Daily Development for Thursday, April 8, 1999

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

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.

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 1-6, 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

Items reported here and in the ABA publications are for general information purposes only and should not be relied upon in the course of representation or in the forming of decisions in legal matters. The same is true of all commentary provided by contributors to the DIRT list. Accuracy of data and opinions expressed are the sole responsibility of the DIRT editor and are in no sense the publication of the ABA.