Daily Development for Thursday, April 8, 1999

LANDLORD/TENANT; CONSTRUCTION LIENS: For a tenant's contractor to attach liability upon the owner of property under an unjust enrichment claim, the contractor must show that the landlord has engaged in some form of improper, deceitful or misleading conduct.

DCB Construction Co. v. Central City Development Co., 965 P.2d 115 (Colo. 1998).

A contractor, hired by the lessee of a building to perform improvements on the building, brought an unjust enrichment action against the lessor after the lessee failed to make payments under the contract. Holding for the landlord, the Court restated and clarified the test for recovery under a theory of unjust enrichment as: 1) at plaintiff's expense; 2) the defendant received a benefit; 3) under circumstances that would make it unjust for the defendant to retain the benefit without paying. To hold a landlord liable to a contractor for improvements ordered by the tenant, the court's imposition of the remedy of restitution must rest not only in the loss to the contractor, but also in the conduct of the owner. Injustice in this context requires some type of improper, deceitful, or misleading conduct by the landlord.

Comment 1: The court does not make crystal clear whether the lease actually required that the tenant carry out the improvements, but the language of the court suggests that this indeed was the case. At one point, the court refers to the improvements as a form of "consideration" flowing to the landlord.

If indeed the landlord did require the tenant to make the improvements then this case is inconsistent with authority in many jurisdictions that do find that landlords in such situations subject their fee interest to the mechanic's lien if the tenant doesn't pay its contractor. The reasoning is that the landlord in essence has attempted to accomplish by indirection what it could not accomplish directly - obtain an improvement on the property without fear of mechanic's liens.

Comment 2: In general, the notion promulgated by the court here that a party should not be liable for unjust enrichment benefits unless it has engaged in wrongful conduct also does not seem consistent with the law in many jurisdictions. A number of jurisdictions, for instance, have statutory or common law notions that an "innocent improver" has the right to be compensated for benefits conferred upon a property owner, even when the property owner has done nothing to induce the innocent improver to act.

Although it might be true that improvement in one's property value is not, in and of itself, a basis for concluding that one must pay the improver, the circumstances that do give rise to an obligation to pay in most jurisdictions go beyond those involving the wrongfuly conduct of the benefitted party.

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