Articles Tagged with Lien Law

On November 20, 2018, in Angelo A. Ferrara v. Peaches Café LLC, et al., 2018 WL 6047993 (N.Y. Nov. 20, 2018), the New York Court of Appeals upheld 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). As I discussed in my prior posts, “The Divide in Interpretations of Lien Law Section 3’s Consent Requirement Continues” and “Varying Interpretations of Lien Law Section 3’s Consent Requirement,” New York Courts have been at odds in their determinations of the consent requirement contained in Lien Law Section 3. Judge Wilson of the New York Court of Appeals clarified these distinctions in his recent decision.

The key facts in the underlying case are summarized as follows: Defendant Peaches Café LLC (“Tenant”) entered into a lease agreement (the “Lease”) with Defendant-Appellant COR Ridge Road Company, LLC, (“Landlord”), who also owned the subject premises. The Lease affirmatively required the Tenant to undertake the construction of various improvements at the premises. Specifically, the Lease detailed certain requirements for the electrical work. Nonparty Quinlan Ferrara Electric, Inc. (who assigned its claims to Plaintiff-Respondent Angelo A. Ferrara) (“Contractor”) contracted with Tenant to perform a portion of the electrical build-out work at the premises. Despite satisfactorily completing its work, Contractor was never paid the balance for its work performed. Accordingly, Contractor filed a mechanic’s lien against the premises and commenced a lien foreclosure action.

In the lien foreclosure action, the trial court granted Landlord’s motion to dismiss the complaint as against Landlord, because, according to Landlord, “it did not have any direct dealings with [Contractor] and did not explicitly consent to the specific electrical work performed by [Contractor.]” Peaches, 30 N.Y.S.3d at 767. The Fourth Department reversed the trial court, finding that that Landlord/owner’s consent for the electrical work was derived from the terms of the Lease, which obligated Tenant to install electrical upgrades on the premises. Thus, the Landlord/owner was obligated to pay for the reasonable value of Contractor’s services. Id at 768. Landlord appealed.

As I previously noted in my post titled “Varying Interpretations of Lien Law Section 3’s Consent Requirement,” last year 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). The appeal was argued during the week of October 16, 2018, but the Court of Appeals has not yet issued a decision.

Lien Law Section 3 provides 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 … upon the real property improved.” In the underlying Peaches case, the Fourth Department compared First, Second and Third Department decisions concerning Lien Law Section 3’s consent requirement, all of which found, at various times, “that a lien under Lien Law Section 3 is valid only when the property owner directly authorizes the contractor to undertake the relevant improvements.” Peaches, 30 N.Y.S.3d at 768 (emphasis added). The Fourth Department, however, concluded that “consent” should be broadly interpreted because the decisions of its sister departments could not be “squared” with Jones v. Menke, 168 N.Y. 61 (1901) or McNulty Bros. v. Offerman et al., 221 N.Y. 98 (1917), two Court of Appeals cases which have not been “overturned or disavowed.” Id. at 767-8.

In both Jones and McNulty, the Court of Appeals found, generally, that contractual obligations requiring a tenant to make certain improvements to the premises satisfied the consent requirement of Lien Law Section 3.  Id. at 676. As a result, the lien claims in those cases were permitted against the underlying owner’s property. Id. Accordingly, in Peaches, the Fourth Department determined that the owner’s consent could be implied by the terms of the subject lease, even though the owner did not provide direct consent to the contractor.

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).

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.