Service Area: Notice and Mechanic’s Lien Services

Arizona Preliminary Notice Changes Coming December 2019!

Posted on May 24, 2019 by - In Other Commercial Credit News, Preliminary Notices & Construction Credit

Arizona Preliminary Notice Changes Coming December 2019!

We are often asked, “Do I have to serve an amended notice if my contract amount increases?” and, “If so, how much does my contract have to increase to warrant another notice?” Generally, we recommend serving an amended notice when your contract amount increases by 20% or more. This recommendation is based on case law, attorney recommendations, and specific statute, e.g., Arizona.

In fact, Arizona’s current statute specifically states a claimant only needs to serve one preliminary notice, unless its contract amount increases by 20% or more, then the claimant should amend its notice.

“A person required by this section to give notice…need give only one notice…unless the actual estimated total price for the labor, professional services, materials, machinery, fixtures or tools furnished or to be furnished exceeds by twenty per cent or more the total price in any prior original or subsequent preliminary notice…”

Soon “30″ Will Be the New “20″ in Arizona!

Earlier this month the Governor of Arizona signed HB1304 which updates the requirement for when an amended notice is required. For any projects where first furnishing occurs on or after 12/31/19, an amended notice will only be required if the contract amount increases by 30% or more.

“Effective for any projects where furnishings are first commenced to be furnished from and after 12-31-19, an additional notice will be required if the estimated total price for the furnishings exceeds by 30% or more the total price in a prior notice under the same contract.” – Legislative Update from The National Lien Digest

What Does This Mean for You?

Currently, under Arizona statute, if your original contract amount is $100,000 and a change order is issued increasing your contract to $120,000 (increased by 20%), you are required to serve an amended preliminary notice.

Here’s what it will look like at the end of December:

Arizona statute as of 12/31/19

Once the new statute is in effect, you may notice a decrease in the number of required amended notices; saving you time & money.

Bond Claim Nitty-Gritties: The 5 W’s and 1 H

Posted on May 13, 2019 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

Bond Claim Nitty-Gritties: the Who, What, Where, When, Why, and How of Bond Claims

Ahh, payment bonds and bond claims; a payment security often available for those furnishing to public and federal projects and even the occasional private construction projects. Before you can exercise your bond claim rights, you need to be familiar with the 5 W’s of bond claims.

I know the 5 W’s usually go in a certain order: who, what, when, where and why. I also know there is 1 H: how. But let’s shake it up and tackle the 5 W’s (and 1 H) in a different order: what, why, who, when, where, with some how’s throughout.

WHAT is a Payment Bond?

Before we head to bond claims, we need to understand payment bonds. After all, without a payment bond, a bond claim doesn’t exist.

Generally, public and federal construction projects require general contractors to obtain a payment bond. The payment bond is issued as assurance of payment to certain parties should the principal of the bond breach their construction contract.

WHO is a party to the Payment Bond?

There are three primary parties tied to a payment bond:

  1. Obligee: The party protected by a bond, the one who requires the bond to be furnished.
  2. Obligor aka Principal: An entity that has an obligation to pay a debt/the party required to furnish a payment bond.

Example: where the obligee is the owner, the principal is the prime contractor; where the obligee is the prime contractor, the principal is the subcontractor.

  1. Surety: One who agrees to answer for the debt or default of another, usually an insurance company that is compensated for the risk by charging a premium.

Wait, HOW do I know if a Payment Bond has been issued?

You may find it easiest to contact the project owner to confirm whether a payment bond was required and if one was required, ask to be provided with a copy. My advice? Make this request at the beginning of the project when everyone is happy — don’t wait until there are payment issues, because folks are less inclined to share.

How: As a best practice, include language requesting a copy of a payment bond within your preliminary notice. Here’s some sample wording

To Whom It May Concern:

We are writing to you in connection with the above project, where we have contracted with ABC Company to furnish materials (pieces, parts and thingamajigs). We ask that you please forward a copy of any payment bond(s) for this project to the undersigned. Thank you for your assistance.

Sincerely,

Me

WHAT are Payment Bond variations?

Each state has its own statute requiring payment bonds on public projects and the Miller Act applies to payment bonds required on federal construction projects. Some statutes may require the general contractor obtain a payment bond on every construction project, and other statutes may only require a payment bond when the total value of the construction project exceeds a certain threshold.

For federal projects, generally if the construction contract is less than $100,000 but more than $25,000, the contracting officer and prime contractor must agree to a payment protection of:

  • A payment bond
  • An irrevocable letter of credit
  • A tripartite escrow agreement (a federally insured financial institution distributes payments); or
  • A certificate of deposit

However, be aware these requirements may be waived on certain federal projects.

WHAT is a Bond Claim?

A Bond Claim is a written notice that the claimant (e.g. subcontractor, supplier or materialman) looks to the recipient for payment.

WHY serve a Bond Claim?

Why? Because it’s your right to be paid! There are laws (aka statutes) in place to protect your payment rights. Carefully comply with statute and serve a bond claim to recover your claim.

WHO should receive the Bond Claim?

Based on state statute, typically the bond claim must be served upon the general contractor and the surety, however, it is recommended to serve a copy of the bond claim on all parties involved. The more people that know you have not been paid, the more pressure these people will put on the appropriate party to encourage payment.

WHEN to serve a Bond Claim?

Frequently, a bond claim notice must be served within 90 days from last furnishing materials or services (e.g. Arizona). However, some state statutes, such as in Colorado, refer the claimant to the terms of the payment bond. (i.e. “Serve the bond claim notice in accordance with the terms and conditions of the payment bond.”)  Non-Statutory Bonds, such as those obtained by a subcontractor, also look to the terms of the payment bond.

HOW to serve the Bond Claim?

Check the statutory requirements to be certain. Typically, bond claims can be served via certified mail and as a best practice, request the return receipt. In cases where you are close to the deadline, consider also serving the claim via overnight service or personal server.

HOW about some best practice tips?

  • If a there is a payment bond on the project, attempt to obtain a copy of the bond at the time of contract.
  • Confirm the surety is on the Department of the Treasury’s Listing of Approved Sureties.
  • Review the payment bond, along with statute, to ensure you are covered as a potential claimant.
  • Serve applicable preliminary notices in accordance with statute.
  • If you remain unpaid, serve a copy of the bond claim upon all parties.
  • Keep all project documentation in a central location (e.g. invoices, delivery tickets, statement of account etc.)

Need more info on payment bonds or bond claims? Contact us!

Advantages of Construction Attorneys in Litigation

Posted on May 3, 2019 by - In Other Commercial Credit News

Why Hire a Construction Attorney for Construction Litigation?

Excellent question! In today’s post we’ll review a few key considerations when deciding whether you should hire a construction attorney for construction litigation.

Why use attorneys who are experts in construction litigation?

Companies can’t afford to rely on attorneys that “dabble” in construction law. There is too much at stake and the laws are too complex. Make sure your attorneys are experts in construction litigation.

What are the advantages of having a local construction attorney?

Mechanic’s lien and bond claim laws can vary drastically from state to state, so having an experienced attorney local to the project is a tremendous benefit. The attorney will know the laws specific to that state and may be near the project and/or familiar with the parties involved.

Should I use a large attorney firm for my construction collection needs?

The presumption by many is that using a large law firm will somehow guarantee better results. This is not necessarily the case. Larger law firms often charge high hourly rates and assign your case to a less experienced associate attorney. Working with a small or mid-sized firm may provide your organization with more legal expertise and a better overall value.

But, That’s Not All!

At NCS, our focus is helping you get paid for materials or services provided. But construction is a massive field and in a recent article from Odin Feldman Pittleman PC, construction attorneys can assist with contract conflicts, alternative dispute resolution, bankruptcy, labor disputes, and insurance issues.

According to Odin Feldman Pittleman PC, this is when you should hire a construction attorney:

“Thanks to their extensive legal knowledge, construction attorneys can make any stage of the construction process easier. You may want to consider employing one at the beginning of a project, when you are applying for a permit or need government approval for a project. Construction attorneys can also help you adhere to local, state, federal, and environmental regulations, preventing easily-avoided disputes.

Contract review and preparation are also key areas in which a construction attorney can be a valuable ally. An attorney can assist in the project planning process, then translate your needs to make that project happen into a clear contract that protects your interests. They may also be able to compile other legal documents to supplement your project or protect it from lawsuits.

Finally, construction attorneys are well versed in labor laws and disputes. They can help you settle cases between employees and employers, whether through mediation, settlement, or litigation. Consider hiring a construction attorney if you are faced with a labor dispute of any kind.”

NCS Can Help!

NCS has a nationwide network of construction attorneys with decades of experience. Our attorneys understand that projects often have extenuating or more complicated circumstances (multiple parcels, multiple owners, complex title searches, condominiums, quasi private/public projects, oil and gas liens, etc.) and may be local to and familiar with these projects.

If you need assistance, contact us today!

Oklahoma’s Lien & Bond Claim Requirements

Posted on April 29, 2019 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

Are You ‘OK’ with Oklahoma’s Mechanic’s Lien & Bond Claim Requirements?

Furnishing to a construction project in the Sooner State? Today’s quick read post is just for you! In this post we’ll review the steps needed to secure mechanic’s lien and bond claim rights in Oklahoma. Don’t worry, I know your busy, so I’ll make this easy!

Private Projects: Oklahoma Mechanic’s Liens

Oklahoma Private Project

Recap: Serve the Pre-Lien Notice upon the owner and prime contractor within 75 days from last furnishing materials or services. If contracting directly with the prime contractor or subcontractor, file the lien within 90 days from last furnishing. If contracting directly with the owner, file the lien within 4 months from last furnishing. File suit to enforce the lien within 1 year from filing the lien.

Bonus! Oklahoma statute dictates the information that should appear within the Pre-Lien Notice.

42-142.6. 4. The pre-lien notice shall be in writing and shall contain, but not be limited to, the following:

1. a statement that the notice is a pre-lien notice,

2. the complete name, address, and telephone number of the claimant, or the claimant’s representative,

3. the date of supply of material, services, labor, or equipment,

4. a description of the material, services, labor, or equipment,

5. the name and last-known address of the person who requested that the claimant provide the material, services, labor, or equipment,

6. the address, legal description, or location of the property to which the material, services, labor, or equipment has been supplied,

7. a statement of the dollar amount of the material, services, labor, or equipment furnished or to be furnished, and

8. the signature of the claimant, or the claimant’s representative.

Public Projects: Oklahoma Bond Claims

Oklahoma Public Project

Recap: There is no statutory provision requiring a preliminary notice. Serving a non-statutory notice is recommended. Generally, payment bonds are required for contracts exceeding $50,000. Serve the bond claim notice upon the prime contractor and surety within 90 days from last furnishing. No bond claim notice is required if you are contracting directly with the prime contractor. File suit to enforce the bond claim within 1 year from last furnishing.

Other Okie Lien & Bond Claim Facts

Oklahoma is a full balance lien state. In other words, the lien is enforceable for the full amount owed, regardless of payments made by the owner. (commercial projects)

A payment bond is required for contracts exceeding $50,000 when the construction or improvement is a private building on public real property.

In 2013, Oklahoma’s statute was updated to allow applicable profits and overhead costs, in addition to the costs for materials, equipment and labor, to be included in the total claim amount stated within the lien.

Remember, you can’t lien tribal lands. If a payment bond is issued, take time to review the bond carefully. (Check out No Miller Act Bond Claim Rights on Tribal Construction Project)

Oklahoma offers mineral liens as a separate remedy from the standard mechanic’s lien statute. (see §42-144)

I learned how to spell O-K-L-A-H-O-M-A by singing the theme from Oklahoma! the musical. Thank you, Rodgers & Hammerstein.

OK the last bit wasn’t about lien or bond claim rights, but it is true, nonetheless. Plus, I wanted to see if you were paying attention.

Questions about securing your Oklahoma lien or bond claim rights? Just ask!

Condominium Act Meets Construction Act in Ontario

Posted on April 26, 2019 by - In Other Commercial Credit News

Condominium Act Meets Construction Act in Ontario

Ontario’s Construction Act has been a prevalent topic throughout the last year, and with the second wave of amendments rolling out later this year, the conversation isn’t over! Let’s continue our Ontario conversation today with a quick review of the intersection of Ontario’s Condominium Act and its Construction Act.

In Condominium Construction in Ontario? Unique Challenges Ahead, authors Michael Swartz and Jeff Scorgie, explain how land is held under the Condominium Act and the difference between liening a single condominium unit versus a common area.

Ontario Has Condominium Corporations

Under Ontario’s Condominium Act, when a condominium corporation is registered, the property is comprised of two different types: units and common elements.

Units are typically the individual housing space, and according to authors may also include “…other non-residential types of “units” such as parking spaces or storage lockers. In either event, whether residential or non-residential, each “unit” is assigned its own distinct PIN and is owned or leased exclusively by an individual owner.”

Whereas common elements are any space except the individual units.

“…such as landscaped areas, parking lots, guest suites, recreational facilities, hallways, elevators and foyers… What is important to understand is that the “comment elements” of a condominium are “owned” by all of the units on an undivided share basis.”

Improving a Unit?

It’s imperative to only lien the property improved, therefore, if you furnished to the improvement of a unit, and you are unpaid for furnishings, your lien should be filed on the individual unit. Each unit is issued a parcel identification number (PIN), which identifies the parcel of land and its owner.

Improving a Common Element?

Unlike individual units, the common elements of a condominium do not have PINs. Let’s say you provide carpeting for the building hallways, outside of the individual units. If you are unpaid for the carpeting, your lien won’t be filed against one unit; rather it will be filed against all.

In fact, according to authors, “registering a lien against the common elements requires a lien claimant to list all of the units in the “Properties” section of the claim for lien—thereby liening each unit in the condominium for its proportionate share in the common elements.”

Who Will You Notify of the Lien?

When filing a lien against a single unit, you would notify the property owner. When filing a lien against a common element, you would notify the condominium corporation and ALL unit owners. In an example provided by authors, if the condominium has 200 units with 200 different owners, you must notify all 200 owners. This means you must identify the owners, which let’s face it, could be quite costly (massive title work!).

OK, so what happens if you lien the common elements and individuals want to pay you to have the lien removed from their units? I’ll defer to the experts:

“… under the new Construction Act, an individual unit owner (or an owner of a CEC) can make a motion to court to vacate the registration of the lien as against their unit…. it poses some interesting practical questions for the lien claimant and the other parties in the litigation.  Specifically, if many unit owners vacate a portion of the lien from their individual unit, it could become difficult to track who has paid what amounts into court to clear title.”

My Advice

If you are liening a common element, hire a construction-oriented attorney. You need a legal professional familiar with the law(s) and who can manage payments on your behalf. Don’t try to go it alone!

“Pay-If-Paid” Leaves Subcontractor High and Dry

Posted on April 22, 2019 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

“Pay-If-Paid” Leaves Subcontractor High and Dry

An Alabama Court of Appeals has upheld a trial court’s decision: a subcontractor cannot recover its claim from the general contractor’s surety if the subcontract contains a contingent payment clause (pay IF paid). In today’s post I’ll discuss securing bond claim rights in Alabama, explain contingent payment causes, and review a recent Alabama Court of Appeals’ case.

Securing Bond Claim Rights in Alabama

For public projects in Alabama, payment bonds are typically required if the general contract is $50,000 or more. As a best practice, you should always attempt to obtain a copy of the payment bond when you agree to a contract or purchase order.

You are not required to serve a preliminary notice, but it’s a good idea to serve a non-statutory notice to alert parties within the ladder of supply that you are furnishing to the project.

If you furnish to the project and are not paid, you would serve a bond claim notice upon the surety no later than 45 days prior to filing suit. Then, you would file suit to enforce the bond claim after 45 days from serving the bond claim notice, but within 1 year from the date of final settlement. [Ala. Code 39-1-1]

IF and WHEN: Contingent Payment Clauses… if & when…

How quickly two small words can create a payment mess! Pay-if-paid is generally interpreted to mean that the subcontractor will receive payment from the general contractor IF the general contractor is paid by the owner. Whereas, pay-when-paid is interpreted to mean the subcontract will receive payment from the general contractor WHEN (or after/once) the general contractor receives payment from the owner.

The “IF” clause is also known as condition precedent. Payment to the subcontractor is dependent on payment made to the general contractor by the owner.

The “WHEN” clause is viewed more as a timing provision. The general contractor will pay the subcontractor within a reasonable amount of time from when the subcontractor issues its invoices. Payment under this clause is not reliant on the owner paying the general contractor.

Pay-when-paid is more desirable than pay-if-paid, because the general contractor is not relieved of paying its subcontractors under pay-when-paid.

Subcontractor Can’t Recover Claims from Surety

Keller Construction Company v. Harford Fire Insurance Company

  • Subcontractor & claimant: Keller Construction Company (Keller)
  • General Contractor & payment bond obligor: J.F. Pate & Associates Contractors, Inc. (Pate)
  • Owner & payment bond obligee: City of Spanish Fort (City)
  • Surety: Hartford Fire Insurance Company (Hartford)

City hired Pate, and Pate obtained a payment bond from Hartford. Pate hired Keller and the parties executed a subcontract. Under the terms of the subcontract, Pate could withhold retainage from Keller for the same retainage amount City withholds from Pate. Also, under the terms of the subcontract, Keller assumes the risks associated with the City not paying Pate.

Language from the subcontract, in part:

“[T]he receipt by [Pate] of payment from [the city] for the work performed by [Keller Construction] is a condition precedent to the obligation of [Pate] to pay [Keller Construction]. [Keller Construction] further acknowledges that it is assuming the risk of delay in payment or non-payment by the [city] to [Pate]. Both the condition precedent for payment and the assumption of this risk are bargained for considerations in this agreement, without which [Pate] would not have entered into this agreement with [Keller Construction].”

The words “condition precedent” are right there in the contractual language. Not only that, but the language clearly indicates that Keller is aware of and is assuming any of the payment risk. The Court’s opinion states Keller was fully aware of the conditions of the contract and understood the provisions.

Keller completed its work and Pate had remitted payment to Keller except for the retainage amount. Why? Because City did not pay Pate the retainage or the withheld funds. And according to the subcontract, if Pate was not paid by the owner, Pate did not have to pay Keller.

Keller proceeded with a bond claim and Hartford denied Keller’s claim. Hartford claimed it was not obligated to pay Keller, because the surety is only obligated to pay what the general contractor was obligated to pay. In this case, the general contractor wasn’t obligated to pay retainage, because it hadn’t been paid retainage, thus, relieving the surety of any payment obligation.

Keller tried several arguments, all of which failed, including conflicting language within the terms of the payment bond and the terms of the subcontract.

It got a bit muddy, but the gist is the court determined the two contracts (payment bond and subcontract) need to be treated separately as they fall under separate laws. Essentially, you can use payment bond language to override subcontract language.

Takeaway

Payment provisions are often strictly interpreted. If you enter into a contract, make sure you understand the terms of the contract and know that if you execute the contract you are committing to the terms. When reviewing the contract, it’s a good idea to have a legal professional also review, specifically to look for clauses that may jeopardize payment.

Washington Liens: When Frivolous is Better Than Absent!

Posted on April 8, 2019 by - Mechanic's Liens & Bond Claims

frivolous lien

This Washington Lien Was Late, Excessive, and Inaccurate. But It Wasn’t Frivolous.

Late, excessive, inaccurate, but not frivolous: sounds like a terrible report card. You know the story, right? It’s about a mechanic’s lien filed in Washington which was initially invalidated and then reinstated by the Court of Appeals. How does a late, excessive, inaccurate lien get reinstated? Well, it’s a story worth sharing! (Spoiler: because it’s not a frivolous lien!)

Project-Condo-Dry-Out

Ongoing roof construction and an untimely rainstorm created quite a mess for more than a dozen condominium units. The property management company, MacPherson’s Property Management (MPM), hired Style Corporation dba Servpro (Servpro) for clean up and restoration work.

Servpro brought in its drying equipment & the equipment remained in the impacted condominium units for approximately two months. When the condominium association failed to pay Servpro for its services, Servpro filed a single lien for $183,945.09.

Servpro filed a single lien – not a lien on the individual impacted units. Within the lien, Servpro identified the debtor as the condo association, but the lien “applied to the 20 specific units and a common storage area where Servpro provided services.” Servpro also listed the 20 condo unit owners within the lien but did not indicate or allocate specific costs to each unit – the lien was a lump sum.

“Frivolous and Clearly Excessive”

It was the line held by PMP when it sought the release of Servpro’s lien: the lien is “frivolous and clearly excessive.” The court agreed and released the lien. But what kind of story would this be if it ended there? Servpro appealed the decision.

Court of Appeals on Frivolity

Per the Court of Appeals opinion:

“A lien is frivolous if ‘improperly filed beyond legitimate dispute’ and ‘so devoid of merit that it has no possibility of succeeding.’ Even if a lien is invalid, it may not be frivolous.”

A representative from MPM provided four reasons it believed Servpro’s lien was frivolous: 1) the representative from MPM did not authorize Servpro for ongoing work 2) Servpro’s lien was filed late 3) the agreement between MPM and Servpro did not dictate a contract amount as required by statute, and 4) Servpro’s lien was factually inaccurate.

Court of Appeals shot down MPM’s four reasons

The Oxford Comma Means Frivolous is Separate from Clearly Excessive

I must say, I did not see the Oxford comma making its way into a mechanic’s lien dispute. And yet, here we are! Washington’s mechanic’s lien statue, according to the Court of Appeals, clearly treats frivolous and clearly excessive separately under RCW 60.04.081(4).

The clear distinction lies in the comma between “cause” and “or” – actually, it’s the combination of the “,” followed by “or.”

Not to be outdone by the Oxford comma, the Court of Appeals also defined “clearly excessive” based on the dictionary definitions, because statute does not offer a definition.

Because Servpro did not break down the total claim amount by the number of units and filed its lien as though it were against one property vs. varying units, it appeared (for this case) a lien for $18k+ was filed against one unit, which makes Servpro’s lien clearly excessive.

The Court of Appeals concluded

“The trial court erred by determining that Servpro’s lien was frivolous and releasing it. Although Servpro’s lien may ultimately be invalid and unenforceable, the narrow hearing authorized by RCW 60.04.081 does not allow for release of a lien based on invalidity alone.  Accordingly, we reverse the trial court’s ruling releasing the lien.

The court correctly concluded that Servpro’s lien was clearly excessive, but the court made no findings of fact about the amount by which the lien was excessive.”

What Could Servpro Have Done to Avoid this Mess?

Here are the actions Servpro could have taken to alleviate some of the issues:

  • Execute a Contract. While statute provides for an interpretation of a contact amount if it isn’t included in a contract, it may have alleviated some confusion if even an estimate was included.
  • Get the facts. Condominiums and mechanic’s liens can be a major pain. Title work can be cumbersome and expensive, but it provides critical information. If Servpro had correctly identified the property/units and allocated costs to each unit, it may have escaped the “clearly excessive” issue.
  • File a lien on time! In Washington, the mechanic’s lien should be filed within 90 days from last furnishing.

This case is on its way back to the trial court where it will likely be invalidated because of timeliness and an excessive claim, but at least we now know it wasn’t a frivolous lien.

Not-So-Peachy Mechanic’s Lien for One New York Landlord

Posted on April 5, 2019 by - In Other Commercial Credit News, Mechanic's Liens & Bond Claims

Not-So-Peachy Mechanic’s Lien for One New York Landlord

According to a recent Court of Appeals decision, enforcing a mechanic’s lien on leased property in New York does not require consent of the landlord. That is, if the lease agreement required the tenant to improve the property.

Lien on Leasehold

Landlord/tenant agreements aren’t uncommon; just drive by any strip mall or shopping plaza and you’ll see oodles of stores operated by tenants that are leasing space from the property owner.

In a lease situation, the property is owned by one party & then a second party leases or rents the space from the owner. When improvements are made to the property, depending on the hiring party (the owner or the tenant), a mechanic’s lien may attach to the property, the leasehold interest, or both the property and the leasehold interest.

For this Court of Appeals case, there is one additional variable to be considered: the language within the lease agreement between the landlord (COR) and tenant (Peaches Café LLC).

In Ferrara v. Peaches Café LLC, Peaches Café LLC (Peaches) hired Ferrara (prime contractor) to perform electrical work. Peaches hired Ferrara because the lease dictated that Peaches would need to improve the property to meet electrical specifications.

“The lease imposed certain construction requirements on Peaches [tenant] for it to operate its restaurant, including adherence to specific electrical specifications. The lease also provided that COR [landlord] approve of any improvements to the premises, that Peaches submit to COR all design plans for the electrical work, and that any improvements made become part of the realty.” – Michelle Cuozzo of Pepper Hamilton LLP

As is common in the restaurant industry, Peaches went out of business and Ferrara was stuck with an unpaid bill of $50,000. To recover the claim, Ferrara filed a mechanic’s lien against the property and eventually filed suit to enforce its mechanic’s lien.

Once suit had been filed, the property owner (i.e. the landlord) moved to have Ferrara’s lien invalidated. The owner argued the lien could only be enforced if the owner expressly consented to the work performed. The court didn’t agree; here’s a recap from Michelle Cuozzo of Pepper Hamilton LLP:

“COR [owner/landlord] argued that a contractor performing work for a tenant can only enforce a lien on the property if the landlord expressly or directly consented to the work performed. The Court of Appeals rejected this argument… [T]o enforce a lien, the landlord must “either be an affirmative factor in procuring the improvement to be made, or having possession and control of the premises assent to the improvement in the expectation that he will reap the benefit of it.” Affirmative acts by a landowner include lease terms requiring the tenant to make specific improvements to the property.”

The lease clearly required Peaches to improve the property to meet the electrical specifications. Plus, the lease included language that the landlord could “retain supervision over the work by reviewing, commenting on, revising, and granting ultimate approval for the design drawings related to the work.”

Ultimately, the landlord consented to the improvement when it incorporated the requirements within the lease. Thus, the court held Ferrara’s lien to be valid.