April 20, 2011
Under Massachusetts law, it is clear that a contractor hired by a tenant to perform construction work is entitled to a mechanic’s lien on the tenant’s lease. However, the law in Massachusetts has been less clear as to when a contractor also can have a lien on the property owner’s interest in the real property. On April 13, 2011, in a significant decision on this question, the Massachusetts Supreme Judicial Court held that a contractor did have a valid mechanic’s lien against the owner’s interest in the real property despite the fact that the contractor’s written contract was with a party other than the property owner. Trace Construction, Inc. vs. Dana Barros Sports Complex, LLC, 2011 Mass. LEXIS 165 (Apr. 13, 2011).
The Facts
In the Trace Case, the property owner, Richard J. Madigan (the Owner), signed a lease with Dana Barros Basketball Camp, LLC (the Camp) for the Camp to use the premises as a sports complex after the Camp renovated the leased warehouse space. The general contractor, Trace Construction, Inc. (Trace), signed a construction contract with Dana Barros Sports Complex, LLC (the Complex), an entity related to the Camp, to perform the renovation work. Although Trace substantially completed the work, the Complex failed to pay Trace in full. The Camp also defaulted on the lease payments and surrendered the premises back to the Owner. From that point forward the Owner continued to operate or lease the premises as a recreation facility to generate income.
The Decision
In deciding that the general contractor, Trace, had a valid lien on the Owner’s real property even though it had not contracted with the Owner, the Court focused on the Mechanic’s Lien Statute (M.G.L. c. 254 Sec. 1 et seq.) language in Section 2 and specifically the question of whether the Owner had consented to the contracted work. The Court stated that in order to find that an owner had consented to the work it is not enough that the owner was aware of an intent to perform work or of ongoing work, and failed to object. The factors to be examined in assessing whether an owner has given consent to the work include “the parties’ contemplation of the work at the time of the lease... an expectation or requirement in the lease ... that work will be performed, and the presence of a potential benefit to the owner from the work.” Trace case at *14.
In holding that the Owner did consent to the work in the Trace Case, the Court found that the Owner was aware of the work and did not object, and found these additional facts:
- the Camp’s lease provided that fixed improvements were to remain for the benefit of the Owner and were not the property of the lessee;
- the lease required the Owner’s consent for the renovation work; • the lease limited the use of the premises to a recreation facility;
- the Owner priced the rent lower because of the intended renovations; and,
- the Owner generated income from the improvements to the property after the lease was terminated.
Based on these facts, the Court concluded that the Owner had consented to the renovation work and that Trace had a valid lien on the Owner’s real property.
Significantly, the Court also held that Trace’s subcontractors were not entitled to a lien against the Owner’s real property because the Mechanic’s Lien Statute section pertaining to subcontractor liens (Section 4) differs from Section 2, which applies to contractor liens. More specifically, the Court held that Section 4 limits a subcontractor’s lien to the property owned by the party who entered into the original contract. In the Trace Case, the original contract was between Trace, as general contractor, and the Complex, which was not the owner of the real property. Therefore, the subcontractors did not have a lien on the Owner’s real property.
The Impact
Although the Trace Case helps define when a contractor will be entitled to a mechanic’s lien on an owner’s real property when contracting to perform work with some one other than the owner, it does not guaranty such a right in all circumstances. The Trace Case highlights the need for contractors to fully understand who they are contracting with and to do their due diligence to ensure that they have mechanic’s lien rights for the work they are performing. When performing work for a tenant or another entity other than the owner, a contractor should seek to get the property owner’s written consent to the work and thereby avoid having to establish the owner’s consent through litigation at some later point.
Should you have any questions with regard to the above, please contact your attorney or an attorney in our Construction practice group.
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