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By: Alexander A. Miuccio Gregory J. Spaun Published: January 2019

Landlord Liable to Contractor Where It Consented to the Work

The general rule is that a contractor who performed work for a tenant cannot file a mechanic’s lien on the real property unless the owner-landlord consents to the improvement. Such consent may be actual or implied. Generally, the owner must have indicated, through some affirmative act, a willingness to have the improvement made.

In the recent case of Ferrara v Peaches Café, LLC, decided by the Court of Appeals, consent was found in a lease which requires or permits a tenant to make improvements to the leased premises. Therefore, the court permitted the contractor to foreclose on the lien.

Background

COR Ridge Road Company, LLC owns commercial property that it leased to Peaches Café LLC, where Peaches intended to operate a restaurant. The written lease required Peaches to supply “[a]ll electrical work other than items furnished by [COR].” The lease further provided that Peaches could not commence construction work on the property without COR’s consent, and that Peaches could only use contractors approved by COR. Finally, the lease stated that any alterations, additions, or improvements to the premises “shall at once become a part of the realty and belong to [COR] and shall be surrendered with the Premises.”

Ferrara was retained by Peaches to perform the electrical work on the property, which it performed satisfactorily. Peaches failed to pay Ferrara, and Ferrara filed a mechanic’s lien against the property. Ferrara sued to foreclose on the lien.

Ferrara moved for summary judgment on its lien foreclosure cause of action, and COR moved for summary judgment dismissing that claim. COR argued that it did not have any dealings with the contractor and did not “expressly” or “directly” consent to the performance of the work. According to COR, liability could not be imposed on the owner for the debts of the tenant.  The trial court granted COR’s motion and dismissed the contractor’s foreclosure action.  Ferrara appealed.

Appellate Decisions

On appeal, Ferrara argued that Section 3 of the Lien Law permits a contractor to file a lien for improvements made with the consent of the owner, and that COR consented to the work set forth in the lease, which required Peaches to make certain alterations to the rented space. The Appellate Division reversed the trial court’s decision and granted Ferrara summary judgment against COR, relying upon well settled case law which holds that the landlord’s consent need not be specifically granted, but can also be implied from the terms of a tenant’s lease. Here, the requirement in the lease that Peaches make certain improvements is sufficient to imply the owner’s consent. The Appellate Division also rejected COR’s argument that a clause in the lease that disclaims liability for any mechanic’s lien arising as a result of work by Peaches extinguishes the Owner’s liability for the lien. The court found that the disclaimer provision was merely an indemnification clause meant for Peaches to ultimately repay COR for any monies COR had to pay out to a lienor. COR appealed to the Court of Appeals.

The Court of Appeals affirmed the decision of the Appellate Division, rejecting COR’s argument that a direct relationship between the landlord and the contractor was necessary to impose liability on the landlord. The Court noted that Peaches not only was obligated to make improvements, but COR also retained supervision over the work in the form of a veto over the contractor chosen and Peaches’ proposed plans. Based on these facts and well settled case law, the Court of Appeals found that the owner’s implied consent for the improvement, as spelled out in the lease, is sufficient to establish COR’s consent to the improvement.

Comment

Although the interpretation of what constitutes an owner’s implied consent to an improvement is a fact-based determination that will vary from case to case, it does not require a direct relationship between the owner-landlord and the lienor contractor. All that is required is that the owner either had taken an affirmative act or a course of conduct establishing such consent.  Here, the lease obligated the tenant to make specific improvements to the property. This “affirmative act” was sufficient to establish the owner’s consent to the work performed under the lease so as to allow the contractor to enforce the lien as against the property owner.

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