Condominium Mechanic’s Liens
Mechanic’s lien claims are complex in that each state’s statutes differ dramatically. There are certain unique issues when a contractor seeks to commence a mechanic’s lien proceeding for improvements made to a condominium.
What did you improve?
When assessing your rights under the applicable mechanic’s lien statute, focus on the property that you improved. You are only entitled to lien the property interests for which you made an improvement.
For condominiums, there are common areas and units. The common areas are owned by the condominium trust/association and the units are owned by the individual owners. This year, I commenced a mechanic’s lien action on behalf of a subcontractor against a new, 10-unit condominium in Rhode Island. My client performed improvements to the entire building — both common areas and in the units. The general contractor was hired by the developer of the condominium. By the time final payments were not released some of the units were transferred to individual owners .
We recorded six different mechanic’s liens in the Land Evidence Records against the condominium association and the owners of the individual units. Sometimes it can be challenging to determine a separate value of the work performed per condominium unit. If you perform work for a condominium, it is good practice to keep specific records per unit regarding the labor, materials, and equipment performed so that you can have a defensible claim on the value of your lien. Without such records, you will have to apportion the value of the work performed in the common areas and in the individual units. In my case, we looked to the percentage ownership interest each unit had in the common areas as stated in the condominium declaration to arrive at a value of the various liens. We also adjusted some of the values based upon change order work performed in individual units. We commenced a single lawsuit against the condominium trust and individual unit owners.
For each lien, we had to follow the full process including obtaining legal advertisement in the newspaper. This process would be enormously cumbersome for work performed on a much larger condominium. For example, if there were 150 condominium units owned by different persons, you would have to record 150 separate liens. A couple of tips:
Keep accurate records on the work performed per unit.
Don’t delay in recording the lien. The sooner you record it, the more likely there will be common ownership by the developer and you will not have to commence as many liens.
Can you lien improvements to common areas? Not in Massachusetts!
States take divergent views on whether contractors can lien work performed on common areas such as parking lots, hallways, landscaping, etc. Massachusetts is an example of such a state. For certain contractors, most of the value of their work is on the common elements. Those contractors effectively lose their ability to assert a mechanic’s lien in Massachusetts. In this section, I discuss the Massachusetts law and summarize approaches taken by other states.
There Massachusetts’ Mechanic’s Lien Statute (c. 254) and the Massachusetts’ Condominium Statute (c. 183A) have conflicting policies with regard to work performed by contractors on common areas of condominiums. The mechanic’s lien statute provides security for those who improve the value of real property. The purpose is to prevent unjust enrichment and to benefit the contractor. A policy of the condominium statute is to avoid liens on the common elements. Section 13 of the Condominium Act states:
Claims involving common areas and facilities; liability
All claims involving the common areas and facilities shall be brought against the organization of unit owners, and all attachments and executions related to such claims shall be made only against common funds or property held by the organization of unit owners and not against the common areas and facilities themselves other than the leasehold of any lease included therein. After such common funds and property have been exhausted, individual unit owners shall be liable for the balance due, if any, provided, however, that the amount for which a unit owner is liable shall be limited to a sum equal to the amount of his percentage interest in the common areas and facilities times the balance due.
In Business Interiors Floor Covering, Inc. & Others vs. Basepoint Contracting and Trustees of 50-60 Longwood Avenue Condominium Trust, CA No. 2009-01752 (Mass. Super. Ct. Sept. 24, 2010), a contractor’s mechanic’s lien was discharged. The case arose from a dispute between a general contractor and subcontractors hired to do work on common areas. Id. at *2. The community association paid the contractor, but the contractor did not pay for all of the work performed by the subcontractors. Id. When the contractor went out of business and filed for bankruptcy, subcontractors filed mechanic’s liens against the common areas, seeking to collect money owed them. Id. at *1, 3. The court discharged the mechanic’s liens stating “the language of the Condominium Statute is clear: Claims cannot be brought against the common areas and facilities of a condominium.” Business Interiors Floor Covering, Inc., CA No. 2009-01752 at *6 (citing M.G.L. 183A §13). The court further explained that “[w]hen two statutes are inconsistent, as the Mechanic’s Lien and Condominium Statutes are here, they should be ‘construed in a way that gives reasonable effect to both statutes and creates a consistent body of law.’” Id. at 5 (quoting City of Boston v. Board of Education, 392 Mass. 788, 792 (1984)). The court noted that “the use of a mechanic’s lien against only the common areas of a condominium is akin to trying to insert a square peg into a round hole. It simply does not fit.” Business Interiors Floor Covering, Inc., CA No. 2009-01752 at *5 (quoting Powder Mill Builders L.L.C. v. Powder Mill Square, L.L.C. and Powder Mill Square Condominium Trust, CA. No. 2008-00313A at *7 (Mass. Super. Ct., April 26, 2009)). “[C]ondominium owners own their unit exclusively while also possessing an undivided interest in the condominium’s common areas.” Id. (citing Berish v. Bornstein, 437 Mass. 252, 262 (2002)). Therefore, the court inquired, “‘What value do the common areas have separate and apart from the unit owning undivided percentage interests in the common areas? What interest would be conveyed to a purchaser, even assuming there is any market…?’” Id. (quoting Powder Mill Builders, L.L.C., CA. No. 2008-00313A at *10). The court observed that “there is no practical way to sell the common areas of a condominium.” Id. at *6. “Therefore… a mechanic’s lien ‘simply does not fit’ on a condominiums common areas.” Id. (quoting Powder Mill Builders, L.L.C., CA. No. 2008-00313A at *10). The court acknowledged that other states allow mechanic’s liens on condominium common areas, but distinguished them on the basis that “those states’ statutes do not prohibit attachments on common areas of condominiums, while Massachusetts’ Condominium Statute does.” Id.
The same result occurred in Michael Shea Co., Inc. v. Chellis, 81 Mass. App. Ct. 1105 at *1 (2011). court affirmed the motion judge and determined the statute plainly requires that “all attachments and executions related to [claims against common areas and facilities] shall be made only against common funds or property held by the organization of unit owners and not against the common areas and facilities themselves other than the leasehold of any lease included therein.” Id. (citing M.G.L. 183A § 13). Because the subcontractor’s notice of contract was clearly limited to common areas and facilities, the court held that the complaint was properly dismissed and the lien discharged, as the subcontractor had no entitlement to a lien against the property listed. Id. at *2 (internal citation omitted).
The subcontractor argued that nothing in the mechanic’s lien statute prohibits the filing of a lien with respect to common areas and facilities. Michael Shea Co., Inc., 81 Mass. App. Ct. 1105 at *2. Noting the conflict, the Appeals court stated that “[s]o long as the two statutes covering the same subject matter, when read together, are not repugnant to each other, and there is some rational basis for reconciliation of the two, then the presumption against implied repeal shall stand.” Id. (quoting Shrewsbury v. Seaport Partners Ltd. Partnership, 63 Mass. App. Ct. 272, 276 (2005)). The Court determined that Section 13 of the condominium statute’s “incompatibility with the mechanic’s lien statute does have a rational basis: namely, that there is no separate interest in common areas and facilities apart from the individual condominium units, and therefore, no interest that could be conveyed to a hypothetical purchaser to satisfy the lien.” Id. (citing Berish v. Bornstein, 437 Mass. 252, 262 (2002)).
In my view, contractors should be permitted to assert mechanic’s liens on common areas of a condominium. I do not see any rational basis to limit the mechanic’s lien remedy. The value of services rendered to pave the parking lot of a condominium is no more less than the value of services to install a sink in an individual unit. The paving contractor should have the same rights as the plumbing contractor. The present interpretation of the conflict between the Massachusetts’ Condominium Act and the Mechanic’s Lien Statute completely deprives contractor’s of their right to assert a lien to improve common areas.
Blanket Lien Approach
Some states, including California, Virginia, and Colorado, provide a mechanism to afford a mechanic’s lien remedy to contractors improving common areas of condominiums. Their approach, which is also recommended by the Uniform Construction Lien Act, is a blanket lien approach. Unlike Massachusetts, a claimant in California may file a “blanket lien” for improvements made to condominium common areas. See Cal. Civ. Code § 8446. Apportionment of the value performed for common areas and the units is required. If such a blanket lien is placed on the common areas, a unit owner may discharge the lien by paying the particular sum attributable to his unit. Cal. Civ. Code § 1369.
Similarly, under the Uniform Construction Lien Act; a claimant may file a blanket lien, which attaches to the individual units as opposed to the common elements. See Sect. 203, National Commissioners on Uniform State Laws (1989). The blanket lien becomes a fractionalized lien against each unit for that unit’s proportional share of the cost. Id. at Comment 8. “[T]he unit owner of an affected unit may pay to the claimant the amount of the lien liability attributable to the owner’s unit, and the claimant, upon receipt of payment, promptly shall deliver a release of the lien covering that unit.” Id. at 203(g).
From a policy perspective, I strongly prefer the blanket lien approach. It gives a remedy to a contractor who is unfairly not paid for the value its improvements to land (which is the purpose of mechanic’s lien statute) and it spreads the liability for those common area improvements across all unit owners (which respects the shared ownership structure of the Condominium Act). Unless and until Massachusetts changes its approach, know that the security of a mechanic’s lien remedy is not present for you when you perform work on common areas of a condominium in Massachusetts. Depending upon bargaining leverage, contractors would be wise to consider taking appropriate measures to insure against non-payment such as advanced/escrowed funds, payment bonds, or other forms of security.
If you are a condominium developer in Massachusetts, this “no common area lien” rule is a valuable tool to discharge or narrow the mechanic’s lien filings of common area subcontractors who have not been paid. In such an instance, the subcontractor will be left to pursue breach of contract claims against the general contractor.