Under Indiana law suppliers of labor, materials and equipment have the right, under certain circumstances, to hold and enforce a mechanic lien to insure they are paid for their efforts. Those lien rights can be quite vexing for the property owner, when payment issues arise. In order to avoid the problems associated with mechanic liens, property owners and general contractors may specify in their contracts that the contractors and subcontractors waive their rights to record a mechanic lien. However, such provisions, under Indiana law, are null and void on commercial construction projects pursuant to Indiana Code 32-28-3-16.
No Lien Contracts in Indiana
Essentially, no lien contracts in Indiana are fair game for Class 2 structures. Under this same statute, “class 2 structures” as well as projects involving certain types of public utilities, are excluded. Indiana Code 22-12-1-5 defines a class 2 structure as any building that contains one or two dwelling units. It does not require the owner to live in one of those units, but it does require that the unit(s) be used as a residence. Essentially residential buildings with one or two units are exempt from the prohibition of the commercial no-lien contracts.
Where a contract for a commercial project contains a no-lien provision, the contract itself is not void, but rather the offending provision(s) within the contract are void and unenforceable. Any provision in a commercial construction contract that attempts to bar contractors from filing such liens or otherwise contain language that would require them to waive such lien rights before they are paid for their services is void and unenforceable.
It is apparent that the general assembly felt the size and scope of commercial projects had the potential to do great harm to subcontractors, if no-lien contract provisions were permitted. They did not have the same concerns for subcontractors working on residential properties and therefore, subcontractors working on residential properties should take care to insure that the owners has not recorded a no-lien contract with the county recorder in an effort to eliminate those lien rights.
The no-lien contract provision is alive and well for owners or general contractors who wish to keep liens from being recorded and enforced on residential construction projects in Indiana. The statutory support for this no-lien contract is found at Indiana Code 32-28-3-1(e) and (f). In order to properly utilize this no-lien provision, the contract must be in writing, provide an accurate legal description of the real estate, be notarized, and recorded with the county recorder within five (5) days of the date the contract was fully executed. Failure to satisfy these requirements will void the no-lien provision.
