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No lien contracts

An owner in Ohio may have a contract provision providing that contractor may not file a lien on project. The enforceability of such a provision is questionable. However, some Ohio courts have upheld such "no lien" provisions against contractors that sign them. Seveco, Inc. v. C&G Investment Associates, 1977 LEXIS 7341 (Franklin Cty. 1977).

If a contractor agrees to a no lien provision, the contractor must put the same language in any contracts he enters into with lower tiered contractors or material suppliers.

In Pennsylvania, and in some other states, no lien contracts have been sanctioned by the statute. The no lien provision has to be filed with the county recorder's office, to put all on notice.

Lien waivers

a. Partial lien waiver

Upon making progress payments, the owner or general contractor will require the contractor to waive all lien claims that the contractor may have for the work invoiced. Such partial lien waiver requirement must be contained in the contract. Partial lien waiver are often used in conjunction with Affidavit of Contractor.

b. Final lien waiver

Upon completing the job, the contractor must usually complete a final lien waiver.

The Fairness in Contracting Act states that the requirement to sign a final waiver of claims in order to obtain final payment is void and against public policy, if the contractor has asserted a claim or request for an adjustment to the contract price. Ohio Revised Code §4113.62(B). No longer will contractors be caught between waiving a previously asserted claim, and getting paid for its work.

3. Protecting lien rights in contract and in waivers

Make sure lien waiver is contingent on payment, either partial or final. Only waive liens through the date of the invoice, not through the date of the payment.

Look for no lien clauses in your contract, and in the contract with the owner, if that contract is incorporated by reference. A no lien clause in the contract with the owner may be incorporated into a lower tier contract, if there is incorporation language in the lower tier contract. Such incorporation language is usually enforced. If a no lien clause is in the contract, try to negotiate it out of your contract.

Lien actions

1. Demand to file suit

Under the mechanic's lien law, an owner, or another party on the owner's behalf, may demand that a lien claimant commence foreclosure proceedings on a lien with 60 days of service of the demand. In order to accomplish such a demand, the notice must be served on the lien claimant by the county sheriff, and the notice must then be filed in the county recorder's office within 30 days of service by the sheriff. upon successful service, the lien claimant must then commence foreclosure proceedings with 60 days of service, or lose the right to do so. Ohio Revised Code §1311.11. Form attached.

2. Where and when to file action for foreclosure

The foreclosure action must be filed in the county where the property subject to the lien is located. The action must be filed within six years of the date of the filing of the lien.

3. What claims need to be brought?

The lien claimant should bring every cause of action it has against the owner and the contractor that the claimant contracted with in the same action. This is the most efficient way to proceed, and the doctrine of res judicata may prohibit the re-litigation of the issues litigated in the foreclosure proceeding.

4. What must be proven to foreclose on the lien?

In order to prevail, the lien claimant must establish (a) the validity of the underlying contract claim, (b) that the claim is within the mechanic's lien law, and (c) that the claimant has taken all necessary steps to perfect its lien.

5. Lien act damages

The remedy in a foreclosure action against the owner is for the court to order the sale of the property, and for the proceeds to be distributed to the lien claimant, subject to the priority of any others holding a lien or security interest in the property.

Lien claimants also have a right to attorneys fees, to be paid from the funds generated by a sale of the property.

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This site was last updated on November 02, 2006