MECHANIC’S 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 mechanic’s 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 owner’s 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-owner’s 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
mechanic’s 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
court’s 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 aren’t 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 mechanic’s lien filing
against one co-owner is valid against other co-owners. This argument didn’t
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.
Willes’ 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 mechanic’s lien against common
property must be allocated separately against the percentage interest of each
cotenant. Since Willes’ claimed lien did not differentiate among the separate
units, it amounted to a claim against RA’s 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 didn’t
since RA hadn’t been notified of the mechanic’s lien claim. Therefore, the claim
was not good against RA. Since the claim sought to hold Baltimore liable for
work done on RA’s property, and, since the court could not allocate the lien
because RA was not legally in the case, the lien, wasn’t 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 mechanic’s 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 Trust’s 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 RA’s
separate property. The basis for the notice requirement was that the lienor
sought to sell both that separate property and RA’s separate undivided interest
in the common elements as part of the lien action. Even if RA’s 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 “owner’s council” 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 mechanic’s lien
lawyers will have to be aware.
Comment 5: Haven’t learned anything new yet? Then how about this (from the
opinion)?
“The first Mechanic’s 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.”
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