Senate Bill 49 Establishes Lien Rights for Registered Design Professionals

Rick W. Grady and Allen L Rutz | Vorys Sater Seymour & Pease

On July 1, 2021, Governor DeWine signed Senate Bill 49 giving lien rights to Ohio architects, landscape architects, professional engineers, and professional surveyors (design professionals) beginning September 30, 2021.  The lien rights are limited to:

  • Commercial real estate projects,
  • With a written contract signed by the design professional and project owner,
  • Only to the extent of the project owner’s interest in the property, and
  • Only in the amount due the design professional under the contract.

In addition, only the design professional named in the contract – whether an individual, partnership, corporation, or association – has lien rights.  Lien rights are not available to an employee or agent of the design professional and, unlike mechanics’ liens, lien rights are not available to lower tier design professionals not in privity with the project owner. 

The design professional’s lien is junior in priority to any other valid liens (regardless of recordation date) and all previously recorded mortgages and liens. Any person with an interest in the commercial real estate may substitute financial security (e.g., a bond or escrow account) for the lien, in the amount of the lien.

To perfect the lien, the design professional must file a notarized affidavit with the county recorder. The design professional must then serve the lien affidavit on the project owner and the property owner (if different) within 30 days. Failure to properly serve the lien affidavit may result in a court considering equitable remedies for the failure. Following perfection, the design professional must commence proceedings to enforce the lien within two years, or within 60 days of receiving a Demand to Commence Suit. Otherwise, the lien is extinguished by operation of law.

Once the lien is satisfied (i.e., paid in full) the design professional must record a written release within 30 days. When a claim is satisfied or extinguished, any person with an interest in the property may record an affidavit stating that the claim was satisfied or that the lien was released by operation of law. This is true regardless of whether the design professional records a release. However, the fact that the lien is satisfied or extinguished does not affect any other right or action by the design professional. For example, the design professional may still bring a claim for breach of contract.

Lien Rights: Remedies for Potential Issues on the Project

Amandeep S. Kahlon | Bradley Arant Boult Cummings

Liens are one of the primary tools for the construction industry to secure payment claims. However, lien rights and remedies vary between states, and these distinctions are often difficult for owners, contractors, and subcontractors to navigate. Because many states apply lien laws strictly—meaning technical non-compliance can result in forfeiture of lien rights or defenses—it is important to be informed regarding lien requirements and comprehend potential issues that may arise if lien rights are asserted on your project. Let’s walk through a few of those potential issues here.

PRE-CONSTRUCTION LIEN NOTICES

Several states have enacted laws that require parties to file notices prior to the start of construction. For example, some states require or permit an owner to file a notice of commencement in the county records where the construction project is located. The notice of commencement typically highlights the name and contact information for parties like the owner, contractor, surety (if applicable), and lender, as well as providing information regarding the property and project address. In most states, an owner or contractor is required to disseminate the notice of commencement to subcontractors either via mailing to subcontractors or posting at the jobsite.

Once a notice of commencement is filed, it generally triggers an obligation for subcontractors and other entities on the project to file or send out a separate notice identifying information like the subcontractor’s contact information, the services to be performed by the subcontractor, the price of such services, etc. These notices typically must be sent out shortly after the notice of commencement is recorded or shortly after construction commences. A subcontractor who fails to send such a notice may forfeit its lien rights on the project. Conversely, an owner who fails to properly record a notice of commencement may forfeit the defenses afforded under the notice of commencement statute against any potential lienors. Other states require a preliminary notice of the right to lien to be sent out by contractors, subcontractors, and suppliers irrespective of any corresponding notice of commencement filed by the owner. In these states, the preliminary notice must typically be sent prior to receiving any payment on a project or within a set time after the start of providing labor or materials on a project. Failure to satisfy an applicable preliminary notice can bar a subcontractor or supplier from later perfecting an otherwise valid lien on a project.

STATUTORY REQUIREMENTS

Many states require precise compliance with lien filing requirements. Statutory provisions may outline specific forms to be used in lien notices and filings. Other statutes may require certain language to appear in lien notices or waiver forms in order for them to be effective. Because substantial compliance may not be sufficient to perfect your lien rights or enforce lien defenses, it is critical that you and your project team understand a particular state’s lien notice and filing requirements prior to beginning work on a project.

TIMING REQUIREMENTS

Preliminary notices, notices of right to lien, and lien filings themselves often must be filed within a specific time period as defined by statute. It is important to keep track of those deadlines; otherwise, you may lose out on your right to file a lien. In the same vein, an upstream contractor or owner may benefit from being informed about the timing requirements for a lien filing and be able to defeat otherwise valid liens and enforcement actions by noting deficiencies in the timing of required filings.

In order to monitor these timing requirements, contractors and subcontractors need to be aware of when their lien rights accrue in a particular state. Typically, lien rights accrue upon the date work was last performed on a project. But, that date is not always certain. For example, does warranty work a subcontractor returned to site to perform extend the time that subcontractor has for filing a lien?

If you have a valid lien, you need to be conservative in calculating your time for filing, so you do not run afoul of a deadline that may extinguish your lien rights. This can be a difficult task when negotiating final payment requirements or a payment dispute with an owner or contractor, especially a party with which you have an existing relationship. These negotiations may drag on, and, because lien filings of any kind can be a pain for an upstream party to deal with, it may make you hesitant to assert lien rights to avoid upsetting your commercial relationship. But, by hesitating, you may inadvertently waive your lien rights, so proceed cautiously.

LIEN WAIVERS

Lien waiver forms and requirements are usually fiercely negotiated in construction contracts and subcontracts. As a party signing a waiver, you need to be aware of the rights you are waiving upon execution of a partial or final waiver. Consider whether the form asks for waiver of all claims, including lien claims, or just lien claims. That distinction may materially affect your ability to sue for relief irrespective of whether you have valid lien rights. Consider also whether you have appropriately reserved your rights on a disputed payment or extra work claim prior to signing any lien waiver or release. You may inadvertently waive your right to seek relief if you sign a comprehensive waiver, even where the owner is aware of the extra work claim prior to execution of the waiver.

As an owner or contractor enforcing a waiver provision, consider whether you have included all required statutory language in the lien waiver form. Some states require specific language to be included in all lien waiver forms to help make downstream parties aware of the rights they are potentially waiving. An upstream party also needs to consider whether the lien form is enforceable as written. Some states will not enforce an unconditional waiver sent prior to receipt of payment.

CLOSING THOUGHT

The topics above outline some of the standard lien issues that arise in construction law. But, there are a host of other issues that may arise. It is important to spend time understanding the lien law in the state where you are performing work. You may consider consulting with a local construction attorney to highlight for you any particular requirements of a state before you enter into a contract, and, similarly, if you anticipate encountering a lien issue once construction begins or as you approach substantial completion, reaching out to an attorney to discuss filing requirements may prove invaluable.

Protect Your Lien Rights Before the Project Begins

Daniel M. Murdock | Bradley Arant Boult Cummingss LLP | August 15, 2018

Claims of lien are common issues in any construction dispute. Filing claims of lien can often be complicated and sometimes tricky, especially for contractors and subcontractors performing work in multiple states. Although lien law greatly varies from state to state, several states in the Southeast have specified certain steps that parties must take, before the project begins or soon after starting work, to protect the project from liens of unknown sub-subcontractors or to protect their lien rights.

For prime contractors, they can often take certain steps, such as filing a notice of commencement, to protect the Project from liens of unknown sub-subcontractors. Also, subcontractors or sub-subcontractors’ right to a claim of lien can often be affected by whether or not that party sent or filed a notice after starting work on the project.

For example, in Georgia, a prime contractor, or the owner, may file a Notice of Commencement in the county property records within 15 days after the contractor commences work on the project. The prime contractor, or the owner, must also post a copy of the Notice of Commencement at the project site and send a copy of the Notice of Commencement to any subcontractor that requests a copy of such notice within 10 days after receiving the subcontractor’s request. Even if a Notice of Commencement is filed, the sub-subcontractor can still preserve its lien rights by sending a Notice to Contractor within 30 days of beginning work. If the prime contractor, or the owner, correctly follows the steps to perfect the Notice of Commencement and a sub subcontractor does not timely provide a Notice to Contractor, then any lien filed by such sub-subcontractor is invalid. Although the procedures are different, North Carolina and South Carolina have notice of commencement and notice to contractor concepts that are relatively similar to Georgia.

In Florida, a subcontractor must serve the owner with a Notice to Owner, which is a statutory form, within 45 days of commencing work on the project. A sub-subcontractor must adhere to a similar notice procedure. If a subcontractor or sub-contractor does not correctly provide the Notice to Owner, then any lien filed by that subcontractor or sub-subcontractor is invalid.

This article serves as a reminder that prime contractors and subcontractors must verify and follow the particular procedures required for the particular state in which the project is located before beginning work on the project. To wait longer risks losing your lien rights. As the old axiom goes, “an ounce of prevention is worth a pound of cure.” This is especially true when dealing with liens.