Compliance with mechanics lien laws is tough enough when you only need to figure out the required deadlines and the information that needs to be included on the lien itself. It’s even more frustrating when it’s difficult to determine whether or not alien right even exists, or, if it does, to what the lien will attach. While this is a difficult, and sometimes interesting, problem, the nuances only really matter in the theoretical sense – the practical question construction companies have is simple: “Can I file a valid lien and get paid?”.
There are many reasons that companies may be confused about lien rights on certain projects: the project may be difficult to classify, it may be a project type on which the claimant has never previously filed a lien, it may involve laws or legal situations that may be even more complex than normal, or they may have been given incorrect (or not fully correct) information. One particular project type that can encompass all of these problems is when work is performed (or materials are supplied) for the construction of a cell tower. And, with the rapid expansion and development of cellular and wireless connectivity in this country the number of these projects will likely only increase.
Cell Towers, Mechanics Liens, and the Leasehold Interest
One of the most common complications regarding work performed constructing, erecting, or providing materials for a cell tower, at least in regard to mechanics liens, is that the cellular company is rarely the owner of the land on which the tower is located. When improvements to the property are made by parties who are not the property owner (parties who have less than the fee simple interest in the property) it can have an effect on a mechanics lien filing or potential filing. The good news for lien claimants, though, is that mechanics liens are still powerful tools to induce payment in these situations. Some of the several different ways that tenant improvements are treated, as related to mechanics liens, are discussed below.
Option 1: Lien Can Attach to the Property Itself (Encumbers the Underlying Fee Interest of the Owner)
In some cases, a mechanics lien filed pursuant to non-payment on a tenant improvement project works in exactly the same manner as a lien filed pursuant to an improvement undertaken at the direction of the property owner. In some cases, a mechanics lien filed pursuant to non-payment on a tenant improvement project works in exactly the same manner as a lien filed pursuant to an improvement undertaken at the direction of the property owner. Generally, for this to happen, the owner must know of, and approve the work being performed. However, what constitutes knowledge and approval varies greatly, and is a factual inquiry.
In some states, clear written consent of the owner is required, but in other states, consent can be presumed from certain situations where no express consent was given. For example, in Massachusetts, a valid lien against the underlying property may be filed by a person with a written contract with the property owner, or “any person acting for, on behalf of, or with the consent of such owner”. This had, traditionally, shielded property owners from liability under a mechanics lien for work completed at the request of a tenant, however, recent cases have slightly eroded that protection.
In the case of a cell tower, however, it would be difficult to show that the construction was undertaken without the express consent of the property owner, since the lease agreement would specifically consider the tower’s erection, as the basis for the lease.
Option 2: Lien Can Attach to the Leasehold Interest (Encumbers the Leaseholder’s Interest In the Property Only)
In most situations, the mechanics lien will put the leaseholder in breach of the lease agreement. In other states, or, if there was no consent of the owner in a form proper to encumber the owner’s interest, a mechanics lien may attach to the leasehold interest of the party contracting for the work. That is, the lien doesn’t attach to the underlying property, but rather attaches to the lease. Even though a mechanics lien attached to a leasehold interest cannot force a foreclosure on the underlying property, it is still powerful and a potent way to induce payment. This is because in most situations, the mechanics lien will put the leaseholder in breach of the lease agreement. In most circumstances, lease agreements, especially commercial leases like those involving the erection of a cell tower, include “no-lien” clauses. Since the holder of the leasehold interest does not want to be put in breach of its contract with the property owner, and potentially lose the right to have their tower on the property, the mechanics lien filed against the leasehold interest is still an effective tool to induce payment on that type of project.
Option 3: Lien May Attach to Only The Structure
This option is a little more rare, but in certain circumstances, and in some states, a mechanics lien may attach solely to the improved structure and not the underlying property. For example, North Dakota allows a lien to be filed solely against the improved structure, provided the improvement can be removed from the underlying property. In a situation where the lien was filed pursuant to work on a cell tower, it is clear that this may be an option. The cell tower is built to be removable, and so a savvy lien claimant could file a lien that encumbers the tower itself. And, if the claimant remained unpaid, he/she could then foreclose on the cell tower, and force its removal from the property and eventual sale to satisfy the debt.
So, despite the potential oddities of filing a mechanics lien on a project where the improvement was not undertaken directly by the property owner, it still provides a powerful incentive to get you paid.