien is exclusively a statutory remedy. Courts, however, are not flexible or forgiving when it comes to interpreting the statutory requirements to obtain a mechanics’ lien. Thus, subcontractors must be aware of any applicable mechanics’ lien requirements and must strictly follow those requirements in order to protect their lien rights. If they fail to do so, the lien will be declared invalid.
The purpose of this article is to describe the general requirements found in the lien statutes of Ohio, Kentucky, and Indiana. This article provides very basic information and should not be considered legal advice. We recommend that you contact legal counsel to assist you in filing a lien under the mechanics’ lien statutes discussed below.
Ohio’s Mechanics’ Lien Statutes (O.R.C. § 1311.01 et seq) Ohio’s mechanics’ lien statutes contain several pitfalls that a lien claimant must avoid in order to maintain a valid lien.
Requirements of a Notice of Commencement
This is a document prepared and filed/recorded by the owner of the project before any work is started or any materials are furnished for a construction project. The notice of commencement is notice to the world (and to all potential lien claimants) of all of the information that is required to file a mechanics’ lien on a project.
The notice of commencement, as will be explained below, triggers the obligation of a contractor or supplier to file a notice of furnishing within 21 days after it provides labor or materials on the project in order to later file a mechanics’ lien.
O.R.C. § 1311.04 requires a private owner to record the notice of commencement with the county recorder. On public projects, the owner has no obligation to record the notice of commencement and must only make it available. The notice of commencement should be in the form specified in the Ohio Revise Code.
Serving a Notice of Furnishing
This is a document prepared by a subcontractor. That is, if the property owner has complied with the notice of commencement requirements, under O.R.C. §§ 1311.05 and 1311.261, a subcontractor is then required to serve a notice of furnishing upon a property owner and the original contractor in order to protect its lien rights at a later date.
Timing is critical where the notice of furnishing is concerned. A subcontractor must serve the notice of furnishing upon the owner and original contractor within 21 days after first performing labor or first furnishing materials. A subcontractor will lose its mechanics’ lien rights for any work or materials provided more than 21 days prior to the notice being served if the subcontractor fails to serve the notice of furnishing when required. Furthermore, if a subcontractor does not serve a notice of furnishing at all, lien rights will be lost altogether. A notice of furnishing also must contain the language required under O.R.C. §§ 1311.05 and 1311.261 or it will likely be declared invalid.
Filing a Mechanics’ Lien
After navigating through the initial hurdles mentioned above, a subcontractor still must timely file an affidavit for mechanics’ lien. Again, time is of the essence. If the mechanic’s lien is not filed within the specific statutory time period, the lien rights of the subcontractor and supplier will be forever lost.
Under O.R.C. § 1311.06, on private commercial projects, a subcontractor must file the affidavit for mechanics’ lien in the office of the county recorder where the project is located. Under O.R.C. § 1311.26, on public projects, a subcontractor must serve its affidavit for mechanics’ lien upon the public authority named on the notice of commencement.
In Ohio, an affidavit for mechanics’ lien must be filed within the 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 and 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: Public improvements.
Time to file: Within 120 days from the date on which the last labor or work was performed or materials were furnished by the person claiming the lien.
Property: Other property not described above (i.e. a typical commercial project).
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.
Perfecting a Mechanics’ lien in Ohio
After a lien is filed, the lien claimant also is required to perfect the lien by serving it upon the property owner. If a mechanics’ lien it not perfected, it is invalid.
Under O.R.C. § 1311.07, on private projects, a lien claimant must serve a copy of the affidavit for mechanics’ lien upon the property owner within 30 days after its filing. If the lien affidavit cannot be served upon the owner, the lien affidavit must then be posted conspicuously on the property within 10 days after the expiration of the 30-day period.
In order to perfect a lien on public funds under O.R.C. § 1311.29, a subcontractor must, within 30 days, file the affidavit for mechanics’ lien with the county recorder of the county where the public improvement is located.
The Public Authority’s Obligations
Once the public authority receives the lien affidavit, O.R.C. § 1311.28 says it must detain funds from the balance of the funds remaining under the contact with the principal contractor. The amount of funds detained cannot exceed the amount of the claim that was made, nor can it exceed the amount of money remaining under the contract with the principal contractor. The public authority must keep the funds in an escrow account.
Once the owner receives the lien affidavit, the owner also must serve the principal contractor with a copy of the affidavit, even if the lien claimant has already done so. Service must occur within five days of the owner’s receipt of the lien affidavit.
The notice from the owner to the principal contractor must state that there are 20 days to dispute the lien. If the contractor fails to dispute the lien within 20 days, then it has assented to the correctness of the lien.
Notice to Commence Suit
Both a public authority and a private entity can serve a lien claimant with a notice to commence suit. This notice means that the lien claimant must file a suit to enforce its lien within 60 days or the lien will be void.
Kentucky’s Mechanics’ Lien Statutes (K.R.S. § 376.010 et seq)
Kentucky’s mechanics’ lien statutes are significantly different than Ohio’s. For example, unlike in Ohio, a subcontractor in Kentucky has no obligation to serve the owner with a notice of furnishing. The notice requirements in Kentucky all run from the last day that work is performed.
Kentucky Lien Requirements for Private Commercial Projects
Notice to a Private Owner in Kentucky
On private commercial projects, in order preserve the lien rights, subcontractors, under K.R.S. § 376.010 must notify the property owner of the intention to hold a lien as follows:
- If the claim is less than $1,000, the subcontractor has an obligation to provide notice of the intention to hold a lien within 75 days after the last item of material or labor is furnished on the project.
- If the claim is in excess of $1,000, the subcontractor has an obligation to provide notice of the intention to hold a lien within 120 days after the last item of material or labor is furnished on the project.
Mechanics’ Lien on Private Commercial Project
After serving notice of the intention to hold a lien, a subcontractor still must file a mechanics’ lien. A subcontractor must file a statement of the amount due, with (1) a description of the property, (2) the name of the owner, if known, (3) whether the materials were furnished or the labor was performed by contract with the owner or by contract with a contractor and (4) the name and address of the lien claimant with the county clerk of the county where the project is situated. This statement must be filed within six months of the subcontractor last performing work or providing materials on the project. See K.R.S. § 376.080.
After a subcontractor has acquired lien rights, the lien claimant has an obligation to commence suit to enforce the lien within 12 months after the filing of the Mechanics’ Lien in the county clerk’s office.
Perfecting a Mechanic’ Lien on a Private Commercial Project
A lien claimant must send by mail a copy of the mechanics’ lien to the property owner at his last known address within seven days of filing the statement with the county clerk. If the mechanics’ lien affidavit is not sent, then the lien claimant’s lien rights are dissolved.
Kentucky Lien Requirements for Public Projects
Notice to a Public Owner in Kentucky
Similar to the requirements in Ohio, subcontractors on public projects acquire mechanics’ liens on the funds due to the original contractor from the public owner. Subcontractors do not acquire mechanics’ lien rights to public lands.
Under K.R.S. § 376.230, in order to preserve this lien, the subcontractor must file a verified statement in the county clerk’s office where the public project is located stating (1) the amount due for which a the lien is claimed, (2) the date on which labor, materials, or supplies were last furnished and (3) the name of the public project upon which a mechanics’ lien is claimed. This statement must be filed with the county clerk’s office within 60 days after the last day of the month in which any labor, materials, or supplies were furnished on the project.
After a subcontractor has acquired lien rights, the lien claimant has an obligation to commence suit to enforce the lien within six months after the filing of the Mechanics’ Lien in the county clerk’s office.
Perfecting a Lien on Public Funds
On public projects, under K.R.S. § 376.240, after filing the statement required under K.R.S. § 376.230, a subcontractor also must perfect its lien on the public funds. In order to perfect its lien, the subcontractor must (1) deliver to the public authority making the contract an attested copy of the statement of lien and (2) deliver a signed copy of a letter addressed to the contractor or subcontractor at the address given in the contract with a post office receipt showing that an attested copy of the lien statement has been sent by the lien claimant to the contractor or supplier by certified or registered mail.
Maintaining a Lien On Public Funds
Once the lien claimant has perfected the lien, the original contractor has an obligation to file a written protest with the public authority disputing the correctness of the lien or the liability of the funds for payment of the amount claimed under the lien under K.R.S. § 376.250. If the original contractor fails to protest the lien, then the amount withheld pursuant to the lien is to be paid by the public authority to the lien claimant, and the public owner is released by the original contractor from any claims in the amount paid by the public authority to the lien claimant.
If the original contractor files a written protest under K.R.S. § 376.250, the public authority is not obligated to pay the funds to the lien claimant until authorized to do so by the original contractor or until directed to do so by order or judgment of a court. After the original contractor files a written protest, the lien claimant has 30 days to serve the public authority with a summons in an action for enforcement of the lien or the funds will be released to the original contractor by the public authority.
Indiana’s Mechanics’ Lien Statutes (I.C. § 32-28-3 et seq)
The Indiana mechanics’ lien statutes are less complicated than the other statutes discussed in this article. Like Kentucky’s statutes, the notice requirements in Indiana all run from the last day that work is performed.
Notice of Intention to Hold Mechanics’ Lien in Indiana
I.C. § 32-28-3-3 requires that a person who wishes to acquire a lien upon property file a sworn statement and notice of the person’s intention to hold a lien upon the property for the amount of the claim in the recorder’s office of the county. This notice must be provided not later than 90 days after performing labor or furnishing materials or machinery on the project.
In addition, the statement and notice of intention to hold a lien must specifically set forth:
(1) the amount claimed;
(2) the name and address of the claimant;
(3) the owner’s name and address and
(4) the legal description and street number, if any.
Perfecting a Mechanics’ Lien in Indiana
A contractor or supplier has no obligation to perfect a mechanics’ lien in Indiana. In fact, the county recorder has the obligation of distributing the notice to the property owner.
Enforcement of a Mechanics’ Lien in Indiana
I.C. 32-28-3-12 requires that a person commence suit not later than one year after the date that the statement and notice of intention to hold a lien was recorded. The lien is void if an action is not commenced within the required time period.
The current economic conditions have forced many contractors, subcontractors, and suppliers across state lines to look for work. Moreover, owners and contractors are experiencing significant liquidity issues which may delay or prevent payment altogether to subcontractors and suppliers. For all of these reasons, owners and lien claimants must know the lien statutes and know them well.