Mechanics liens on condominiums can be tricky. In fact, this blog has addressed the complexities of condominium projects several times; here or here for example. the factors that make the lien process difficult in general are magnified on condominium projects The reason that condo projects are sometimes more difficult, in terms of properly preserving mechanic’s lien rights and perfecting liens, than other types of projects is generally because the factors that make the lien process difficult in general are magnified on condominium projects. This post will briefly examine the common issues, and take a look at a couple of interesting situations.
Condominium Construction Projects Can Be Residential or Commercial In Nature
Determining whether a condominium project is considered commercial or residential is the first step in properly complying with the requirements set forth by the law of the state in which the project is located. Many states have different notice requirements, and/or different timing requirements depending on whether the project is classified as a commercial project or a residential project. Condominium projects are unique in that they can be either commercial or residential depending on the work performed and on the timing of the project.
Generally speaking, the following guidelines outline the correct determination of project type. As with most things in mechanic’s lien law, however, there are always potential exceptions.
- Work on the common areas of a condominium building at the proper request of the condominium association, is generally considered commercial.
- Any work in the process of constructing a condominium building prior to the recording of the condominium declaration, is also generally considered a commercial project. This is true even if the work is performed on individual condominium units, not the common areas.
- Work on an individual condominium, or multiple individual condominiums, and not on the common areas, is routinely considered a residential project, provided the work takes place after the condominium declaration has been filed.
There are multiple potential stumbling blocks here. The mere fact that the individual condominiums have not been sold, or are only partially sold, does not necessarily mean that the condominium declaration has not been recorded. Thus, work on an unsold, unoccupied condominium may not entail the lien claimant to a lien against the condominium property as a whole, and may attach to the individual condominium, (presumably owned by the condominium association or the developer) despite the fact that the project may be classified as commercial.
To What Does A Mechanics Lien Attach?
Mechanic’s liens attach to the property improved by the labor and/or materials of the lien claimant. What that is relates to the calculations and restrictions mentioned above. If the project is construction or other work prior to the recordation of the condominium declaration, a claimant’s lien would attach to the property as a whole. If,
however, the work was furnished to an individual condominium, the lien will attach to that specific condominium. This is because, as you are probably aware, a condominium building functions differently than something like an apartment building. Condominium buildings are not a single property. Each individual condominium has separate owners, separate assessor parcel numbers (APNs), separate tax bills, separate property descriptions, etc. In this manner a condominium is much more closely related to a single family home in a suburb than it is to an apartment. (Note that I am using the term apartment here only in reference to a rental unit).
The question can get more complex, however. To illustrate, I will look at two interesting situations: 1) What happens when work is performed on more than one condominium unit, and 2) What happens when work is furnished to the common elements of the condominium complex.
1) What happens when work is performed on more than one condominium unit?
In this circumstance, the fairly straightforward answer is that a lien would attach to the individual units for which labor and/or materials were furnished. However, the sub-question is how many liens must be filed. If the work is done on more than one individual condominium under contracts with more than one individual condominium owner, the answer is fairly simple. A separate lien would need to be filed on each property, for the value of the work performed on that specific unit. It would be just as if two people who owned houses in the same neighborhood each contracted with the same plumber to do work on two separate houses, two liens must be filed. The answer to this question may seem more convoluted, however, if the work is commissioned by the condominium association/property manager.
In an emergency situation, a condominium association may be allowed to contract for work to be done on individual condominium units. If this is the case, the potential lien claimant may be inclined to list the condominium as a whole on the lien, or to list the condominium association as the property owner. Both of these decisions would likely be incorrect, and could result in the invalidation of the lien were it to be challenged. In this situation, the liens would also attach to the individual condominiums. It is also likely that, to be most safe, an separate and distinct lien should be filed against each of the individual units for which labor and/or materials were furnished.
2) What happens when work is furnished to the common elements of the condominium complex?
This question can have multiple answers depending on where the project is located. To start, though, we should define common element. As was mentioned in a if work was performed on the common elements of the complex, to what does a potential mechanic’s lien attach? As mentioned previously, that answer can be dependent upon location.previous condominium post, a condominium complex’s common elements would consist of hallways, foyers, community rooms, outdoor areas, elevators, and similar facilities. Each condominium owner actually owns a proportional percentage of these elements based on a formula set forth in the association documents (generally something like the square footage of unit as a percentage of the total square feet of all units combined) and they are managed by the association or management company. For example, if the condominium building has 10 units, each of which are equal in size, each condominium owner would have a 10% interest in the ownership of the common elements.
So, if work was performed on the common elements of the complex, to what does a potential mechanic’s lien attach? As mentioned previously, that answer can be dependent upon location. In some states, the lien allowed is similar to what the lien would be if it was filed prior to the recording of the condominium declaration, and attaches to the common elements of the condominium building (practically speaking the building as a whole). In other states, however, once the condominium declaration has been filed, mechanic’s liens are prohibited from arising against the condominium building as a whole by statute. In this circumstance, it is generally provided that mechanic’s liens may only arise against the individual units of the condominium complex when work is performed with the consent of the individual unit owner. In order to protect a claimant who performed work for the common elements from being completely shut off from protection, the statutes generally have a type of work-around. This work-around clause holds that if work on the common elements is properly contracted for by the condominium association, the consent of each individual condominium owner may be presumed, for the purposes of mechanic’s liens, and that the lien would attach to the individual condominium units in the same proportion as the ownership of the common elements. Further, it is generally acceptable for each individual owner to remove their property from the cloud of the lien by paying the proportionate amount of the lien applicable to their individual unit.
How Many Mechanics Liens, And How to List Parties and Property?
The final question to be addressed is how many liens, or notices, must be filed to properly protect the interest of the potential lien claimant.
Work Furnished to Individual Unit or Units
When the work was furnished to an individual unit or multiple individual units, the following simple rule may be applied: One lien is required per unit for which labor and/or materials were furnished
When the work was furnished to an individual unit or multiple individual units, the following simple rule may be applied: One lien is required per unit for which labor and/or materials were furnished, and the owner of the individual unit should be listed as the property owner. Notice requirements follow the same rule, so each individual unit owner should receive any notice required.
Work Furnished Prior to Recording of the Condominium Declaration
When work was furnished prior to the recording of the condominium declaration, only one lien is needed. The lien should note the property owner as whoever the property owner is (presumably the developer). Notices should be sent as required using the same property owner information.
Work Furnished on Common Elements
When work was furnished to the common elements, the answer may be trickier. This may depend on where the project is located. If the state allows a lien against the condominium building as a whole (or solely the common elements) the answer is probably pretty clear. A lien should probably list the condominium association as the owner, or agent of the multiple owners, and notice may be delivered to the association only. If the lien attaches to each unit individually in a set percentage, the question can be more difficult. Unfortunately, there is extremely little jurisprudence on this issue. Easier answer first: Practically speaking, it would make sense to file one lien – and I think this is probably the case.
The hard parts of this question relate to sending notices and listing the property owner(s) on the notices and lien itself. Scott discussed the problem as related to Washington state law, here. His conclusion, like mine, is that practically speaking, it makes sense to send the notice to the condominium association as the agent for the owners. When the condominium association is the contracting party, it seems to be a high burden to require notice be sent to each individual owner, especially since some complexes can contain hundreds of units. Unfortunately, however, any case law or other supporting law is hard to find. In fact, the clear language of many notice requirements states that the notice must be provided to “the owner”.
So, it looks like there is a conflict between practicality, and the purported purpose of notice requirements in general (that being to actually provide notice to the property there is a conflict between practicality, and the purported purpose of notice requirements in general owner that a lien may be forthcoming, and keep them abreast of the situation). This same problem occurs in serving the lien itself. Some states allow the lien to be served on the condominium association solely, and other states do not make that distinction. I am hopeful that this question will eventually come before a judge in each of the jurisdictions in which it is a problem, and some resolution is forthcoming. Until that time, however, it seems the safest practice – at least as far as notice requirements, and lien service in states that do not specifically allow service on the condo association – is to send notice to each and every condominium owner, no matter how many there are.
There is also confusion and disagreement on who to list on the face of the lien document itself. Some state allow the condominium association to be listed by itself, and some states require the listing of each individual condominium owner. This, like the notice requirements outlined above, is a high burden. Finding the individual owners in a condominium complex of several hundred units is a time consuming, burdensome, and potentially expensive task.
Finally, how should the property be listed? Since many states require a legal description of the property, and each individual condominium is a separate piece of property with separate information, do all the legal descriptions need to be included? I have not seen any jurisprudence on this specific issue, but the burden on the potential lien claimant for this would be even higher than listing the individual property owners, not to mention a lien with hundreds of legal property descriptions could be many, many, many pages long. As a practical matter, it seems like the description could be shortened to include the lot and block and a list of the condominium units as “x though z” depending on the number of units in the complex.