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When Can a Tenant’s Contractor Get a Lien on the Owner’s Property?

In commercial real estate, tenants often make improvements to the property necessitating the hiring of contractors. If the tenant hires the contractor and then doesn’t pay for that work, the contractor may seek to file a mechanic’s lien against the property. New York’s Lien Law as well as a recent Court of Appeals decision clarifies exactly when a contractor can properly file a lien against the landlord’s property where there isn’t a direct relationship between the contractor and the property owner/landlord.

New York Lien Law provides that in order to maintain a lien against property, no direct relationship with the property owner is required. However, the property owner must either be “an affirmative factor” in the improvement or have assented to the work being done with the expectation that it would profit from the improvement. A recent New York Court of Appeals case illustrates how this provision should be applied.

The case of Ferrara v. Peaches Café LLC concerned the claims of an electrician for $50,000 it was owed for work provided to a now defunct restaurant tenant. The electrician filed a mechanic’s lien against the property and commenced an action to foreclose on it.

The Court’s decision clarified that despite a group of prior appellate decisions which had held to the contrary, no direct relationship between the property owner and lienor was required to maintain a lien. Instead, the Court looked to whether the contractor could establish that the property owner assented to the work. As stated by the Court, the owner’s assent is not automatically implied from “passive acquiescence in or knowledge of improvements being undertaken.” Additional evidence is required.

Under the terms of the lease, the landlord reserved the right to approve the improvements as well as the hiring of contractors, architects and engineers. The landlord also had the right to be provided with detailed plans, including electrical plans. The tenant was obligated to revise the plans in response to the landlord’s comments. The lease also contained specific details regarding the type of electrical systems to be installed. Finally, the lease stated that all improvements became the possession of the landlord after expiration of the lease.

Ultimately, the Court found that the language and obligations under the lease were enough to establish the landlord’s assent to the work, and that the lien could properly be maintained. It also reversed the line of cases which required a direct relationship, finding that the same had misapplied certain language from a 1938 decision of the Court.

If you are a contractor considering filing a lien or a property owner defending against one, contact us for a consultation about your rights.

Learn more about our real estate litigation practice.

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