The Arizona (Division I) Court of Appeals last week issued an opinion with a very robust discussion of mechanics lien laws in Wang Elec Inc v. Smoke Tree Resort LLC. The decision does not shake much ground in the state’s mechanics lien laws, but it offers a really terrific discussion of the statutory requirements when filing a mechanics lien against a project commissioned by a tenant, and addresses the situation from multiple angles.
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The Wang Electric case is an appeal of what appears to be a terrible decision from Judge Jeanne Garcia of Maricopa County Superior Court, whereby the lower courts invalidated 4 mechanic liens filed against a construction project by 4 separate subcontractors.
The lien claims arose out of a project at the Smoke Tree Resort, whereby a restaurant was being constructed on the facility’s grounds. The restaurant was being constructed by REM of Lincoln, LLC, a tenant to Smoke Tree (the owner). The owner understood the improvements would be made and mandated them in the lease, which was subsequently terminated by the owner. Liens were filed, foreclosures followed. Smoke Tree argued that the mechanics liens were invalid because they did not follow certain formalities.
The trial court agreed, but ruled that the subcontractors could recover under unjust enrichment theories. The appeals court reversed on both sides, holding unjust enrichment theories were not available, but that the lien claims were valid.
Discussion of Wang Electric Decision
Since the decision dealt with so many issues, we actually created a bit of a blog series on the decision this week. Here is a summary of our discussion.
Is Unjust Enrichment An Alternative To A Mechanics Lien Claim?
The Wang Electric case reminded me of something I aimed to do a long time ago — blog about unjust enrichment claims. Many contractors and suppliers rely on this if their mechanics lien rights are unpreserved or fail. It’s a great backup argument, but a very difficult one to win. Using the Arizona case as guidance for the conversation, this blog post explains what unjust enrichment claims are and why they sometimes fit, and sometimes don’t fit for mechanics lien claimants.
Arizona Court Rules Owners Cannot Contract Around Lien Exposure Created By Tenant Improvements
The property owner in the Wang Electric case included a clause in their lease agreement that insulated them from exposure to mechanics lien claims. While the clause was well written and a good idea, the Arizona courts struck it as against public policy, ruling that property owners are going to be on the hook for tenant improvements and there’s not much they can do about it.
When Must A Mechanics Lien Be Served On A Property Owner?
Arizona’s mechanics lien statute provides that a mechanics lien must be served on the property owner within a “reasonable time” after its filing. What is a reasonable time? Can the courts create a firm date that is reasonable? The Wang Electric court says they cannot, and that this must be determined on a case by case basis. A three month delay is not by law too long or unreasonable.
Recent Case Makes Little Points About Arizona’s Preliminary Notice Requirements
Who gets a preliminary notice when the work is initiated by a tenant? This was discussed in satisfactory detail in the Wang Electric case, and is summary in this post. It’s an important read for anyone furnishing to such a project, as the law is a bit confusing on the subject.
Arizona Mechanics Lien Against Terminated Leasehold Interest May Still Have Purpose
This blog posts discusses the most groundbreaking component of the Wang Electric decision. The appeals court considered just what effect a lien claim against a leasehold estate would have if the leasehold estate was terminated before foreclosure. The good news for claimants is that there is at least some effect to these claims. The bad news for claimants is that the court doesn’t give much detail beyond that.