(1) No original contractor, subcontractor, material supplier, or laborer has a lien to secure payment for labor or work performed or materials furnished by the contractor, subcontractor, material supplier, or laborer, in connection with a home construction contract between the original contractor and the owner, part owner, or lessee or in connection with a dwelling or residential unit of condominium property, that is the subject of a home purchase contract, if the owner, part owner, or lessee paid the original contractor in full or if the purchaser has paid in full for the amount of the home construction or home purchase contract price, and the payment was made prior to the owner’s, part owner’s, or lessee’s receipt of a copy of an affidavit of mechanics’ lien pursuant to section 1311.07 of the Revised Code.
Nothing in this section shall adversely affect a mechanics’ lien claimed against a prior owner if the lien is perfected prior to a conveyance under a home purchase contract.

(2) If the original contractor has not been paid in full as provided in division (B)(1) of this section, no subcontractor, material supplier, or laborer has a lien to secure payment for labor or work performed or materials furnished by the subcontractor, material supplier, or laborer for an amount greater than the amount due under the home construction contract that has not been paid to the original contractor for the work, labor, or materials or for an amount greater than the amount of the home purchase contract price that has not been paid to the original contractor. The total amount of all liens for labor or work performed or for materials furnished in connection with a home construction contract that may be enforced in lien foreclosure proceedings shall not exceed the amount due under the home construction contract that has not been paid to the original contractor or the amount due under the home purchase contract that has not been paid to the original contractor.”

It is further provided that if insufficient amounts are available to cover all the lien claims then “each mechanics’ lien shall be secured by a pro rata share of the amount due to the original contractor, except that mechanics’ liens filed by laborers have priority.”

As is applicable to the “residential” lien claims, “the amount due under a home construction contract or a home purchase contract is the unpaid balance under the home construction contract or the home purchase contract, minus the cost to complete the contract according to its terms and conditions, including any warranty or repair work.”
In the case where an improper lien has been filed against a property the lien claimant can be held liable for damages if notice is received from the owner, part owner, purchaser or lessee that full payment has been made to the original contractor prior to receipt of an Affidavit of Lien.  The damages a lien claimant could be responsible for when failing to release a lien include but are not limited to court costs and reasonable attorney fees. 

Actions of Lending institutions in dealing with lien claims are also addressed in the Ohio Revised Code.  For instance, a lending institution shall not make any payment to any original contractor until the original contractor has given the lending institution the original contractor’s affidavit (“Contractor’s Affidavit”).  The Contractor’s Affidavit is required to state:

(a) That the original contractor has paid in full for all labor and work performed and for all materials furnished by the original contractor and all subcontractors, material suppliers, and laborers prior to the date of the closing of the purchase or during and prior to the payment period, except such unpaid claims as the original contractor specifically sets forth and identifies both by claimant and by amount claimed;

(b) That no claims exist other than those claims set forth and identified in the affidavit required by division (B)(4) of this section.
When the lending institution is making payments under a home construction contract or on behalf of the owner or part owner under a home purchase contract, it may accept the Contractor’s Affidavit as required by statute and act in reliance upon it, unless it appears to be fraudulent on its face.  In circumstances where the lending institution makes payment after receipt of a Contractor’s Affidavit, the lending institution will not be financially liable to the owner, part owner, purchaser, lessee, or any other person for any payments, except for gross negligence or fraud committed by it in making any payment to the original contractor.  The statute does provide however that, “After receipt of a written notice of a claim of a right to a mechanic’s lien by a lending institution, failure of the lending institution to obtain a lien release from the subcontractor, material supplier, or laborer who serves notice of such claim is prima-facie evidence of gross negligence.”

Owner rights and the procedures for releasing the residential lien claim are discussed further in Sections 1311.02 to 1311.22 of the Ohio Revised Code and include provisions for bonding off of the lien claim and liability of the original contractor if the contractor fails to take appropriate action to clear the property title.

Non-residential projects are distinguishable from residential projects in several critical ways.  Beyond the time limitation relating to recording and perfecting a lien, various forms of “Notice” mandate close attention to the form and procedural requirements.  The Ohio Revised Code requires Notice to protect lien rights and affords the owner added protection against liens.  The two documents of import to address before work is performed on non-residential projects  are the Notice of Commencement and the Notice of Furnishing.

In order to maximize protection under Ohio law for residential and non-residential projects, the owner should record a Notice of Commencement with the County Recorder of the county where the property is located prior to the performance of labor or work or furnishing of materials for an improvement which may give rise to a Mechanics’ Lien.  Failure to record a Notice of Commencement strips significant protections from the Owner as it relieves a potential lien claimant from the obligation of filing a Notice of Furnishing.
Where a Notice of Commencement has been properly recorded, anyone furnishing labor or materials not in direct contract (privity) with the Owner must furnish or provide a Notice of Furnishing within 21 days from the time work was first performed.  No lien will be valid for any work performed prior to that 21 day period.  This provision does not apply to laborers.  This 21 day “look-back” period can move through the project time and lien rights will only reflect back to the value of work performed 21 days from the date the Notice of Furnishing was filed.

The statute sets forth the information to be contained in a Notice of Commencement including: (1) a legal description of the property; (2) a description of the improvement; (3) the name, address and capacity of the owner; and (4) the date the owner first executed a contract with the contractor.  The Notice of Commencement must also contain the following language: 

To Lien Claimants and Subsequent Purchasers:  Take notice that labor or work is about to begin on or materials are about to be furnished for an improvement to the real property described in this instrument.  A person having a Mechanic’s Lien may preserve the lien by providing a Notice of Furnishing to the above named designee when the above named designee’s original contractor, if any, and by timely recording an affidavit pursuant to Section 1311.06 of the Revised Code. 

A copy of the Notice of Commencement may be obtained upon making a written request by certified mail to the owner, part owner, lessee, designee or contracting party.  The Notice of Commencement must be posted in a conspicuous place on the property during the actual improvement.  The owner must serve a copy of the Notice of Commencement upon the contractor with whom it has a contract.  The owner or contractor must supply a copy of the Notice of Commencement to a requesting sub-contractor or supplier within ten (10) days of a written request.

As previously noted, failure of the owner to record a Notice of Commencement negates the need for a lien claimant to serve a Notice of Furnishing.   Failure of the owner to deliver a copy of the Notice of Commencement upon receipt of a written request extends the time for the serving of a Notice of Furnishing by a sub-contractor or supplier. 
Regardless of whether a Notice of Furnishing is required or even provided, the lien claimant must comply with the other mandates of the lien law in order to perfect the lien.  This includes a lien claimant preparing an Affidavit of Lien containing the following information: 

1. Amount due over and above legal set-offs.
2. A description of the property.
3. Name and address for the person for whom the labor work and material was provided.
4. Name of the owner, if known.
5. Name and address of the person filing the lien.
6. The first and last dates when lien claimant provided labor or materials to the project.

The Affidavit of Lien must be notarized and recorded in the Office of the County Recorder in the county where the project is located.  It should be noted that performance of warranty work does not extend the date of lien rights.

Once the Affidavit of Lien is recorded, a copy of the Affidavit must be served upon the owner within thirty (30) days after recording with the County Recorder.  Service must be made in the same manner as a Notice of Furnishing with proof of receipt of obtained. 

A Notice of Furnishing must be in substantially the form prescribed by statute.  It needs to be served in a manner that includes written evidence of receipt, including certified or registered mail, delivery services, hand delivery or even delivery by the sheriff.  If none of these methods are used, the person served must acknowledge receipt or proof must be provided that the person in fact received the notice. 

The Affidavit of Lien must be recorded within seventy-five (75) days from the date last work was performed for non-residential projects and within sixty (60) days for residential properties.  Laborer’s Liens have priority over other Mechanic’s Liens.

Ultimately, the owner or lender may provide a lien holder with written notice to commence suit under the statute.  Thereafter, the lien claimant must take action within sixty (60) days or the lien will be deemed void and discharged.

In summary, it should be clear that form and procedure are critical to perfecting and defending against lien claims.  In the current economic environment, it is important to all stakeholders on a project to understand and follow statutory mandates relating to liens.  This article provides a synopsis of Ohio’s lien law only.  Accordingly, specific questions should be addressed to legal counsel knowledgeable not only of the lien law, but construction law in Ohio as well.