As if it weren’t hard enough to manage a new construction project, businesses must also be aware of their financial responsibilities to the subcontractors and suppliers that work on a project or they could find themselves at the wrong end of a mechanic’s lien.
“Mechanic’s liens are specifically for the construction industry, and you don’t need to go to court to get one,” says Tim McGarry, attorney at Chriszt McGarry Co. “The statute in Ohio gives contractors and subcontractors the right to file a lien as long as they follow the proper procedures.”
Mechanic’s liens were put in place to protect contractors and subcontractors from nonpayment on services rendered. However, in some scenarios, it is possible that a building owner could get caught paying for subcontracting services twice.
In some cases, you can actually pay the contractor, but if he or she doesn’t pay the subcontractors, a lien can be filed against the property.
“And what a lien does is shut things down (and) … it can also effect a company’s ability to refinance,” McGarry says.
To file a mechanic’s lien, there must be a notice of furnishing filed with the court. If payment is not forthcoming, the lien must be filed within 75 days after the last day of work, even if the project is still underway.
The good news is that owners have options to keep from finding themselves going to court and dealing with overpayments. One is to ask the contractor for a comprehensive list of every subcontractor working on the project, with the name and address of each person, and what he or she will be doing.
This goes for material suppliers as well. Depending on what state the project is in, each person who works on the project has the right to file a lien if he or she is not paid.
And there is always the option of making payments to each person owed money, but this can be a logistical nightmare.
Another comprehensive and less involved option is to require a waiver of lien from the general contractor.
“It’s a document you send to the general contractor they sign … It’s good to do it for all the subcontractors you’ve received notice of furnishings from,” says McGarry.
Bonds can also be put in place to ensure subcontractor payment, or an owner can withhold partial payment for 75 days to ensure the lien deadline is exceeded.
But if all else fails, the owner has options of redress. In some cases, it may be necessary to serve papers to file suit in 60 days.
“You may want to bring this situation to a head and get it resolved,” says McGarry. “Liens are often used as bargaining chips … They file in order to let the owner know they are out there and need to get paid.”
The eventual resolution for some liens is foreclosure, but most situations are resolved well before that happens because the process is lengthy and expensive.
“They (the plaintiffs) have to incur legal fees and additional costs,” says McGarry. “Liens aren’t a great way of getting paid right away.” How to reach: Chriszt McGarry Co., (216) 861-8248 or www.cmclaw.com
Office of the future
What is the future of the law firm? Economic pressures, client expectations and legislation all have had and will continue to have an effect on the structure of the law profession.
In a survey of attorneys from the largest law firms in North America, commissioned by The Affiliates, technology advances and legislative changes topped the list of concerns for the future.
* 66 percent of attorneys indicated that law firms or corporate legal departments plan to increase spending on technology over the next five years.
* 77 percent of attorneys report their law firm or corporate legal department has a well-defined disaster recovery plan.
* 69 percent say the Sarbanes-Oxley Act of 2002 and other regulations concerning corporate governance have increased their workload; 29 percent said their workload has not changed.
* 87 percent of attorneys employed with law firms said their firms are able to bill clients electronically.
* 42 percent said that within the next 10 years, paralegals will have more professional autonomy than they do today.
* 29 percent said they dedicated more than 50 hours to pro bono work in the past year; 45 percent volunteered between one and 50 hours, while 23 percent donated no time. Source: The Affiliates
