Invalid Blanket Lien

In Northeast Restoration Corp. v. K&J Construction Co., a court invalidated a mechanics lien because it contravened the provisions of the state's Condominium Act.

In this case, the central issue was raised on a motion by defendants 195 Hudson Street Associates, and Reliance Insurance Company for summary judgment dismissing the plaintiff's mechanic's lien foreclosure cause of action and to cancel the lien. The issue was whether the lien filed against Hudson listing it as owning the entire building at 195 Hudson Street was valid. The corporation had recorded a condominium declaration transferring the various units in the building to itself as separate tax lots during the construction and had then sold 23 of the 28 units in the building prior to the filing of the lien.

In March 1998, Hudson, as owner in fee of the building, entered into a contract with defendant K&J Construction Company for the renovation of a warehouse-factory into a residential condominium. K&J subsequently entered into a sub-contract with the plaintiff to perform roofing and masonry work. On April 28, 1999, Hudson, as sponsor, recorded a condominium declaration that resulted in substituting 23 separate tax lots for the one that previously applied to the building. Subsequent amendments of the declaration resulted in increasing the number of separate tax lots to 28.

On April 3, 2000, the plaintiff filed a mechanic's lien against the single lot number applicable to the building prior to the recording of the declaration. The lien asserted that $168,057 was owed, under the terms of the contract with K&J for work performed on the building between November 30, 1998 and March 13, 2000. Plaintiff maintained that at the time of such filing it was not aware of the recording of the declaration even though at the time of the filing 23 of the 28 units had been sold to individual owners. By order dated April 25, 2000 the lien was discharged upon the filing of an undertaking by Reliance in the amount of $184,900.

While Hudson had sold most of the units, it still owned a few. It asserted that all of the work performed by the plaintiff was on external common elements of the building. In the affidavit submitted by the plaintiff's president, he stated, "most of the work performed involved exterior work having to do with the addition of a seventh floor of the building." However, he failed to specify any work done in any of the units. Thus, the statement in the reply affirmation of plaintiff's counsel that plaintiff "performed certain interior masonry work" was not supported by evidence in admissible form. In any event, such assertion did not state that the interior masonry work was performed in any of the units.

In addition to the motion for summary judgment, plaintiff cross-moved under Lien Law Section 12-a for leave to amend its notice of mechanic's lien so as to attach it to all rights in the building possessed by Hudson on April 3, 2000 (the date the plaintiff filed its mechanic's lien).

Hudson argued that the lien was invalid (1) under Paragraph 7 of Lien Law Section 9 because it did not set forth the proper tax lots that applied to the building after the filing of the declaration, and (2) because it violated Section 339-1 of the Real Property Law (RPL), the Condominium Act, which provides:

"1. Subsequent to recording the declaration..., no lien of any nature shall thereafter arise or be created against the common elements except with the unanimous consent of the unit owners. During such period, liens may arise or be created only against the several units and their respective common interests.

"2. Labor performed on or materials furnished to a unit shall not be the basis for the filing of a lien pursuant to article two of the lien law against the unit of any unit owner not expressly consenting to or requesting the same, except in the case of emergency repairs. No labor performed on or materials furnished to the common elements shall be the basis for a lien thereon, but all common charges received and to be received by the board of managers, and the right to receive such funds, shall constitute trust funds for the purpose of paying the cost of such labor or materials performed or furnished at the express request or with the consent of the manager, managing agent or a board of managers, and the same shall be expended first for such purpose before expending any part of the same for any other purpose."

Hudson argued that the plaintiff was not without remedy as, in addition to its contract cause of action, it also had the protection of the trust fund mandate of Paragraph 2 of the above quoted section.

Hudson asserted that, in order to have filed a valid mechanic's lien, the plaintiff "was required to limit its mechanic's lien to the unsold units which were still owned by Hudson at the time the lien was filed, and the percentage of the common elements attributable to those units...(and plaintiff) was required to identify the unsold units in its mechanic's lien by listing the corresponding tax lots for the unsold units."

However, in its reply memorandum, Hudson maintained that no valid lien could be filed as all of the work performed was on common elements and thus barred by RPL 339-1. In a prior case, the plaintiff there entered into a contract with a building owner's general contractor to install electronic surveillance for various public areas of the building. Subsequently, the owner recorded a condominium declaration. After several units were sold, the plaintiff filed a mechanic's lien listing the former fee owner as the owner of the building. That court stated that, since the former fee owner retained some the units, "the lien was valid to the extent of that interest."

However, the court concluded that the lien was invalid under Lien Law Section 9(7) because of an inadequate description in that "it failed to limit the lien to the particular units in the condominium, if any, which were claimed to be subject to the lien, but rather imposed a 'blanket lien' on the entire property." The court further held that the "fact that an undertaking was filed does not alter the result."

In another reported case, the court ruled that a mechanic's lien filed against an entire condominium building could be amended to be limited solely to the one commercial unit in which work was done. Two years later in 1992, the appellate division, first department, was presented with a case where the lienor provided aluminum sash windows to a residential condominium and filed a lien against the entire building after a condominium declaration had resulted in the city assigning 412 tax lots to the building in lieu of the one prior lot. The lien was held invalid because "the description of the property was inadequate and in contravention of Real Property Law §339-1 in that it imposed a 'blanket lien' on the entire building rather than limiting itself to the particular units in the condominium."

The lien was declared invalid even though the developer had retained an interest in over 100 units at the time the lien was filed. The court noted that, since at the time of the filing of the lien 267 units had been sold to individual owners, they should have been named in the lien filing.

In yet another case, in 1993, the first department again invalidated under Lien Law Section 9(7) and RPL Section 339-1 a mechanic's lien filed after the recording of a condominium declaration "because, by setting forth therein the former superseded lot number for the entire condominium site, it failed to describe properly the specific condominium units that the lienor sought to encumber." In denying the application to amend the lien pursuant to Lien Law Section 12-a, the court there ruled that said section "presupposes the existence of a valid lien and may not be construed to revive an invalid notice of lien."

Coming to the case at bar, the court said that it was undisputed that 23 of the 28 units had been sold at the time of the filing of the subject lien. Based on the holdings of the previous cases, the failure of the plaintiff to set forth in the lien a proper description of the property subject to the lien as well as the names of the then owners of the units resulted in the lien being invalid as an improper "blanket lien." Therefore, the motion to dismiss the lien foreclosure cause of action and cancel the lien was granted, and the cross-motion to amend the lien was denied. The dismissal was without prejudice to the plaintiff's rights to proceed under the trust fund provisions of Paragraph 2 of Section 339-1 as well as any rights it may have under Lien Law Section 13 (5).

Comment: This case construes a section of the state's Condominium Act dealing with the right to file a mechanic's lien. Because of the unique nature of condominium ownership when first introduced in New York by statute in 1964, special provisions were provided to reconcile the new law with existing laws including the lien law. The case, which is consistent with several prior cases, holds that a mechanic's lien must state with specificity the units to which it attaches and may not be on the common elements as required by the provisions of the Condominium Act. Such provisions are construed to facilitate the objectives of condominium ownership.