Lack of labor means no mechanic's lien

August 11, 2010

Two intermediate courts of appeal have interpreted lien statutes to limit the persons who are entitled to file mechanic's liens. An Indiana court squarely held that persons providing purely construction management services — without labor — are not entitled to assert mechanic's liens. In Missouri, it was held that persons who rented equipment for use on a construction project — without labor — would not be able to assert mechanic's liens. In both cases, the results would likely have been different had the persons provided labor as part of their agreements.

Construction manager

In the Indiana case, the owner entered into a Construction Manager Agreement (AIA B-801), in which the CM was acting as an adviser rather than under an "at risk" arrangement. The CM was charged with furthering the owner's interest by furnishing its "skill, judgment, and business administration and management services" during the life of the project. No architectural or engineering services were provided.

After the owner terminated the CM's services under the agreement, the CM filed a Notice of Intention to File a Mechanic's Lien for almost $300,000. In rejecting the CM's lien, the Court of Appeals relied upon an earlier decision of the Indiana Supreme Court holding that a developer who provided only supervisory services was not able to file a mechanic's lien.

There would have been no serious dispute about the CM's ability to enforce a lien if the CM had provided labor. In the court's view, where "compensation for supervisory services was inexorably tied to its physical acts of labor" the value of the supervision is lienable. [Murdock Construction Management v. Eastern Star Missionary Baptist Church, 776 N.E. 2d 759]

Rental equipment

In another case limiting the right to file a mechanic's lien, the Missouri Court of Appeals has ruled that a company that rents equipment for use on the job is not entitled to a lien for the value of the rental equipment if the rental company did not provide an operator for the equipment. The reasoning of the Missouri court was much like the reasoning of the Indiana court. Both courts pointed out that mechanic's liens are purely statutory creatures and thus their enforcement is based upon the wording of the statute. The court interpreted the Missouri statute to mean that a person claiming a lien for the value of rental equipment will not be entitled to a lien without proof that labor was included as part of the rental agreement. However, this scenario must be distinguished from the situation in which a material supplier sells items that are physically incorporated by others into the project. Since those materials become a part of the improvements to the property, they are customarily lienable. But in the case of rental equipment (e.g., cranes, backhoes), they do not become part of the improvement and thus the rental value for the equipment is not lienable unless labor is included as part of the agreement.

The court invited the Missouri Legislature to amend the statute. The court's decision was handed down too late in the 2002 legislative session for consideration, but it is a certainty that efforts will be made in the 2003 legislative session to amend the statute to permit liens for the rental value of equipment. [Bush Construction Machinery Inc. v. Kansas City Factory Outlets, Mo.Ct.App. W.D. #60217 (Decision is not final)]

Lessons learned

Mechanic's liens are powerful collection tools that normally result in faster and larger settlements. Courts, however, will sometimes choose to narrowly interpret the statutes, resulting in inconsistent and inexplicable rulings. For example, when a company serves as a general contractor and offers supervisory services along with labor, the value of the supervisory services is lienable. But if the firm provides only supervisory services, obstacles are presented. It will be up to the Missouri and Indiana legislatures to address these issues.

         
 

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