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Real Property & Development Review

No Lien Rights For Lower Tier Subs in Oregon

Posted in Construction

In 2010, a Deschutes County Circuit Court judge confirmed that lower tier subs and suppliers have no lien rights.  See Cascade Pacific Floor Distributors, Inc. v. Austin Tile & Marble, Inc. et al., Case No. 09CV 0527AB.

The case involved a remodel project in which the lien claimant supplied tile to a retail flooring subcontractor, who in turn, contracted with the prime contractor for flooring materials on the job.  Accordingly, the lien claimant was a "second tier" subcontractor/material supplier.  The lien claimaint commenced foreclosure proceedings against the property when it was not paid by the flooring subcontractor.

The judge decided on summary judgment that the lien claimant was one tier removed from the group of claimants that legislators decided are entitled to lien rights.

Paraphrasing ORS 87.010, only those contractors or vendors who supply materials at the request of the owner (of the property) or the "construction agent of the owner" enjoy lien rights.

Paraphrasing ORS 87.005(3), "construction agent" means someone having charge of construction (typically the general contractor or the architect). 

Putting the pieces together, a valid lien claimant must have provided services or materials

to the general contractor (or for a designer subconsultant with the architect) who contracted with the Owner.

In other words:

  • architects and general contractors who contract directly with the Owner are "construction agents" and first tier subcontractors may rely on their direction to provide services or materials;

However:

  • First Tier Subcontractors are NOT construction agents, such that lower tier suppliers may NOT rely on a first tier subcontractors’ direction to provide services or materials to exercise lien rights

Fair Result?  Depends:

  • Certainly from the Owner’s perspective who, based on declaration filed with the court, had paid the general contractor for the materials.  If the supplier had a valid lien, the Owner would have had to pay twice.
  • Not from the lien claimaint’s perspective who supplied the materials without getting paid.

The "bad guy" in this case appears to be the flooring subcontractor who (based on the declarations filed with the court) took the money from the general contractor and failed to pay the lien claimant.

The policy for this aspect of Oregon lien law is debatable.  Why does lien law require Owner’s to be, in essence, the "payment surety" to 1st tier subcontractors but not 2nd tier subcontractors?  The answer is probably that legislators decided that Owners should assume limited risk of non-payment down the subcontractor chain

And under current Oregon lien law, the Owner’s risk extends only to payment of the 1st Tier Sub.

P.S. Note that even though a 2nd tier sub has no lien rights, it still has a contractual cause of action against the 1st tier subcontractor.  Whether the first tier sub is willing and/or able to pay is another story….but a cause of action for breach of contract should still exist.