Contractors and material suppliers have long had the right to file mechanic’s liens when not timely paid. Traditionally, certain design professionals on the same project could only sue under their contracts. With a recent law change in Ohio, certain design professionals like architects, landscape architects, engineers, and surveyors (“Design Professionals”) in Ohio can now file a lien for non-payment of their services.
On July 1, 2021, Ohio’s Governor signed Senate Bill (“SB”) 49. As of September 30, 2021, new provisions of the Ohio Revised Code (“ORC”) became effective with respect to Design Professionals’ lien rights.
- Architects. The relevant rules can be found in ORC Sections 4703.20 through 4703.206.
- Landscape Architects. The relevant rules can be found in ORC Sections 4703.54 through 4703.546.
- Engineers and Surveyors. The relevant rules can be found in ORC Sections 4733.30 through 4733.306.
What type of projects are impacted?
There are limitations concerning the new lien rights, and generally, they offer a significantly more limited remedy compared to standard mechanic’s lien rights. These rights arise only in private (i.e., non-governmental) “commercial real estate” projects. The relevant sections of the ORC define “commercial real estate” as “any parcel of real estate in this state other than real estate containing or intended to contain one-to-four residential units.” Single-family residential projects and residential projects up to four units and “real estate owned by a public entity” are exempted.
That does not mean that Design Professionals who have not been paid on non-commercial real estate projects are out of luck. It simply means they will need to pursue traditional contract remedies to collect payment for their services.
Importance of Written Contracts – As Always
The lien amount is limited to the amount due under the Design Professional’s underlying written contract. Since a written agreement is required, it is crucial for Design Professionals to adequately document any additional or supplemental work that extends beyond what was initially agreed to in writing signed by both parties.
Not Quite a Mechanics Lien – Priority of Liens
Although SB 49 gives Design Professionals lien rights, the new liens are not as strong as traditional mechanic’s liens. They will be subordinate in priority of payment to other valid liens and mortgages, regardless of the recording date. Depending on the property owner’s equity in the particular property, collection on one of these liens might still be challenging. Ultimately, a timely filed lien will usually give a Design Professional some additional leverage over past remedies even if they are not as powerful as a traditional mechanic’s lien.
Despite the nuances of the relevant statutes, the ORC now provides Design Professionals with an additional and comparatively simple way to assert their rights to compel payment for services. We plan to provide a series of future articles on the nuances of asserting a “design” lien and dealing with it from the lender, owner, or title company point of view. However, if you have questions about how this process works and how it applies to you and your business, reach out to your Carlile Patchen & Murphy attorney to discuss your particular circumstances today.