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Development of the Mechanic’s Lien and What it May Mean for You

By Howard Goldman

I. Introduction

mechanicsA mechanic’s lien is a statutorily created lien against real property, the purpose of which is to secure a contractor’s right to payment for services rendered and materials supplied in connection with the improvement of real estate.

In this Client Update, we will briefly explain the requirements of the Massachusetts mechanic’s lien statute and how it works. We will explore legal developments relating to the statute, including what constitutes a “written contract” in this evolving digital age. We will also offer best practices for landlords and land owners to employ in order to avoid their own properties becoming subject to mechanic’s liens asserted by contractors of their tenants.

II. Mechanic’s Lien 101: A Recap

One of the reasons that the mechanic’s lien is such a powerful tool for creditors is that by statute it does not require court approval before it is perfected (placed on record title). As a result, creditors can put a cloud on the title of real estate for which their work, material, or services were provided, without having to first navigate expensive and time-consuming court processes.

The first noteworthy requirement under the mechanic’s lien statute, M.G.L. ch. 254, is that the party seeking the lien must have a written contract signed by the parties contracting for the work to be done. Second, the party claiming the lien must timely record a notice of contract with the registry of deeds where the property in question is located. The notice of contract includes specific information about the project and must be recorded no later than the earliest of:

  • 60 days after filing or recording a notice of completion;
  • 90 days after filing or recording of a notice of termination;
  • 90 days after the contractor, subcontractor, or supplier last performed labor or provided materials for such project.

See M.G.L. c. 254 §§ 2 and 4.

In addition to recording the notice of contract at the appropriate registry of deeds, the party claiming the lien must serve the notice of contract upon the owner of the property to perfect a mechanic’s lien and must timely record the sworn statement of account with the registry of deeds where the notice of contract was filed not later than the earliest of:

  • 90 days after filing or recording a notice of completion;
  • 120 days after filing or recording of a notice of termination;
  • 120 days after the contractor, subcontractor, or supplier last performed labor or provided materials.

See M.G.L. c. 254 § 8.

Finally, after the statement of account is recorded, the contractor must file a civil action in the appropriate county within 90 days of filing the statement of account and/or notice of contract, and timely record the complaint in the registry in the county in which the land is located. See M.G.L. c. 254 §§ 5 and 11.

III.  Landlords Beware: A Tenant’s Contractors May Lien Your Property

Although the mechanic’s lien has been around for over one hundred years, the law is constantly evolving, and a recent SJC decision has ramifications that may affect landlords and their tenants. The case, Trace Construction, Inc. v. Dana Barros Sports Complex, LLC, 459 Mass. 346 (2011) examined a revised portion of the statute, which provides that a “written contract” (one of the requirements to establish a mechanic’s lien) can be made with the actual owner of the property or “with the consent of such owner.”

In Trace Construction, a tenant leased a storage warehouse that it renovated into a sports recreation facility. The lease contained standard language that contemplated improvements to the property. Any improvements made were to require prior landlord approval and were for the landlord’s “benefit, and were not the property of [the tenant].” When the tenant’s business failed, and the renovation bills were still outstanding, the contractors hired for the work pursued not only the tenant, but also recorded a mechanic’s lien against the landlord’s interest in the property.

In examining the question of the landlord’s consent to the contractor’s work, the SJC cautioned that Massachusetts case law makes it clear that a landlord’s mere awareness that improvements were being done by a contractor at the tenant’s behest, even accompanied by witnessing the work being done, was not equivalent to a landlord furnishing consent. The court pointed out that, by comparison, consent has been found where, in addition to knowledge of intent to improve and awareness of ongoing work, the work was being done as part of an arrangement that would facilitate an impending sale of the property, thereby benefitting the property’s owner.

The SJC ultimately found that the landlord had given consent to the tenant’s improvements. It reasoned that the contract contemplated that the use of the property was limited to use as a “recreation facility” despite the fact that the building could not be used as a recreation facility in its original state. Therefore, the contract made the renovation exceedingly likely, albeit not strictly required. The court saw it as relevant that the contract assigned ownership of any improvement to the landlord, that the landlord’s consent was required for any improvement, and lastly, that the landlord specifically priced the rent low as a means of compensating the tenant for the improvements to the property.

IV. Best Practices for Landlords

Landlords freqmechanics2uently find it necessary to grant the type of consent that can permit a tenant-hired contractor to place a lien on the landlord’s property. Landlords, therefore, should consider including the following provisions in their leases to protect themselves against tenant-created mechanic’s liens:

  1. Indemnity provisions providing that the tenant will compensate the landlord for any damage that the landlord suffers from liens on the property caused by the tenant, including the cost of discharging or bonding over any liens caused by the tenant, and related attorney fees.

 

  1. Escrow provisions requiring the tenant to put aside funds in an escrow account to cover all or a portion of its construction costs before its contractors begin work.
  2. Lien waiver provisions requiring the tenant to provide the landlord with such waivers, signed by the tenant’s contractors and duly notarized, indicating that the contractor has been paid for its work and waiving all rights to lien the property.
  3. Provisions requiring the tenant to provide landlord with a list of all contractors and sub-contractors working on the property.

V. “Written Contract” in a Digital Age: Mind Those Emails

Another developing aspect of the “written contract” requirement of the mechanic’s lien statute is whether a writing signed by the parties is necessary. The short answer to this query is “no.” In Clean Properties, Inc. v. Carol Riselli, Docket No. MICV2014-04742 (Middlesex Superior Court, June 18, 2014), the Massachusetts Superior Court held that a series of email correspondences were sufficient to establish a written contract for purposes of the mechanic’s lien statute. In this case, Clean Properties had sent Riselli, the property owner, a proposed contract to undertake environmental cleanup work on an emergency basis and Riselli responded by email indicating that she agreed with, and accepted, the proposed contract terms. In its decision, the court explained that by including her typed name in the signature block of her email, Riselli assented to the terms of the proposed contract and that this assent sufficiently created a “written contract” for purposes of the mechanic’s lien statute.

While the court also cautioned that not all series of documents passed between parties without a preexisting written agreement will amount to a “written contract,” property owners should be careful when responding to contractors regarding work for their property. A writing signed by all parties is no longer necessary to implicate the mechanic’s lien statute. In this digital age, sending an email assenting to the terms of proposed contract will permit the contractor to seek the mechanic’s lien’s protections.

VI. Conclusion

The Massachusetts mechanic’s lien is a creature of statute, and the precise meaning of the statute’s terms continues to evolve throughout our case law. The statute provides a powerful tool for contractors seeking payment for their work improving real estate. Contractors seeking to establish a mechanic’s lien against a landlord do not always need to enter into a written contract with the landlord. If a tenant authorizes the work, the landlord’s consent can be demonstrated under certain circumstances, such as when the landlord’s lease with the tenant makes the work highly likely. Landlords should consider these best practices to avoid having a lien placed on their property for their tenants work.

 

 

About the Author

Attorney Howard S. Goldman is the founding partner of the law firm of Goldman & Pease LLC, 160 Gould Street, Needham, Massachusetts 02494 (781) 292-1080. Mr. Goldman concentrates his practice in the areas of real estate, finance, and civil litigation, where he represents property managers, lending institutions, developers, and contractors for more than thirty-five years. He has extensive experience establishing and dissolving mechanic’s liens and is an active member of the Massachusetts, Norfolk, and Rhode Island Bar Associations in his field and is also an active member of CAI and IREM, where he frequently lectures and writes columns affecting the real estate and finance industries. Mr. Goldman serves as a member of the Zoning Board of Appeals for the Town of Needham and as a court appointed mediator at the Boston Municipal Court and as a pro bono advocate at Federal District Court mediations.