Leases, Lien Searches and the Law

Mechanic’s Liens and Leased Property

The legal ability for a claimant to file a mechanic’s lien against an owner’s interest in leased property can require a complex analysis. For example, Missouri law states that anyone who performs any work on land for any building, or improvements upon the land itself, under contract with the owner or proprietor, or with any contractor or subcontractor, shall have a lien upon the building or improvements to it.

Therefore, a tenant cannot rely solely on his or her landlord-tenant relationship to subject an owner’s interest in that property to a mechanic’s lien for improvements made by the tenant. Instead, there must be an established agency relationship.

Complex Lease Provisions

Express provisions within a lease can establish an agency relationship in the context of mechanic’s liens on leased premises. Disputes do regularly arise, however, when agency relationships are implied. Missouri courts look for a few different circumstances when determining whether an implied agency exists. They examine the lease’s covenants obligating a tenant to make substantial and permanent improvements, whether a tenant must make significant improvements to accomplish a specific performance, and whether improvements made provide betterment to the premises or substantially enhance its value.

Mechanic’s Liens Filed by Subcontractors

This analysis was clarified earlier this year by a Missouri Court of Appeals ruling in Crafton Contracting Company, et al. v. Swenson Construction, Inc. that considered if the owner of Plaza Frontenac was subject to mechanic’s liens filed by subcontractors that were carrying out work for a tenant.

The Details

The agreement between Crafton, the owners of the plaza, and Allen Edmonds, a tenant, required Edmonds to perform certain tenant improvements. Allen hired a general contractor, who in turn hired subcontractors. Allen paid the general contractor, but the contractor failed to pay two of its subcontractors, who subsequently filed mechanic’s liens on the shopping mall against Plaza Frontenac.

The Finding

Upon review of the lease, the court found that Edmonds was, in fact, an agent for Plaza Frontenac, as the lease required the tenant to make substantial and permanent improvements. The subcontractors were therefore entitled to file liens against the owner’s interest in the real estate.

This case serves as a useful notice for tenants, owners, contractors and subcontractors to take necessary precautions before construction projects are carried out for a lessee.

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