Out of Shape? The ’24 Hour Fitness’ Financial Failure
In June, 24 Hour Fitness, a national gym chain, filed for Chapter 11 bankruptcy protection; another business casualty courtesy of COVID-19. Although the bankruptcy filing isn’t a surprise, since 24 Hour Fitness was struggling prior to the pandemic, it does make the filing of mechanic’s liens extremely important and the enforcement of the mechanic’s liens a bit more challenging.
The Mechanic’s Lien Sprint
Over 70 mechanic’s liens have been filed on 24 Hour Fitness projects between April and July, according to LienFinder™. Claimants, including material suppliers, subcontractors, and general contractors, have filed liens for fire sprinkler systems, HVAC, structural steel, concrete, electrical materials, storefront and glazing metal & glass, commercial plumbing, and building structure façade and interiors.
Recently, liens have piled up on locations in California, Illinois, and Texas. In June, a lien was filed on the Illinois location – the first of many – and right now lien claims currently are in the neighborhood of $100,000. In North Hollywood, CA claim amounts are over $500,000. But both IL and CA pale in comparison to the location in Rowlett TX. The Rowlett location is buried in over $1.7M in mechanic’s liens. Over $2,300,000 outstanding on just three projects!
How Will the Claimants Get Paid?
Well, this is a unique situation. Entities like 24 Hour Fitness are frequently in tenant or lessee situations. When contracting with the fee simple owner of the real property, the mechanic’s lien attaches to the property itself. When a lessee/tenant contracts for an improvement on real property, the mechanic’s lien may be available against the property, the leasehold interest of the lessee/tenant, or both.
The debtor, 24 Hour Fitness, has filed for bankruptcy protection, which means automatic stay orders are in place. The automatic stay prevents creditors, such as the lien claimants, from calling in debts owed. Does that mean the claimants can’t pursue suit or foreclosure actions? Depends.
If the bankrupt party is the tenant, like 24 Hour Fitness frequently is, then, where allowed, suit can still be pursued against the fee simple aka the actual property owner. If the bankrupt party is the fee simple owner, not a tenant or lessee, then claimants may not be able to enforce the lien on the real property unless the automatic stay is lifted.