Lien's on Mining Claims

Previously, Utah Code section 38-1-4 provided that mechanic’s liens “shall attach to all franchises, privileges, appurtenances, and to all machinery and fixtures, pertaining to or used in connection with any such lands, buildings structures or improvements, mining claims, mines or valuable deposits.” Utah Code Ann. § 38-1-4 (Lexis 1953). In addition, Utah Code section 38-1-3 extended mechanic’s lien rights to “products mined and excavated” by a “lessee of a mining claim, mine or deposit” while those products “remain upon the premises included within the lease.” Id. § 38-1-3.

However, the Utah legislature in 1987 removed improvements to mining and mineral claims from the mechanic’s lien statutes and created a new lien under the title of oil, gas and mining liens. See Utah Code Ann. § 38-10-101 et seq. (Lexis 2005). The property interests which are subject to an oil, gas and mining lien are covered in the statute cited above, but will not be addressed herein.

Can You Lien a Tenant's interest in the Property?

It is important for contractors to understand when a lessor’s interest may become lienable. In the event that a contractor performs work at the insistence of a lessee, and the lessee is unable to pay for that work, the only other recourse for actually collecting money may be going after the lessor. If the lessor’s interest is not lienable, the contractor may not be able to collect his money under the contract with the lessee. Thus, it is important to be cognizant of the situations you, as a contractor, enter into so as to maintain the highest probability of being paid.

Under Utah Code section 38-1-3, a lessee may be an “owner” within the meaning of the statute and his leasehold may be subject to a mechanic’s lien. Utah Code Ann. § 38-1-3 (Lexis 2005); see also Interiors Contracting Inc. v. Navalco, 648 P.2d 1382 (Utah 1982). Mechanic’s liens, however, can only attach to the extent of the interest of the consenting “owner” of the realty. The question is whether the improvements made for the tenant are made at the insistence, implied or expressed, of the fee owner or any person acting as its agent or contractor or otherwise having the fee owner’s authority. Thus, in Buehner Block Company v. Glezos, 6 Utah 2d 226, 310 P.2d 517 (1957), where a lessee operated a restaurant on the leased premises and the lessee caused an addition to be added onto the building, the court held that the materialmen’s liens were only enforceable against the lessee’s interest and not against the lessor’s interest because the work had not been performed at his insistence although the lessor had given his approval to the lessee for the addition. See also Interiors Contracting, Inc. v. Navalco 648 P.2d 1382 (Utah 1982).

Utah courts have held similarly in other cases. In Martindale v. Adams, 777 P.2d 514 (Utah Ct. App. 1989), the court of appeals ruled that a lessor’s interest was not lienable unless there was an implied or expressed contract between the lessor and the contractor for the work. In this case, the lessee contracted for the improvements to the property, and represented to the contractor that he owned the home. This was not the case, and the court ruled that the lessor could not be held responsible for the improvement costs.

In another case, the Utah Supreme Court ruled that there would be two instances where a lessor’s interest would be lienable for improvements sought by the lessee. Allen Steel Co. v. Crossroads Plaza Assoc., 119 Utah Adv. Rep. 6 (Utah 1989), withdrawn by stipulation of the parties, 1991 Utah Lexis 30. First, in support of the Martindale court’s opinion, if there is an agreement, either express or implied, between the claimant and the lessor, the lessor’s interest may be lienable. Second, if the agreement between the lessor and lessee require that the lessee construct improvements to the property which substantially enhance the value of the landowner’s interest, the court held that the mechanic’s lien could attach to the landowner’s interest. Id. Because the opinion of the court was withdrawn, it carries no precedential value, but it does give contractors and lessors an idea of how the Utah Supreme Court may view a case involving a lessor’s rights and a mechanic’s lien.

The insistence of a lessor for improvements contracted for by a lessee will not necessarily be inferred from the lessor’s knowledge of the improvements where the lessor’s participation is limited to the extent the law requires an owner of property to make certain governmental applications for the improvements. In Zions First National Bank v. Carlson, 23 Utah 2d 395, 464 P.2d 386 (1970), the court inferred that a lessor is subject to a lien for improvements by tenant if the lessor “required or obligated the lessee to construct any improvements which would substantially enhance the value” of the owner’s interest. Id. at 23 Utah 2d 401, 464 P.2d 386, 390. The Zions court further stated that:
in order to make such covenant, constitute an agency between the lessor and lessee, we are necessarily bound to look at the facts to determine whether there was an agency or not. If, on account of the shortness of the lease, the extent, costs, and character of the improvements, or other facts in evidence, such as the participation by the lessor in the erection or construction thereof, it can be seen that the improvement is really for the benefit of the lessor, and that he is having the work done through his lessee, that it can be said with justice that the lessee in such case is acting for the lessor . . .

In determining whether an agency should be implied the courts have often, perhaps of necessity, gone beyond the agreement and into the whole circumstances of the letting in order to find the answer . . . [W]here the premises are let for a specific purpose and where the nature of the premises is such that the purpose cannot be accomplished except by the making of substantial improvements to the freehold, then the tenant is, by implication, required to make such improvements. He has no other option, and hence he is the landlord’s [implied] agent to the extent of subjecting the property to a lien, this upon the theory that the landlord contemplated the necessity and required that such necessity be met.
Id. at 23 Utah 2d 400, 464 P.2d 390 (quoting Utley v. Wear, 333 S.W.2d 787, 792-793 (Mo. Ct. App. 1960)); see also Interiors Contracting Inc. v. Navalco, 648 P.2d 1382 (Utah 1982).

It is important to note that there is an older conflicting case where a tenant was, by his written contract of lease, obligated to make improvements upon the property. The court held that this did not make him the owner’s agent in requesting the materials furnished. See Morrow v. Merritt, 52 P. 667 (Utah 1898).

Liening a Buyer's interest in the Project

When doing construction work for a buyer of a property, it is important that the contractor understand what interests the buyer and seller have in the property. If the seller consents or authorizes construction work before the full purchase price has been paid by the buyer, then both the buyer’s and the seller’s interest may be subject to a mechanic’s lien.

Such was the case in Burton Walker Lumber Co., v. Howard, 92 Utah 92, 66 P.2d 134 (1937). When the buyer of lots paying only part of the purchase price caused houses to be built on the lots, the buyer’s interest could be subjected to mechanic’s lien but the interest of the seller and his successors could not be subjected to such liens in the absence of evidence that the seller or his successors consented, ratified, or authorized the furnishing of materials and labor. If consent or ratification is found, the question becomes one of determining the scope of the seller’s interest. See also United States Building & Loan Assoc. v. Midvale Home Finance Corp., 86 Utah 506, 44 P.2d 1090 (1935).

However, “[t]he mere expectation by the seller and buyer of the land that the buyer will make improvements upon it and in that way enhance its value is not sufficient to establish the relation of principal and agent between the seller and buyer.” Belnap v. Condon, 34 Utah 213, 97 P. 111 (1908).

Property Interests Subject to Mechanic’s Liens

The provisions of the mechanic’s lien law do not apply to any public building, structure, or improvement. Utah Code Ann. § 38-1-1 (Lexis 2005). The Utah Court of Appeals reinforced this point by ruling that liens are not valid on public projects. Cox Rock Products v. Walker Pipeline Const., 754 P.2d 672 (Utah Ct. App. 1988). Public property includes property owned by the federal and state governments including any agency or department, cities, towns, counties, improvement districts, etc. The bonding statute, rather than the mechanic’s lien statute, provides the principal source of securing payment for labor and materials used in improving public property by not allowing a contract to be awarded until payment and performance bonds are provided. See Utah Code Ann. § 14-2-1(2) (Lexis 2005); Utah Code Ann. § 63-56-504 (Lexis 2005).

The mechanic’s lien law does, however, apply to any privately owned property upon which the protected classes of people have “rendered service, performed labor, or furnished or rented materials or equipment,” unless the property is excluded under the Lien Recovery Fund Act. Utah Code Ann. § 38-1-3 (Lexis 2005); Utah Code Ann. § 38-11-101 et. seq. (Lexis 2005). A mechanic’s lien must be filed against the specific property “upon or concerning” which work was performed. Utah Code Ann. § 38-1-3 (Lexis 2005). Therefore, a lien cannot be filed against other real or personal property owned by the same party. In other words, a mechanic’s lien is a claim strictly upon the improved property and none other.

Although the mechanic’s lien law applies to privately owned property and not to public property, what happens if private property is improved through public financing or if the financing is arranged by a semipublic organization such as an industrial development commission? In Utah, the test is one of ownership rather than one of the source of financing. Therefore, only those properties which are actually owned by a government entity are exempt from the mechanic’s lien laws. All others, not exempt under the Lien Recovery Fund Act, would be subject to a mechanic’s lien.