Source: http://www.americanbar.org/publications/under_construction/2014/march_2014/draft_lawsuits_trigger_insurance_coverage1.html
Timestamp: 2015-10-06 03:54:41
Document Index: 754916083

Matched Legal Cases: ['§ 1', '§ 17', '§ 1', '§ 2', '§ 13', '§ 13', '§13', '§ 13', '§ 339', '§ 339', '§ 8446', '§ 8446', '§ 8446', '§ 8446', '§ 8446', '§ 1369', '§ 38', '§ 55', '§ 8446', '§ 2', '§ 8', '§ 4', '§ 254', '§ 4', '§ 2', '§ 2', '§ 8', '§ 1', '§ 11', '§ 5', '§ 13']

My Client Can Lien A Condominium’s Commonly Owned Property, Right? Not Always And Not In Massachusetts | Forum Committee on the Construction Industry
ABA Mission and Goals	ABA History and Timeline	Careers	ABA Departments	ABA Governance and Policies	Requests for Proposal	Financial Reports	Affiliated Organizations	ABA Charities	Donate	Contact the ABA	ABA Online	ABA Business Conduct Standards	Home > Publications > Under Construction > 2014 > Under Construction March 2014 > My Client Can Lien A Condominium’s Commonly Owned Property, Right? Not Always And Not In Massachusetts
My Client Can Lien A Condominium’s Commonly Owned Property, Right? Not Always And Not In Massachusetts
Contractor (“Contractor”) enters into an agreement with an owner of a commercial building (“Owner”) in a Boston suburb to renovate and improve a roof deck, install solar panels, and renovate the parking/storage spaces of the garage. Contractor enters into a contract with a vendor (“Vendor”) for the supply and installation of the solar panels and related equipment. Contractor does not pay Vendor. Vendor instructs its attorney to immediately record a mechanic’s lien. Because she was familiar with the Massachusetts Mechanic’s Lien Statute, the attorney asked the typical foundational questions such as the property address, name of the owner/contractor, whether there was a written contract, questions regarding the contract accounting, whether a notice of identification had been filed, the amount remaining due to the contractor, the day on which work was last performed, whether there had been a notice of termination or substantial completion, etc. All signs were positive and so the attorney agreed to proceed with the lien. In performing her review of the title, however, the attorney discovered the building in question was a condominium (a fact that was not discussed with her client). The attorney performed legal research to evaluate the manner in which she was to draft the initial lien documents (the Notice of Contract and Statement of Account ) -- can she name only the Condominium Trust and identify the common areas improved (e.g. the roof deck and garage ports) or must she name the thirty (30) separate owners of the separate condominium units? To her surprise, the answer appeared to be NEITHER! Under present Massachusetts law, the attorney found that a contractor who performs work to improve real property or fixtures which is the common area of a condominium cannot assert a mechanic’s lien. See Michael Shea Co., Inc. v. Chellis, 81 Mass. App. Ct. 1105 at *2 (Unpublished Disposition 2011); see Business Interiors Floor Covering, Inc. vs. Basepoint Contracting, L.L.C., CA No. 2009-1752 at *6 (Mass. Super. Ct. Sept. 24, 2010). Familiar with the public policy behind the mechanic’s lien statute, this made no sense to the attorney or her client. Why is there a distinction between improvements made to property owned by one person, versus property owned by a group of people? The answer is the Massachusetts Condominium Act and cases construing the same. The courts in Massachusetts have found 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.” 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. Apr. 26, 2009)). Other jurisdictions respond to the issue differently by affording a statutory remedy to contractors. In this article we discuss the Massachusetts statutes and decisional law to illustrate the conflict which has arisen in some states between the policies of Mechanic’s Lien and Condominium Statutes with regard to work performed solely on common areas of condominiums. Next, we consider approaches taken by other jurisdictions. Finally, we conclude that those states which afford a remedy to contractors better harmonize and advance the statutory policy objectives of both statutes. II. Massachusetts’ Mechanic’s Lien Law and Condominium ActThere is a conflict between the policies which support Massachusetts’ Mechanic’s Lien Statute (c. 254), and Massachusetts’ Condominium Statute (c. 183A), with regard to work performed by contractors on common areas of condominiums. The Condominium Statute has been interpreted to prohibit liens on common areas, including mechanic’s liens. This directly conflicts with the policy behind the Mechanic’s Lien Act, which is to provide security to parties who improve real property under a written contract. See NES Rentals v. Maine Drilling & Blasting, Inc., 465 Mass. 856, 868 (2013) (quoting Hammill–McCormick Assocs., Inc. v. New England Tel. & Tel. Co., 399 Mass. 541, 542–543 (1987)).a. Massachusetts’ Mechanic’s Lien Statute The Massachusetts Mechanic’s Lien Statute governs the creation, perfection, and dissolution of mechanic's liens. NES Rentals v. Maine Drilling & Blasting, Inc., 465 Mass. 856, 861 (2013) (internal citations omitted). It allows eligible persons, including but not limited tolaborers, general contractors, subcontractors and suppliers, to file liens to create encumbrances on properties improved by those persons. M.G.L. 254 § 1 et seq.; Meyers, James M., Massachusetts Construction Law, § 17-2 (LEXIS 1998). “[T]he primary purpose of the mechanic’s lien statute [is] ‘to provide security to contractors, subcontractors, laborers, and suppliers for the value of their services and goods provided for improving the owner’s real estate’…” NES Rentals, 465 Mass. at 860 (quoting Hammill–McCormick Assocs., Inc. v. New England Tel. and Tel. Co., 399 Mass. 541, 542–543 (1987)). “At the same time, the statute contains filing and notice requirements to protect the owner and others with an interest in the property.” Id. (internal citations omitted). The improvements covered by the Mechanic’s Lien statute are“erection, alteration, repair, or removal of a building, structure, or other improvement to real property, or for furnishing material or rental equipment, appliances or tools.” See M.G.L. 254 § 1. A written contract is required to assert a mechanic’s lien in Massachusetts. See M.G.L. 254 §§ 2, 4; see also Nat'l Lumber Co. v. Fort Realty Corp., 1999 Mass. App. Div. 235 at *2 (Dist. Ct. 1999).b. Massachusetts’ Condominium ActMassachusetts’ Condominium Statute has been construed to bar mechanic’s liens for work performed to improve the common areas of condominiums. Michael Shea Co., Inc. v. Chellis, 81 Mass. App. Ct. 1105 at *2 (Unpublished Disposition 2011); M.G.L. 183A § 13. Section 13 of the Condominium Act, which Massachusetts courts have interpreted as being dispositive on this issue, states: 13. Claims involving common areas and facilities; liabilityAll 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.M.G.L. 183A § 13 (emphasis added). In other words, all claims are satisfied first out of the common funds, and each owner is thereafter liable for their share of the balance due, as determined by their percentage interest, and liens may not be placed on the common areas themselves. See id. (except for a leasehold interest carve out pertaining to leases given to third parties).c. Massachusetts Cases Regarding Both StatutesA handful of Massachusetts cases have discussed a mechanic’s lien claimant’s inability to encumber common areas of condominiums. For example, the Superior Court case of 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),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 struck the mechanic’s liens and held that “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., CANo. 2009-01752 at *6 (citing M.G.L. 183A §13). Moreover, the court 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., CANo. 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 queried, “‘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. In Michael Shea Co., Inc. v. Chellis, 81 Mass. App. Ct. 1105 at *1 (2011), the trustees of a condominium trust entered into a contract with a general contractor that, in turn, entered into a contract with a subcontractor. The subcontractor was only paid a portion of the amount it was owed by the general contractor, who thereafter petitioned for Chapter 7 bankruptcy relief. Id. The subcontractor filed a Notice of Contract and Statement of Account pursuant to the Mechanic’s Lien Statute. Id. The Notice of Contract described the property being liened as “[t]he common areas and facilities of the condominium…” Id. The subcontractor thereafter filed a complaint in Superior Court to enforce the mechanic’s lien. Id. The motion judge dismissed both counts and discharged the lien. Michael Shea Co., Inc., 81 Mass. App. Ct. 1105 at *1. The judge observed that, under section 13 of the Condominium Statute, claims cannot be brought against the common areas and facilities of a condominium. Michael Shea Co., Inc., 81 Mass. App. Ct. 1105 at *2. On appeal, the 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 subcontractorargued 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. The court disagreed, stating 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)). Thus, under the present law of the Commonwealth, an unpaid contractor or supplier who improves common areas of a condominium has no ability to employ the mechanic’s lien remedy otherwise afford by Chapter 254. III. Other ApproachesThere is considerable variation between states as to how, or if, mechanic’s liens can be applied to condominiums’ common areas. Some states, like Massachusetts, prohibit liens with regard to common areas entirely. Others allow for the filing of blanket mechanic’s liens, with some variation in their application. Still others require contractors to file liens against the individual units. Similar to Massachusetts, New York decisional law prohibits the placement of any lien, including a mechanic’s lien, against the common elements of a condominium, except with the unanimous consent of the unit owners. N.Y. Real Property § 339-1. Like Massachusetts, the New York Condominium Act provides that “[t]he common elements shall remain undivided and no right shall exist to partition or divide any part thereof…” N.Y. Real Property § 339-i(3). Unlike Massachusetts and New York, a claimant in California may file a “blanket lien” for improvements made to condominium common areas. See Cal. Civ. Code § 8446. To file the blanket lien, the mechanic’s lien claimant must have entered into a contract with the same person (who owns multiple parcels) or an entity that owns property as a group (such as the condominium association). Cal. Civ. Code § 8446(a). Where there are multiple works of improvement (for example, a contractor paints the outside of the condominium [common area] in addition to painting interior units [owned by individual unit owners]), the claimant must, in the lien filing, apportion the amount due for each work of improvement. Cal. Civ. Code § 8446(b). If the work of improvement is solely performed on common areas, then the claimant does not have to segregate the value of the work for each owner. Cal. Civ. Code § 8446(c). In the enforcement action, the Court has the discretion to designate an equitable distribution of the lien among the various owners of the real property. Cal. Civ. Code § 8446(c). 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.The same is true 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). The comments to the Act explain the drafters’ intent to strike a balance between the interests of unit owners and construction lien claimants: “The first rule of the subsection is that the lien does not attach to the common elements. If, for example, the association contracts for work to be done on a swimming pool or parking lot which is a common element, the lien claimant has no power to assert a lien on the swimming pool or parking lot and have it sold to satisfy the lien. Rather the lien attaches to all the units in the common interest community. …While the result is cumbersome for the lien claimant on the one hand, on the other hand it gives the claimant a lien against the real estate with real value. If a lien were to arise only against the swimming pool or parking lot, in many cases, they would have no value to anyone but the common interest community and could not produce a sales price sufficient to pay the lien claim.The rule… takes precedence over the otherwise applicable rule that the property subject to the lien is that described in the notice of commencement or that being improved or directly benefitted. Therefore, if a notice of commencement covering work contracted for by an association describes only the common elements, the lien would, nevertheless arise against all the units. … If the association intends to limit the lien claimant to units being improved or directly benefitted by the work, the notice of commencement should be appropriately limited.”Id. at Comment 8.Colorado law allows a single lien claim for the entire contract debt against all units or properties that were benefited by the work, where the cost or value of the labor or materials cannot be easily divided or apportioned. See Colo. Stat. § 38-22-103(4); see also Buerger Inv. Co. v. B.F. Salzer Lumber Co., 237 P. 162, 163 (Colo. 1925). Virginia law also allows for the filing of blanket liens, but such a lien must specifically recite the proportionate amount of the indebtedness attributable to each individual unit. Va. Code § 55-79.83(D); see also Cal. Civ. Code § 8446(b). In many instances, the assignment of the value of the work of improvement is speculative and ripe for contested litigation. For example, a question of fact will often arise about whether the common area improvement benefits all of the units of a condominium, some units more than others, or some but not all units. For example, an issue could arise if there is an expansion of a parking lot which serves only one of multiple buildings in a condominium complex. Certainly the owners of the adjacent building directly benefit from the expansion. But, those other buildings perhaps benefit as well given the greater capacity of parking spaces near their building. Placing a value on a per unit basis of such an improvement would be very difficult and speculative.IV. Discussion So, what approach better advances the intent of the two statutes where common area improvements are made? No Lien Approach (MA/NY). This strips away an otherwise existing statutory right of a contractor merely because a parcel of land is owned by a community of people as opposed to one person. The “no lien” approach only advances the purported purpose of the Condominium Act while eviscerating the purpose of the Mechanic’s Lien Act. It protects unit owners from the annoyance and burden of small encumbrances on their title. Yet, it makes no sense that a contractor can assert a mechanic’s lien for painting the interior of a condominium unit but not for painting the building’s exterior. Blanket Lien Approach (CA/CO/Uniform Mechanic’s Lien). This approach provides a useful remedy to contractors who are not paid for improvements made to condominium common areas. The logistics of such filings are not overly burdensome in that a single lien will apply automatically across all unit holders’ interests. It provides a mechanism to unit owners to dispose of the encumbrances through payment, escrow, bond, or other security. As with normal mechanic’s liens, foreclosure proceedings will be rare. Payment often comes when the owner wishes to sell or further encumber her property. Where a blanket lien is placed on a multi-unit condominium, one can expect the pressure to quickly mount upon the condominium association where one or more unit owners learn about the cloud on their title. The association should be expected to be far more motivated to deal promptly and fairly with unpaid contractors, subcontractors and vendors in situations where there is pressure from numerous unit owners. There is no doubt that blanket liens impact unit owners and would often cause them surprise. Yet, if the unit owners obtain the benefit of improved common area property, it is not unreasonable to expect those same owners to bear the burden if their association (or its contractor) fails to pay others who improve the community property. As is apparent from the not-so-subtle comparison above, we believe that the blanket lien approach strikes the better balance of interests. It gives a remedy to a contractor who is unfairly not paid for the value of her 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). The course taken by Massachusetts courts on this issue has rested on reasoning that discounts (perhaps disregards) the important public policy of Massachusetts’ Mechanic’s Lien Statute. It interprets language meant to insulate unit owners from liability relating to condominium common areas broadly to bar the mechanic’s lien remedy. The most direct means to harmonize and advance the dual policy goals of the mechanic’s lien and condominium statutes would be for Massachusetts Legislature to adopt the blanket lien approach. Such blanket liens would provide an effective and efficient form of security for contractors, laborers, suppliers, etc. Importantly, as discussed in the Comments to the Uniform Construction Lien Act, the blanket lien approach gives claimants a lien against real estate with real value. If mechanic’s liens were allowed only against the common areas, such liens would have no value, as common areas are not generally useful to anyone outside of the condominium community. For example, there is likely no market for the sale of a lobby, and so such property would not satisfy the underlying debt. A blanket lien that is automatically apportioned is far more efficient and does not operate at the expense of the individual unit owners rights. If an individual unit owner wishes to remove the proportional lien in order to sell their property or otherwise, they may simply pay the portion of the amount due to the contractor or obtain a bond for that amount. V. ConclusionThere is good policy behind both Mechanic’s Lien Statutes and Condominium Statutes. In Massachusetts, and in other states, the policies behind Mechanic’s Lien Statutes are not being effectuated with regard to improvements made to common areas of condominiums. As explained in this article, other jurisdictions have better reconciled the conflict between the policies behind Mechanic’s Lien Statutes and Condominium Acts. The blanket lien approach strikes a balance between the interests of unit owners and the interests of construction lien claimants.In the beginning of this article, our hypothetical lawyer asked why common areas should be treated differently than any other kind of legal interest in real property? The authors do not have a satisfactory answer believing that the mechanic’s lien remedy should not be stripped from common condominium areas. Those who improve common areas of condominiums should be able to file Mechanic’s Liens to protect their interests. The blanket lien approach would advance the public goal of giving contractors a remedy, while at the same time respecting the shared ownership structure of condominiums.Until the blanket lien approach comes to Massachusetts, New York, or similar jurisdictions, inform your clients to be cautious of construction work performed for condominium associations. If in a no-lien jurisdiction, take appropriate measures to insure against non-payment whether through advanced funds, escrowed funds, payment bonds, or other forms of security. Endnotes1. A written contract is required under the Mechanic’s lien statute, M.G.L. 254 § 2, see also Nat'l Lumber Co. v. Fort Realty Corp., 1999 Mass. App. Div. 235 at *2 (Dist. Ct. 1999). 2. Under M.G.L. 254 § 8, liens will be dissolved after a certain amount of time unless the contractor, subcontractor, or some person claiming by, through or under them, files or records a statement, giving an account of the amount due or to become due him, a brief description of the property, and the names of the owners set forth in the notice of contract. 3. Lower tier subcontractors may send general contractors a statutory form called a “Notice of Identification” within thirty (30) days of commencement of work. The “Notice of Identification” alerts the general contractor that the lower tier subcontractor is working on the project and the estimated value of its work. If such a notice is sent, the mechanic’s lien will not be limited in value by the amount due to the contractor above it. See M.G.L. 254 § 4.4. If a Notice of Identification is not received, the Subcontractor’s lien is capped at the amount due to the General Contractor. See M.G.L. § 254, § 4.5. Deadlines for filing of a lien are tied to recording of Notice of Substantial Completion, Notice of Termination, or date work was last performed on Project. See M.G.L. 254 § 2, 4. 6. A “Notice of Contract” is a form document that identifies the lien claimant, states who the claimant had a contract with, how much that contract was for, and describes the property to which the labor or materials were supplied. See M.G.L. 254 § 2, 4. 7. A “Statement of Account” is a form document that references the claimant’s Notice of Contract, states the amount of the claimant’s contract, how much it has been paid, and how much it is owed. See M.G.L. 254 § 8. If a claimant fails to record its Statement of Account in a timely manner, its lien is dissolved and lost forever. See id.8. A mechanic’s lien can generally be brought by anyone who improves real property. See M.G.L. 254 § 1 (Laborers), 2 (General Contractors), 4 (Subcontractors/Suppliers). 9. M.G.L. 254 § 11 (requiring a complaint to be filed with the Superior Court in the County in which the real property lies within 90 days of recordation of them a Statement of Account); see also M.G.L. 254 § 5 (an attested copy of the complaint to enforce shall be recorded in the registry of deeds within 30 days of filing the complaint). 10. The language and intent of the Massachusetts Condominium Act may not be as black and white as the courts have construed it especially when pivotal Section 13 does not even use the word “lien” and creates a carve out for leasehold interests conveyed in common areas. M.G.L. c. 183A § 13. Nevertheless, there is no doubt that the two statutes conflict. Print