Determining whether property is public or private can be a nightmare. One area where this can get especially confusing is with ports (not sports…but those can be confusing too). Most ports are publicly owned, but function like private entities. What’s more, long-term leases that function as de facto ownership are often present. In any event, things operate a little differently for ports, and the Port of Corpus Christi has recently been hit with over $60M in liens. The liens come as a result of Voestalpine, a lessee, failing to pay a number of contractors.
Port of Corpus Christi Liens
4-traders and KRISTV have in depth stories on the liens.
Voelstalpine is an Australian company that leases from the Port of Corpus Christi. Over the past two years, Voelstalpine has seen a number of liens pop up from projects- to the tune of $60M.
This situation comes not long after the M&G debacle in Corpus Christi. M&G, an Italian company, racked up over $100M in liens to several different claimants. The difference, however, was that M&G owned the land that was liened, while Voelstalpine does not. They lease the land from the Port of Corpus Christi.
Public Property Can Be Liened?
No! Well…sort of. In Texas, the property itself cannot be liened, but the tenant’s interest is subject to mechanics liens. So a foreclosure, in theory, would give the successful lienor control of the lease. However, many leases (including this one) have provisions stating that the lease may be terminated if liens are attached.
For this reason, liens like this are often referred to as “illusory.” It looks like a claimant is protected, but if they attempt to enforce the lien, the lease will be cancelled and the lienor could be left with nothing. What’s more, if a claimant actually took hold of the lease, they would take on both the benefits and the obligations of the lease (i.e., paying rent). However, it’s not a total wash. By attaching a lien, a claimant can put extra pressure on the lessee. Once a lien is attached, the lessor can terminate the contract since the lessee is in breach. That will make the lessee uncomfortable and should speed up payment.
For more on liening tenant improvements take a look at this post – What Happens to Mechanics Lien Rights If My Project is a Tenant Improvement?
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Back to Voelstalpine…
The Port’s lease with Voelstalpine states that no outstanding liens may exist on the property. However, the Port has shown some leniency- a grace period. Rather than force Voelstalpine to bond off the liens, the Port has let them handle it on their own. Arbitration on the matter is ongoing. While the company is likely in breach, it’s not terribly surprising that the Port did not terminate the lease. Leases like this are incredibly expensive, and replacing a tenant would be costly.
Voelstalpine was originally given until the end of September to clear the liens. Then Hurricane Harvey happened. After the storm, Voelstalpine asked for an extension until the end of October. Instead, the Port pushed the deadline to January 1st so that arbitration proceedings regarding the liens could come to a close (as we’ve mentioned before, arbitration can cause mechanics lien headaches).
Takeaway
Mechanics liens are construction’s most important remedy, but their power lies in the ability to force a sale of property. When a lien attaches to a lease, much of that power is lost. Often, the pressure of losing a lease will compel the tenant to make prompt payment. But in the event that the tenant becomes insolvent, or if they are willing to lose the lease, a tenant lien won’t go very far.
For more on Texas construction payment, head over to our Texas Resources. Not in Texas? Select your state.
