Daily Development for
Monday, October 26, 1998

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

MECHANIC'S LIENS; AFTERACQUIRED PROPERTY: Although a Connecticut mechanic's lien will cover engineering and site preparation services, liens for such services are not valid when they are performed for the benefit of a party who has not yet obtained title to the parcel on which the work was performed, and lien filings alleging liens dating from a commencement date prior to the transfer of title to the benefitted party are invalid, even as to work performed thereafter.

New England Savings Bank v. Meadow Lakes Realty, 706 A.2d 465 (Conn.1998).

Although the court states that the Connecticut mechanic's lien statute is unique, and interpretations of it should not be based upon or relevant to interpretations of other jurisdictions, in fact the court does not seem to rest its analysis upon the language of the statute, but upon general interpretations of mechanic's lien theory. Because the case has potential significance therefore, outside of Connecticut, and deals with a relatively common problem, we report it here.

In June , 1986, Developer contracted to acquire two lots totalling 240 acres pending feasibility analysis. The project also included obtaining a right of way across a third parcel (the "Access Parcel.") Developer hired Engineers to carry out the feasibility study and to consult on site preparation and other developmental matters throughout the project. Engineers did work on all three parcels prior to the ultimate conclusion that the project was feasible.

In December, 1986, Develpers closed on the acquisition of half the land (the "Front Parcel") but took an option on the second half (the "Back Parcel") because of title uncertainties between that Parcel and the Access Parcel. Engineers contined their work on all three parcels.

In March, 1988, Developers obtained a construction loan mortgage from Bank on the Front Parcel only. As of that time, Engineers had done substantial work with respect to all three parcels all of it related to development of a project on the Front and Back Parcels. Developer had paid Engineers all of their fees up to that time, and continued to do so for a number of months thereafter. In January of 1990, Developer obtained title to the Back Parcel.

Ultimately, things went bad, and Engineers were left with a substantial unpaid claim for work done late in the process. Engineers filed a mechanics lien claim in October of 1990 and brought suit to foreclose in 1991. The lien filing claimed that work had commenced on all three parcels in June of 1986 and claimed priority as of that time under Connecticut's "first shovel" priority scheme.

The court acknowledged that engineering and site development work are lienable, even though they do not involve the construction of a building, and even acknowledged that it might be possible to impose a lien for work on one parcel that is part of the site development of a separate parcel. But it found the mechanic's lien claimed in this case to be invalid because it represented a claim for a work of improvement commenced at a time that the party to be liable did not own the title to the property to be liened.

In general, the court said, a mechanic's lien on after acquired property is invalid. The court acknowledged that it is general practice in real estate development to commence surveying and engineering services prior to acquisition of title. Nonetheless, the court found itself constrained by Connecticut's mechanic's lien law, which requires the contracting property owner to hold title to or have an equitable interest in the land at the time the work commenced.

The Engineers argued that Developer had an equitable interest in the Front Parcel, at least, at the time that the work was commenced. But the court held that even where a purchase contract exists, the work in question must be requested or done for the benefit of the actual legal title holder at the time. Consequently, where property is owned developed by a builder subject to a contract to deliver to a buyer at the conclusion of the project, the lien will attach, because the builder requested it, even though the benefit runs to the next party the equitable owner. Here, however, all of the work done by Engineers was for the benefit of Developer and not for the owner of the property prior to closing.

Comment 1: The editor finds it surprising that the *entire* lien was held invalid, and not just subordinate to the construction lender. This is remarkable for several reasons:

1. Everyone stipulated that the work done prior to the Developer's acquisition of the Front Parcel was paid, and that a great deal of work thereafter was done on the Front Parcel. Consequently, it would appear that the lien as to the Front Parcel addressed only work done while the Developer owned it.

2. The Developer ultimately did acquire the Back Parcel. The work done on that parcel prior to the Developer's acquisition, as well as the work done on the Access Parcel, clearly were designed to facilitate the development of the Front and Back Parcels into a single real estate project, and so ultimately benefitted both parcels. The court really doesn't explain what there is about Connecticut law that restricts the attachment *after* acquisition of a lien for work done *before* acquisition.

Comment 2: Part of the problem perhaps all of the problem may have had to do with the filing itself, which claimed a lien for working commencing in June of 1986. The Engineers did this in order to prime the construction mortgage, and the court wasn't going to let them get away with that. Perhaps the court would have been more generous if the Engineers had liened both parcels separately and broken down the work so as to claim only for the work done while the Developer was actually the owner of each parcel. Perhaps one of the problems with this was that the Engineers found it impossible to allocate work done on an individual parcel alone, since all of the work was aimed at development of a unified project.

But it is quite common for courts to require a great deal of specificity in the filing of mechanic's liens, and that kind of thinking may have influenced the outcome here, although the editor confesses that the court's theory would appear to doom even a lien claim filed with the specificity that the editor espouses.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 16, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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