Type: Law Bulletins
Date: 03/21/2017

So You Think You Are Protected: Following Ohio's Mechanic's Lien Statute May Not Provide the Security You Need

As the general contractor or subcontractor on the tenant improvement contract you entered into at a new regional shopping center, you closely monitored the timing of various events to ensure that, if you are required to do so, you are able to file a mechanic’s lien to ensure payment of the contracted amount. Indeed, a proper notice of commencement was filed by the “owner.” You filed and properly served a timely notice of furnishing. You’re protected, right? Maybe not!

In Ohio, a mechanic’s lien is a creation of statute.[1] The Ohio Supreme Court has said that the work related to the mechanic’s lien must be furnished under a contract with the “owner, part owner or lessee of an interest in real estate.”[2] Thus, consistent with a previous holding of that court, “a mechanic’s lien attaches only to the interest of the person for whom the improvement is contracted to be made.”[3] As a result of this analysis, the Ohio Supreme Court later held that a contractor’s lien extends only to the leasehold interest of the party who ordered the work done where that party was the lessee, not the owner.[4] Under that scenario, if the landlord has terminated the lease or the tenant’s interest has reverted to the landlord by other means, the contractor is likely foreclosed from asserting any lien rights as to the property on which the tenant improvements have been made.[5]

The contractor, however, may have an alternative remedy against the landlord. In equity, the contractor may establish the elements of quasi-contract or unjust enrichment against the landlord to recover for unpaid contract amounts.[6] Of course, to succeed on an unjust enrichment claim the plaintiff must prove that a benefit was conferred on the landlord, that such benefit was not conferred gratuitously, that the landlord had knowledge of the benefit and that retention of the benefit by the landlord without payment to the contractor would be unjust.[7]

An example of how this concept works might be useful: Assume that the tenant was responsible for the installation of HVAC equipment in the leased premises pursuant to the lease. Obviously, the landlord would have knowledge that an HVAC contractor installed the HVAC equipment and expected to be paid for such work. It would be unfair to permit the landlord to benefit from the new HVAC equipment in the retail space without making payment. Therefore, permitting the landlord to retain the benefit without paying the fair value would be unjust.[8]

The message, then, is simple: be careful. Don’t assume just because you think you have lien rights that such rights are enforceable against a landlord. If you have doubts, contact your legal counsel for assistance in evaluating the risks of the situation. An early investment may avoid costly litigation later.

[1] R.C. Chap. 1311.01 et seq.

[2] Romito Bros. Electric Constr. Co. v. Frank A Flannery, Inc., 40 Ohio St. 2d 79 (1974).

[3] Mahoning Park Co. v. Warren Home Development Co., 109 Ohio St. 358, 364, 365 (1924), emphasis added.

[4] Summer & Co. v. DCR Corp, 47 Ohio St. 2d 254, 259, 260 ((1976).

[5] Julian Speer Co., v. Sawmill Hard Center, LLC, Franklin County C.P. Case Nos. 09CVH-05-6781 and 7733, 2010 Ohio Misc. LEXIS 519, at *9 (Nov. 22, 2010).

[6] Id.; Am. R.R. Const. v. Columbiana County Port Auth., 7th Dist. Case No. 06 CO 14, 2007-Ohio-1568, ¶¶ 17-19.

[7] Julian Speer, 2010 Ohio Misc. LEXIS 519, at *10, citing Hambleton v. R.G. Barry Corp., 12 Ohio St. 3d 179, 183, 465 N.E. 2d 1298 (1984).

[8] The question is more complicated if construction allowances are involved.  However, that is beyond the scope of this brief article.

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