MECHANICíS LIENS; NOTICE; CONDOMINIUMS: Despite statute providing that notice to a co-owner of a project as to which a lien is claimed constitutes notice to all, a lien claimant does not establish a valid mechanicís lien by notifying the manager of a condominium project, or, for that matter, establishing only one owner, when the claimed lien would lie against several distinct units. Further, notice of a claimed lien against the common elements is not valid when served on only one owner if the claim is for more than that ownerís aliquot portion of the lien against the common areas, as liens against condominium common areas must be allocated on a percentage basis against each co-ownerís separate cotenancy interest in those areas.
Southern Mgt. vs Willes Construction Co., 856 A.2d 626 (Md. 8/20/04)
Rite Aid had plans to develop a former retail and commercial building into a seven story residential and retail condominium. As a first step, it filed a Declaration creating only eight units, seven of them constituting all of the area of the178 proposed residential units (which in the end were not sold separately, but leased), and another unit consisting of the ground floor, which was to be a retail unit. It transferred the latter single unit to RA Development Trust, and the other seven units to Baltimore Condominium LLC. The court never elucidates us as to how the ultimate development scheme was to be carried out or who were the parties in interest of these ownership entities. They were separate ownership entities, and that, apparently was sufficient for purposes of this decision.
Southern Management was a management company retained by Baltimore Condominium LLC. It contracted with Willes to do demolition work as part of the conversion process. The court noted that, although this work included work in the physical space of the unit owned by RA Development Trust, no evidence was submitted that Southern Management had any contractual relationship with the Trust.
Willes was paid for some of its work and filed a partial release of lien statement. This statement identified the separate owners of the units where Willes was working. Apparently the day after filing this statement, Willes was terminated by Southern. But Willes alleged that it continued working thereafter and that, in all, it had completed substantially more of the work than that for which it had been paid. Southern disagreed. Willes sued and filed for a mechanicís lien. The lawsuit named Southern as a party defendant and notice of the lien was served only on Southern, its construction manager, and Baltimore Condominium LLC. It failed to name RA trust.
The trial court dealt with a number of other procedural issues, resolving them in favor of Willes, and confirming the existence of a lien against the whole property. The Court of Special Appeals affirmed in part, but modified the trial courtís order and remanded on issues not relevant to this report.. Apparently, the trial court and Court of Special Appeals concluded that there was no evidence that a condominium had been formed. Without further explanation, the Maryland Court of Appeals notes simply that the recorded Declaration and recorded deeds of units to the two separate entities made it clear that there was indeed a condominium. We arenít told how the Court of Special Appeals missed this point.
But Willes argued that, nonetheless, its filing as against the three defendants that it did notify constituted a good filing against the property of RA Trust because a Maryland statute provides that notice of a mechanicís lien filing against one co-owner is valid against other co-owners. This argument didnít avail, first, because the court noted that a portion of the work, and the claimed lien, addressed separate property of RA Trust, not commonly owned property. This is the nature of a condominium - a combination of separate property and commonly owned property.
Willesí argument might have worked as to the claimed lien on the common property, since here the parties were cotenants, but the court invoked another section of the Maryland law, which stated that a mechanicís lien against common property must be allocated separately against the percentage interest of each cotenant. Since Willesí claimed lien did not differentiate among the separate units, it amounted to a claim against RAís property for amounts that properly should have been allocated only to Baltimore. Although the court might have had jurisdiction to divide up the claim if it had jurisdiction over RA, it didnít since RA hadnít been notified of the mechanicís lien claim. Therefore, the claim was not good against RA. Since the claim sought to hold Baltimore liable for work done on RAís property, and, since the court could not allocate the lien because RA was not legally in the case, the lien, wasnít good against Baltimore LLC either. By the time that Willes had been made a ware of its mistake, it was procedurally barred from refiling its mechanicís lien claim.
Comment 1: The court did concede that notice to the management company was good notice to the parties for whom it served as an agent manager, it noted that there was no evidence of any relationship, agency or otherwise, between RA Trust and the manager. One would think that some equitable arrangement might have been found based upon the apparent fact that the management company was carrying out construction on RA Trustís property of benefit to RA and with its apparent knowledge and consent. None of the courts apparently made anything of this.
Comment 2: The notion that a condominium creates separately owned estates in addition to a commonly owned estate would appear to be elementary by now, and it seems remarkable that this issue had to be resolved by the Maryland Court of Appeals. There may have been more going on in this case than meets the eye. Since the court tells us zilch about the beneficial owners of the two unit owners, we are left to speculate about alter ego or other issues that might have supported the lower court decisions.
Comment 3: The court indicated that the question of whether all the owners of a condominium sought to be liened need to receive notice was a question of first impression in Maryland. It is important to note that its affirmative answer to this question is not based upon the fact that work was performed on RAís separate property. The basis for the notice requirement was that the lienor sought to sell both that separate property and RAís separate undivided interest in the common elements as part of the lien action. Even if RAís separate property had been excluded from the claimed lien, the fact that the common elements were to be liened would have been sufficient to support a requirement for notice.
Does this case deal with the question of notice to trigger the lien or the question of necessary party status to the lien action itself? Both. But the former issue takes precedence, since without it, perhaps, the missing party could have been added.
Comment 4: The court also noted another problem for Willes - the condominium statute requires that the ďownerís councilĒ approve work done to the common elements. Whoops! This little item likely will crop up again in construction claims against condominiums in the development stage, and mechanicís lien lawyers will have to be aware.
Comment 5: Havenít learned anything new yet? Then how about this (from the opinion)?
ďThe first Mechanicís Lien Law in the United States was enacted by the General Assembly of Maryland in 1791 at the urging of Thomas Jefferson and James Madison, who championed such legislation to stimulate the rapid development of the City of Washington.Ē
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