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CONTRACTOR CANNOT ENFORCE MECHANIC’S LIEN AGAINST LANDLORD’S INTEREST IN THE PROPERTY FOR WORK PERFORMED AT THE DIRECTION OF THE TENANT

01/06/2014

It’s a routine enough scenario for commercial Landlords; lease retail space to a Tenant, knowing the Tenant is going to renovate the space for its own needs.  The lease acknowledges that the Tenant is going to undertake these improvements, and even provides that the Landlord is to review and approve the plans.  The Landlord even signs the necessary building department permits.  However, the Tenant fails to pay the contractor, and the contractor files a Mechanic’s Lien against the property.  Of course, by this time, the Tenant has filed bankruptcy and the Contractor is looking to the Landlord to satisfy the Lien.

This was the scenario presented to the Second Department in the recently decided case Matell Contracting Co., Inc. v. Fleetwood Park Development, LLC.  In that case, Landlord and Tenant amended their lease to permit the space to be converted from a restaurant to a supermarket.  Landlord consented to the change of use, consented to the work to be performed, and even gave rent concessions to the Tenant.  However, Landlord never gave its consent to the Contractor and had no involvement in the construction project at issue.  Landlord did not supervise the project, Landlord did not inspect the work, and Landlord did not attend project meetings. 

New York Lien Law § 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 for the principal and interest, of the value, or the agreed price, of such labor…”  (Emphasis supplied.)  In Matel, the Second Department upheld a long line of recent cases which all hold that consent must be given to the Contractor, and not merely to the Tenant.  The Second Department held “Here, while Matell presented evidence showing that [Landlord] had knowledge of, and acquiesced in, the work performed to convert the leased property into a supermarket for the tenant’s use, Matell failed to present any evidence showing that [Landlord] conveyed any affirmative consent directly to Matell for the work.” 

This case provides clear guidance for both Landlords and Contractors.  For Landlords, they are provided with the knowledge that if they didn’t provide consent to the Contractor, than the Contractor cannot look to them as a guarantor of the Tenant’s payment obligations.  For Contractors, and most importantly, subcontractors, this case provides a reminder that the Landlords consent is necessary to enforce your lien rights.  It is not enough to merely have a statement from the Tenant saying the Landlord consented to the Work.  Contractors should have a statement from the Landlord, or at the minimum, have the Landlord sign the construction contract, indicating their consent.

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