Business Lawyers in Columbus, Ohio
By Andrew Randol - December 28, 2018 - Construction
The mechanics’ lien is the single most effective tool to ensure contractors, subcontractors, and material suppliers are paid for the labor and materials they contribute to a project. If filed correctly, a contractor, subcontractor, or material supplier will have a lien on the property to which they contributed equal to the amount of money they are owed. A mechanics’ lien operates like any other lien on a property, such as a mortgage or judgment lien. If the mechanics’ lien goes unpaid, the lienholder can foreclose on the property and collect proceeds from the sale, subject to any superior liens.
Oftentimes this is a clear-cut issue. Suppose Roofing Co. installs a new roof on a commercial office building at a cost of $20,000. However, the office building owner only pays Roofing Co. $10,000. Roofing Co. can file a mechanics’ lien on the property for $10,000. Simple enough. Now suppose that Roofing Co. bought the roofing materials from Supply Co. on credit for $5,000, intending to pay Supplier Co. once it received payment from the owner. Because Roofing Co. is only paid $10,000 instead of $20,000, it decides it is keeping all $10,000 and leaving Supply Co. to fend for itself. In most circumstances, Supply Co. can also file a mechanics’ lien on the property for the $5,000 it is owed by Roofing Co. Just like Roofing Co.’s mechanics’ lien in the first example, Supply Co.’s mechanics’ lien operates the same way. Still relatively simple.
Now let’s consider a more difficult example. Suppose the owner of the commercial office building pays Roofing Co. the entire $20,000 it is owed. Suppose however that instead of paying Supply Co., Roofing Co. decides to keep the entire $20,000 and doesn’t pay one dime to Supply Co. Does Supply Co. still have a valid mechanics’ lien against the property, even though the property owner has paid Roofing Co. in full? Usually, but the answer is a bit complicated. If the owner has taken affirmative steps under the mechanics’ lien to protect itself from such claims, then Supply Co. will not have a valid lien. The steps usually consist of obtaining certificates of material men and contractors’ affidavits. Luckily for Supply Co., owners seem to rarely take advantage of this statutory protection. Thus, the general rule of thumb is that a subcontractor or material supplier will have a valid lien on a commercial property even after the general contractor has been paid in full.
Exception for Residential Homes. Subcontractors and material suppliers performing work on residential homes must always be cautious of the exception from home construction contracts. Subcontractors and suppliers do not have a valid lien on any residential property for work performed if the general contractor has been paid in full. Thus, any subcontractor would be wise to seek a large deposit for work on residential homes and ensure payments are made frequently from the general contractor. Performing work for a general contractor with the expectation of full payment upon completion of the work puts the subcontractor at great risk of loss.
Many construction companies often assume the role of general contractor or subcontractor depending on the nature of the job. Further, many companies often perform work on both commercial and residential properties. All construction companies and contractors can benefit from working with a Columbus construction attorney. A Columbus construction attorney can take a number of actions to protect your business, including drafting construction contracts, filing mechanics’ liens, and engaging in litigation when necessary. Please feel free to contact our firm to discuss how our can assist your construction business.