Articles Posted in Mechanic’s Liens

Not all work performed at or related to a construction project can form the basis of a mechanic’s lien. Rather, one can only lien for work performed or materials furnished on a privately owned project for the “improvement of real property” as set forth in Lien Law § 3. Generally speaking, only work which contributes to a “permanent improvement” of the property in question is lienable  (Lien Law § 2(4)). Sometimes, however, work is performed even before any activities actually commence on a construction site, and the issue arises whether that work is lienable in any  circumstances. That matter was recently addressed by Justice Terry J. Ruderman of the Westchester Supreme Court in Matter of Old Post Road Associates, LLC, 60 Misc. 3d 391, 77 N.Y.S.3d 283  (Sup. Ct. Westchester Co. 2018).

In Old Post Road, LRC Construction LLC (“LRC”) performed pre-construction management services for a planned project in Rye, New York. Among other things, LRC updated the budget for the  project and attended meetings to discuss phasing in connection with a site plan approval application. LRC was eventually terminated and filed a mechanic’s lien for $250,000. Thereafter, Old Post Road Associates LLC (“Owner”) commenced a special proceeding to summarily discharge the mechanic’s lien pursuant to Lien Law § 19 because the work in question was allegedly not lienable.

Pursuant to Lien Law § 19, a lien may only be dismissed if “it appears from the face” of the lien that it is invalid. Owner here alleged it met this standard in its special proceeding because LRC’s lien merely alleged it performed “pre-construction management services.”

For years the First Department has found itself at odds with the Second and Third Departments concerning who is a necessary party to enforce a mechanic’s lien against real property after a bond has been filed and the lien discharged as of record.  As explained in M. Gold & Son, Inc. v. A.J. Eckert Inc., the Second and Third Departments have held that once a bond is posted, it effectively substitutes for a mechanic’s lien, that lien is discharged and thus there is no longer a requirement that the owner be a party to the action.  See 246 A.D.2d 746 (3d Dep’t 1998).

Traditionally, however, the First Department has maintained that, in spite of an undertaking being posted, the owner of the real property remains a necessary party.  A recent case in the Supreme Court, New York County, might be a further step in a change towards uniformity in the departments.

Doma Inc. v. 885 Park Ave. Corp. (New York County Index No. 159775/2016) concerns a contractor’s disagreement with an individual who had hired the contractor to renovate her home.  As is often the case in such actions, the contractor claimed that it was owed a certain unpaid sum and, in an effort to collect, filed a mechanic’s lien against the premises.

The meaning of “permanent improvement” under the Lien Law was at the heart of the decision in Matter of 134-136 West Houston, LLC v New York City Land Surveyor P.C., 58 Misc.3d 1228 (A), 2018 WL 1279175 (Table), 2018 N.Y. Slip Op. 50304(U)(Sup. Ct. N.Y. Co. 2018), in which the court grappled with the issue of whether vibration monitoring services provided by a surveyor to a building owner could provide the basis for a mechanic’s lien.  The building’s owner sought to discharge the lien on the grounds that the work was not covered by the Lien Law.

The Supreme Court (Justice Carmen Victoria St. George) concluded that neither the installation and monitoring work, nor the rental value of the monitors themselves, were covered by the Lien Law, primarily because the monitors did not produce a permanent improvement of the property.

The lienor in Matter of 134-136 West Houston filed its lien after it was not paid for placing vibration monitors on the owner’s building and on that of a neighbor, and remotely monitoring the equipment during the owner’s construction work.

Last September, the New York Court of Appeals granted a motion for leave to appeal the Fourth Department’s decision in Ferrera v. Peaches Café LLC, 138 A.D.3d 1391, 30 N.Y.S.3d 765 (4th Dep’t 2016). In Peaches, the Fourth Department enforced a mechanic’s lien filed by a contractor who was hired by a tenant and had no direct relationship with the landlord/owner. However, if this same mechanic’s lien had been filed against real property governed by any other New York Appellate Department, the mechanic’s lien would have very likely been discharged.

Lien Law Section 3 states that a contractor “who performs labor or furnishes materials for the improvement of real property with the consent or at the request of the owner thereof … shall have a lien for the principal and interest, of the value, or the agreed price, of such labor ….”

The First, Second and Third Departments have determined that in order for a mechanic’s lien to come within Lien Law Section 3, the owner must be an affirmative factor in procuring the improvement, or else, having possession and control of the premises, assent to the improvement in the expectation that he will reap the benefit of it. See Paul Mock, Inc. v. 118 East 25th Street Realty Co., 87 A.D.2d 756, 448 N.Y.S.2d 693 (1st Dep’t 1982); Interior Bldg. Services, Inc. v. Broadway 1384 LLC, 73 A.D.3d 529, 900 N.Y.S.2d 311 (1st Dep’t 2010); Matell Contracting Co., Inc. v. Fleetwood Park Development, LLC, 111 A.D.3d 681, 974 N.Y.S.2d 573 (2d Dep’t 2013); Drapaniotis v. 36-08 33rd Street Corp., 48 A.D. 3d 736, 853 N.Y.S.2d 356 (2d Dep’t 2008; Sager v. Renwick Park & Traffic Assn., 172 A.D. 359, 159 N.Y.S. 4 (3d Dep’t 1916).

According to the New York Lien Law, a mechanic’s lienor who is a subcontractor may only recover on its lien claim if it can establish there is a Lien Fund. That means the lienor must establish that funds were due and owing from the owner to the contractor in an amount at least equal to the amount of the lien. If the lienor in either a private or public setting cannot establish the validity of a Lien Fund, then the lien is subject to dismissal.

The Lien Fund concept is designed to protect an owner against an unfair “double liability.” In other words, if the owner has paid its contractor in full, an owner and its property should not be liable to pay a subcontractor simply because the contractor is the reason for, and source of, the non-payment. To that extent, a subcontractor’s mechanic’s or public improvement lien is derivative of the contractor’s claim against the owner. The Lien Fund concept also applies to a sub-subcontractor lien, so the sub-subcontractor must establish a contractor-subcontractor Lien Fund.

Generally, in order for the lienor to recover, it must establish that the Lien Fund existed on the date of the filing of the mechanic’s lien. If it can, then assuming the lienor can meet all the other requirements of proving the validity of its lien, it will be entitled to a recovery. In Specrite Design LLC v. Elli N.Y. Design Corp. (S.D.N.Y. 14 Civ. 6154) (July 26, 2017), Judge Edgardo Ramos addressed whether this general rule applies when the lienor was retained by a contractor that had been defaulted by the owner. Judge Ramos found that the general rule does not apply in these circumstances. Under the specific facts presented in Specrite, the lienor would not be able to foreclose on its lien even though the contractor was purportedly owed monies on the date of the filing of the subcontractor’s mechanic’s lien.

For those in the construction industry, mechanics’ liens are sure to be a familiar occurrence. And, for those who have ever had a project of theirs liened, they will be aware of the tenacity of these legal devices. Mechanics’ liens are frustrating clouds on title and even though the party against whom the lien is filed rarely agrees with the amount purportedly owed, the liens themselves are difficult to remove One omnipresent option, is a claim for willful exaggeration of the lien. Section 39 of the Lien Law allows for vacataur of the lien if it has been “willfully exaggerated.” The ever-present question, however, is just what “willfully exaggerated” means.

The Courts have recently reiterated the standard for claims of willful exaggeration of mechanic’s liens. Hint: it’s still very high. In Blair v. Ferris, the Appellate Division of the Third Department once again dismissed a cause of action for willful exaggeration regarding a clearly inflated mechanic’s lien. 2017 WL 1712790.

As before, the Court made a point to state that if no exaggeration was intended, the inaccuracy simply does not matter. Willfulness truly is key. Essentially, this means that, unless it can be shown that the filer, at the time of the filing, had the intention to exaggerate the lien, a claim of willful exaggeration will fail. Considering that mechanic’s liens are meant to protect those who provide materials and/or labor against nonpayment, Courts appear to continue to take the view that there should be a heavy burden on the allegedly nonpaying party to rid itself of the lien. Allegedly wronged contractors and materialmen should not be deterred from filing liens because of the threat of a claim of willful exaggeration.

General Business Law § 771 provides a host of requirements for home improvement contracts, chief among them being that such contracts must be in writing and signed by all parties. Additionally, the contract must contain the name, address, telephone number, and license number of the contractor, the dates that the work is to begin and to end, a description of the work to be performed, a list of the materials to be provided by the owner, the agreed-upon compensation due to the contractor, and a schedule of any progress payments.  The contract must also provide a series of notices to the owner advising that claims for payment may be enforced against the property by lien, that the contractor is required to deposit all payments received prior to completion in accordance with Lien Law § 71-a (4) or the contractor may post a bond, contract of indemnity, or irrevocable letter of credit, and that the owner may cancel the home improvement until midnight of the third business day after the day on which the owner signs the contract.

Despite the strict requirements of General Business Law § 771, it is not uncommon that parties engage in such home improvement projects on the basis of a hand-shake deal. While it is always advisable to put any such agreements in writing, including any changes to the work along the way, a contractor who improves a home absent a written contract is not without remedy should a dispute arise.

Courts have held that the absence of a written contract prevents recovery on a breach of contract cause of action but does not prevent a remedy on a theory of quantum meruit.  Johnson v. Robertson, 131 A.D.3d 670, 672, 15 N.Y.S.3d 457 (2d Dep’t 2015); see also Home Construction Corp. v. Beaury, No. 2014-06600, 2017 WL 1240146, at *2 (2d Dep’t Apr. 5, 2017) (“Although a contractor cannot enforce a contract that fails to comply with General Business Law § 771, a contractor may seek to recover based on the equitable theory of quantum meruit…”).

Section 1312(a) of the Business Corporation Law, New York’s “door closing” statute, precludes foreign corporations doing business in the state without authority from maintaining an action in the state.  The purpose of this statute is to regulate foreign companies actually conducting business in the state.  As held in Special Breaks, LLC v. 201 Murray Ave., 2017 WL 987199 (Sup. Ct. Westchester Co. Mar. 10, 2017), the statute does not apply to those foreign companies that are not “doing business” within the state.

The defendant in Special Breaks moved to dismiss the complaint filed by foreign corporate plaintiff on two related grounds:

  1. That the foreign corporation was barred from maintaining an action in New York because it was not authorized to do business in the state, and

On April 28, 2016, Justice Robert R. Reed’s decision in Chase et al. v. 360 General Contracting, (Supreme Court, County of New York Index No. 152275/2016) dismissed and vacated two separate mechanic’s liens filed against a cooperative unit. In doing so, Justice Reed clarified two issues with respect to cooperative units and the Lien Law.

First, Justice Reed’s decision in Chase clarified that for purposes of the Lien Law, cooperative apartments are considered single family dwellings subject to the four month filing requirement. In Chase, a mechanic’s lien was filed five months after the last day that work, labor and services were performed in connection with the construction of an individual unit within a cooperative building.  Justice Reed, noting that previous courts applied the four month filing period to individual cooperative apartments (as opposed to the eight month filing period for commercial projects), also applied the four month filing period in Chase. He held that under Lien Law §10(1), the four month filing period applied to individual cooperative apartments, so long as the work is done by mechanics solely on the individual unit, and not to common areas of the building as a whole. Accordingly, the mechanic’s lien filed against the individual cooperative unit beyond the four year filing period was vacated and dismissed.

Second, Justice Reed’s decision in Chase clarified that under the Lien Law, a mechanic’s lien filed against a cooperative unit must name the cooperative corporation as the owner of the real property. In Chase, Justice Reed dismissed a second mechanic’s lien, which, although filed within the four month period, incorrectly named the proprietary leaseholders as the owners of the real property. Justice Reed indicated that even though leaseholders are not immune from the requirements of the Lien Law, it is improper and erroneous to identify such leaseholders as owners of the real property with respect to that location. Individuals are merely leaseholders of units and the real property is owned by a separate corporation. Accordingly, because the failure to name the cooperative corporation as the real property owner constitutes a total misidentification of the property owner, the second mechanic’s lien was vacated and dismissed. It is insufficient to merely list the leaseholders as owners of a cooperative unit in a mechanic’s lien.

The Nassau County Supreme Court recently held that a contractor demonstrated good cause allowing the Court to extend the contractor’s mechanic’s lien nunc pro tunc.

The action was initially commenced by the property owner, who sought an order pursuant to Lien Law Section 19 discharging and vacating a mechanic’s lien filed by All Sons Electric Corp. (“All Sons”) against a single family residence on the ground that the mechanic’s lien expired by operation of law.  Pursuant to Section 17 of the Lien Law, a mechanic’s lien automatically expires one year after filing unless (i) an extension is filed with the County Clerk or (ii) an action is commenced to foreclose the lien and a notice of pendency is filed.  Section 17 further provides that a lien filed against a single family dwelling may only be extended by court order.  Here, All Sons filed an extension of lien and paid the appropriate fee within the one year time period, but failed to obtain a court order authorizing the extension.

In response to the owner’s application to discharge the lien, All Sons cross-moved for leave to file its extension of lien nunc pro tunc.  The Court, recognizing that a lien automatically expires by operation of law if an extension is not timely filed or a foreclosure action commenced, focused on the fact that All Sons had filed an extension with the County Clerk within the one year period.  This distinguished All Sons’ situation from that presented in the case relied on by the owner, wherein the contractor failed to do anything within the one year period (see Aztec Window & Door Mfg., Inc. v. 71 Vill. Rd., LLC, 60 A.D.3d 795, 875 N.Y.S.2d 528 (2nd Dept. 2009)).