Mechanics liens and leased property have an interesting dynamic. Depending on a state’s laws, and depending on the property lessor’s role in the improvement, the project property may or may not be lienable. In some cases, the underlying property won’t be lienable, but the lease itself might be liened. Regardless, it can be a nightmare to navigate mechanics liens on leased property. After a recent decision, it looks like filing New York mechanics liens on leased property might be more effective than previously thought.
Filing New York Mechanics Liens On Leased Property
Back in 2012, we wrote this post: Filing New York Mechanics Lien When Tenant Commissioned Work Depends On Owner’s Consent. It’s a good read, informative, and it still rings true.
Ultimately, the bottom line is this: to lien property for a lessee’s improvement, the owner/lessor must have consented. Now, determining that consent can be tough, as outlined by that prior post. A New York lien can be filed when the owner has affirmatively consented to the improvement, but not when the owner merely “acquiesces” to it. Alternatively, a lien could be filed when an owner “having possession and control of the premises assent to the improvement in the expectation that he [or she] will reap the benefit of it” (from Elliott-Williams Co. Inc. v. Impromptu Gourmet Inc.).
Further Reading: For a more general overview on liens and leased property, try this post: What Happens to Mechanics Lien Rights If My Project is a Tenant Improvement?
A Recent Case
Determining whether the lessor has consented to the improvement can get pretty messy. What’s more, when a lessor knows about this rule, they can take active steps to distance themselves from a project, even if they really do consent to the work. Luckily, a recent decision shows that if the lessor is truly authorizing and consenting to the work, simply saying “I don’t consent!” won’t be enough.
Anyway, the case is Murnane Building Contractors v. Cameron Hill Constructions. To break down the scenario quickly: Syracuse entered into a development agreement with a Developer who was hired to construct a facility on property owned by Syracuse. In a move that’s become fairly common, Syracuse and the Developer executed a ground lease wherein the Developer leased the property, would construct a facility on the property, then would operate (and lease) that facility.
Put simply: a Subcontractor didn’t get paid. As a result of that nonpayment, the Subcontractor ended up filing a mechanics lien against the leased property. However, in Syracuse’s agreement with the Developer, Syracuse declared:
“nothing in this lease shall be construed as the consent or request… for the performance of any labor or the furnishing of any material for any improvement, alteration, or repair of the premises…”
Syracuse argued that they did not consent to the agreement, so a mechanics lien could not be filed against their lessee’s (the Developer’s) improvement.
The development was the whole point of the agreement. How can Syracuse claim that they didn’t consent?
The trial court actually dismissed and vacated the Subcontractor’s mechanics lien based on Syracuse’s argument that it hadn’t consented to the agreement. The appellate court took a deeper look, thankfully.
The appellate court noted that, under New York’s lien law scheme, and owner’s consent can be inferred from the conduct of the owner. The court first noted that the whole point the ground lease was to develop this land. They added that, because Syracuse was in possession of the land, was aware of the project, and would benefit from the development, Syracuse had “consented” to the construction. Because Syracuse had actively participated in the development of the property, the court refused to let them fall back on the contract clause attempting to disclaim consent.