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The Question Of Whether Pre-Construction Management Services Are Covered By New York’s Lien Law Is Addressed By The Westchester County Supreme Court

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  • Posted on: Jun 6 2018

Is an entity providing pre-construction management services in anticipation of a construction project entitled to file a mechanic’s lien if not paid?  While recognizing that there is a dearth of caselaw on this question, the court in Matter of Old Post Road Associates, LLC (Sup. Ct. Westchester Co. May 9, 2018), held that the answer is dependent on the specific nature of the pre-construction services provided.

Old Post Road Associates, LLC (“Old Post” or “Petitioner”) owned a piece of property it intended to develop (the “Project”). LRC Construction, LLC (“LRC” or “Respondent”) was “engaged” to perform pre-construction management services in conjunction with the Project including “updating the conceptual budget for the [P]roject and attending meetings with [P]etitioner’s consultants to discuss construction phasing in connection with the site plan approval application.”  According to the opinion, LRC performed its pre-construction services for free with the hope that it would be retained as the construction manager for the Project.  However, LRC was terminated from the Project without being hired in its desired role.  It appears that the parties believed that LRC should have been compensated for its pre-termination work, but an agreement on the amount could not be reached.

Thereafter, LRC filed a mechanic’s lien in the amount of $250,000.00 and claimed the amount due was for “pre-construction management services”.  To discharge the lien, Old Post brought a special proceeding pursuant to New York’s Lien Law § 19, which provides numerous bases for the discharge of a mechanic’s lien.  The provision relied upon by Old Post (§ 19(6)) permits the discharge of a lien “[w]here it appears from the face of the notice of lien that the claimant has no valid lien by reason of the character of the labor or materials furnished and for which a lien is claimed….”  Old Post argued that, as a firm rule, “pre-construction management services” cannot support a mechanic’s lien.

In denying the petition to summarily discharge Old Post’s mechanic’s lien, the Old Post court analyzed the relevant provisions of the Lien Law and the scant caselaw (which was from a “handful of trial-level court rulings” and “has not been addressed by appellate authority” since Goldberger-Raabin, Inc. v. 74 Second Ave. Corp., 252 N.Y. 336 (1929), was decided almost 90 years ago) on the subject of whether certain work is or is not an “improvement” under the Lien Law.

The statutory authorities relied upon by the Old Post court were §§ 3 and 2(4) of New York’s Lien Law.  Section 3 provides that a “contractor…who performs labor or furnishes materials for the improvement of real property with the consent or at the request of the owner…shall have a lien for the principal and interest, of the value, or the agreed price, of such labor….” (Emphasis supplied.) “Improvement” is defined at Lien Law §2(4) to include “demolition, erection, alteration or repair of any structure upon, connected with, or beneath the surface of, any real property and any work done upon such property or materials furnished for its permanent improvement…and shall also include the drawing by any architect or engineer or surveyor, of any plans or specifications or survey, which are prepared for or used in connection with such improvement….”

The Old Post court also relied on caselaw.  Goldberger-Raabin involved tearing down an old building and replacing it with a newly constructed building. The lienor in Goldberger-Raabin was the project engineer responsible for “aiding or assisting in procuring subcontracts and subcontractors” and “superintending the construction of the new building and tearing down of the old building”.  The former was held not to be part of the work that “improved” the property and, thus, was not lienable.  As to the latter, the Goldberger-Raabin Court, found that superintending the new construction was lienable as was superintending the demolition of the old building – provided that “the old building was torn down as part of the work necessary for construction and for the improvement of the real property”.  Such a determination, however, was a factual question to be determined “upon a new trial”.

The Old Post court also cited Chas. H. Sells, Inc. v. Chance Hills Joint Venture, 163 Misc.2d 814 (Sup. Ct. Westchester Co. 1995) and Henry & John Assoc. v. Demilo Constr. Corp., 137 Misc.2d 354 (Sup. Ct. Queens Co. 1987) for the proposition that “the [preconstruction] procurement of bids or application for building permits and approvals” are not lienable.  The Chas. H. Sells court did hold that architects and engineers that rendered services in conjunction with obtaining permits for a project that was never commenced and, therefore, where “no actual physical permanent improvement has taken place” were entitled to liens for unpaid work, reasoning that because “a landowner fails to take a project to completion, for whatever reason, the claims for work done to improve the property are no less entitled to the benefits of the statute.”

Based on the foregoing, the Old Post court found that the mere fact that a lienor may have rendered services on a pre-construction basis does not, in and of itself, resolve the issue of whether an otherwise validly filed lien must be discharged.  Instead, the actual services provided must be analyzed, and a determination must be made, as to whether the services resulted in a permanent improvement to real property.  In Old Post, the court determined that some of the services provided were subject to liens (i.e. “preparing site logistics and access plans for the property and performing a constructability review for the project at the property) and some were not (i.e. procuring permits or bids).  Accordingly, the Old Post court held that “[i]n the absence of clear case law precluding mechanic’s liens for all the types of work respondent now describes, and construing the Lien Law liberally [as it must pursuant to Lien Law §23], this Court concludes that respondent’s lien is not entirely invalid on its face, and therefore denies the petition for summary discharge.”

TAKEAWAY

Before performing “pre-construction” services or work on a project to permanently improve real property, consideration should be given to whether such services or work may support the filing of a mechanic’s lien.  This is particularly so if there are any concerns as to the owner’s ability or willingness to pay for such services.

As an aside, the Old Post court described the decision in 8th Ave. Recoveries Corp. v. 111 Stellar 8 Owner, LLC, 42 Misc.3d 1212(A) (NOR) (Sup. Ct. Kings Co. 2104), as “inapposite” and less persuasive than the other authorities cited by it.  In so doing, the Old Post court summarized the 8th Avenue decision as “[finding] invalid a mechanic’s lien for purported supervisory work that occurred after construction work had ceased” (emphasis in original) quoting the 8th Avenue court’s reasoning that “supervision of construction work may be the basis of a lien, where the property is not being improved, there is nothing to supervise and thus no basis for a lien.”

The relevant issue in 8th Avenue, however, was whether the subject lien was timely filed, which issue necessarily turned on whether the lienor performed supervisory work on the project within the eight-month period preceding the filing of the lien.  (See Lien Law §10(1).)  The 8th Avenue court determined that it did not and vacated the lien as having been untimely filed.  It is suggested that had the 8th Avenue court been called on to answer the identical question posed in Old Post, it would likely have come to the same conclusion as the Old Post court.

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