Category | Briefing Papers
Matthew is a member of the firm’s Construction Law Department. He can be reached at 612.359.7611 or email@example.com
Contractors know that it is crucial to have the right tools for the job. It is equally important to choose the right tool to protect your payment rights. You wouldn’t send a D3 to do a D8’s job, or vice versa. Each is a bulldozer, but they are best suited to different circumstances. Similarly, right-sizing your payment strategy to fit the circumstances of the project can yield more leverage when it comes time to pursue payment. The purpose of this Briefing Paper is to introduce you to a new payment tool, the “blanket” mechanics’ lien.
Typical industry contracts contain a number of useful tools for pursuing and obtaining payment when disputes arise. However, contract rights are unsecured, and afford contractors less leverage when negotiating payment disputes. Contractors that work on private projects also have statutory protection in the form of mechanics’ liens. Lien rights to payment are secured by the land the contractor has improved through its contributions of labor, material, and equipment. This feature makes mechanics’ liens a particularly powerful tool in a contractor’s payment toolbox. If it is not paid, the contractor can obtain a judgment, force a foreclosure sale, and collect its payment from the sale proceeds.
So far, this is relatively familiar territory. But what contractors might not know is that not all mechanics’ liens are the same. Liens on land are most common[i], but there are also line liens[ii], which can prove useful if the work in question involves utility or other lines. The subject of this article is yet another variation of lien, known as a blanket lien.[iii] A blanket lien can expand the scope and leverage of a typical land lien, but blanket liens are only available in strictly limited situations. Knowing when a blanket lien is (and is not) available is key to protecting your payment leverage.
Section 514.09 provides contractors with the option to file one blanket lien encompassing “adjoining lots” if they have contributed to improvements spanning or extending to more than one lot:
A lienholder who has contributed to the erection, alteration, removal, or repair of two or more buildings or other improvements situated upon or removed to one lot, or upon or to adjoining lots, under or pursuant to the purposes of one general contract with the owner, may file one statement for the entire claim, embracing the whole area so improved; or, if so electing, the lienholder may apportion the demand between the several improvements, and assert a lien for a proportionate part upon each, and upon the ground appurtenant to each, respectively.[iv]
The intent of section 514.09 is to relieve lien claimants from the burden of keeping separate accounts when improving multiple adjoining lots.[v] After an early flurry of Minnesota Supreme Court cases in the 1890s, section 514.09 has been in its current form since at least 1905. Even with the revision to section 514.09 at the turn of the twentieth century, two crucial conditions for pursuing a blanket lien have not changed in at least 135 years: In order to pursue a blanket lien, the lots must be adjoining, and the improvements to the adjoining lots must be made “under or pursuant to the purposes of one general contract with the owner.”[vi]
Under Minnesota’s mechanics’ lien statute, the term “owner” includes absolute or fee simple ownership of real property, but it also “may include any interest which the court may order sold,” such as a contract interest, a lease interest, an option, a vendee’s interest in a contract for deed, “or what not.”[vii] Obviously, the greater the owner’s ownership interest the better for the contractor, as it will fetch a higher price at a foreclosure sale.
The phrase “general contract” as used in section 514.09 certainly carries the modern meaning that most contractors would ascribe to it, but it includes more. First, the general contract can be oral, or oral and later reduced to writing.[viii] Second, the term “general contract” does not necessarily denote an “entire” contract for, as an example, all work required to deliver a turn-key project. Instead, in the context of blanket liens, it is enough if the general contract contemplates or includes work or improvements spanning multiple lots.[ix]
The decision in Knauft v. Miller demonstrates just how critical it is that the improvements are made under one general contract with the owner. In Knauft, a single owner of two adjoining lots hired a contractor to build two houses, one on each of the owner’s lots. The owner entered into two separate general contracts with the contractor, one for each house on each lot. The general contractor then entered into a single subcontract with a subcontractor for the plumbing work, for both houses.
After a payment dispute arose, the subcontractor filed a blanket lien statement, for its entire subcontract price, against both lots. The subcontractor also apportioned the amounts that were allegedly due and owing for its separate work on each of the houses, but only identified one “first day” of work and one “last day” of work in its lien statement. Because the subcontractor’s lien statement failed to identify the subcontractor’s first and last days of work as to each lot, the Minnesota Supreme Court considered whether the subcontractor’s lien statement was a valid blanket lien, and determined that the subcontractor was not entitled to pursue a blanket lien:
The appellant is not entitled to a lien upon both lots for what was done under his entire contract. Landers v. Dexter, 106 Mass. 531. To charge the whole property with a lien to the extent of the whole contract price would in effect impose a lien upon each separate building and lot, not only for the labor and material expended upon it, but for that expended upon the other building and lot. The distinct independent contracts made by the owner would not have justified the original contractor in claiming a lien upon either lot, except for labor or material expended upon the particular lot sought to be so charged, and this subcontractor could secure no such general lien which the original contractor could not have done.[x]
With the ubiquity of flow-down clauses, subcontractors are generally entitled to obtain copies of their general contractor’s contract with the project owner. There are many reasons to obtain the prime contract and other contract documents. This is yet another. Subcontractors need to know their general contractor’s contracting structure with the project owner or owners in order to determine whether they are entitled to pursue a blanket lien to secure payment, or whether they need to put in place other controls to track and apportion multiple liens against multiple lots, even if those lots are contiguous.
A blanket lien is one that extends to “adjoining lots.” In other words, the parcels of real estate must generally be contiguous. For example, in S.H. Bowman Lumber Co. v. Piersol, a supplier delivered building materials to a single owner under one account, to three non-contiguous tracts. The owner constructed buildings on each tract with the materials, but didn’t pay the supplier. The supplier filed one lien statement embracing all three tracts, for the entire claim, but its lien was thrown out of court as invalid, because the lots were not contiguous.[xi] Had the tracts been contiguous, the supplier’s blanket lien would have been valid.
Contiguity is determined as of the time when the lien attaches, when the first item of material or labor is furnished to the improvement.[xii] Thus, in LaValle v. Bayless, the contractor was entitled to a blanket lien even though the owner subdivided the property, and sold lots to subsequent owners, leaving the owner’s remaining lots noncontiguous.[xiii] In that case, the owner of contiguous lots totaling 160 acres hired a contractor to construct private access roads throughout the acreage. After the contractor started the work, the owner subdivided and sold off some intervening lots, and failed to pay the contractor. The contractor’s blanket lien was upheld, although it was reduced to 40 acres, which was the maximum limit for a land lien at the time.[xiv] The current maximum extent of a land lien has been increased to 80 acres (or 40 acres if the real property is homesteaded agricultural land).[xv]
For purposes of a blanket lien, contiguous lots—i.e., those that share a common boundary line—satisfy the “adjoining lots” requirement. Contiguity is, however, a sufficient, but not necessary, condition. For example, in Automated Bldg. Components, Inc., v. New Horizon Homes, Inc., a concrete contractor filed a blanket mechanics’ lien against multiple lots after the planned-unit-development owner who hired the contractor failed to pay the contractor for extensive concrete, foundation, and masonry construction throughout the development. The owner argued that the contractor’s blanket lien was invalid, because it extended to lots that did not share common boundary lines. Many of the liened lots were not contiguous, because they were separated from other lots by roads or common spaces. The Minnesota Court of Appeals rejected the owner’s “hypertechnical” argument: “The statutory requirement of ‘adjoining lots’ does not preclude filing a combined lien statement against multiple lots within a common development plan which are separated by related intervening objects (i.e., commonly owned space or roads) as long as the principles underlying the mechanics’ lien statute are met….The concrete foundation work at Carver Lake Meadows was done on adjoining lots.”[xvi]
Contractors must keep in mind that, should they choose to file a blanket mechanics’ lien, any eventual foreclosure of the lien will be apportioned on a pro rata basis against each lot encumbered by the blanket lien. This can have a dramatic effect on the contractor’s recovery, depending on the relative priority of other interests in the various lots, particularly mortgagees.[xvii]
Blanket liens can provide contractors with important leverage and reduce their tracking and allocation burden when pursuing a lien to secure payment. Blanket liens can prove particularly useful on projects involving suburban commercial or multifamily developments. It is in these contexts that the “general contract” and “adjoining lots” conditions for a blanket lien can be most commonly met. With some very slight amendments to the mechanics’ lien statute, blanket liens could also become a much more useful tool for renewable energy contractors seeking to protect their rights to payment. In particular, the acreage limits in section 514.03 could be expanded for and tailored to renewable energy projects specifically. This would be a welcome update for renewables contractors that work on projects with acreages that dwarf typical commercial and multifamily developments.
[i] Minn. Stat. § 514.01.
[ii] Minn. Stat. § 514.04.
[iii] Minn. Stat. § 514.09.
[v] Johnson v. Salter, 72 N.W. 974 (Minn. 1897); Automated Bldg. Components, Inc. v. New Horizon Homes, Inc., 514 N.W.2d 826 (Minn. Ct. App. 1994).
[vi] See Minn. Laws, ch. 200 § 7 (1889); see also Knauft v. Miller, 47 N.W. 313 (Minn. 1890) (subcontractor not entitled to blanket lien extending to single owner’s contiguous lots, where owner had two separate general contracts with subcontractor’s general contractor); Premier Bank v. Becker Dev., LLC, 785 N.W.2d 753 (Minn. 2010) (blanket lien against 59 contiguous lots for civil site work performed under one general contract with the owner).
[vii] Dunham Associates, Inc. v. Group Inv., Inc., 223 N.W.2d 376, 383-384 (Minn. 1974) (citing Benjamin v. Wilson, 26 N.W. 725 (Minn. 1886) and Geissinger v. Robins, 143 N.W.2d 50 (Minn. 1966)); see also Atkins v. Little, 17 Minn. 342 (1871) (equitable ownership interest); Minnesota Wood Specialties, Inc. v. Mattson, 274 N.W.2d 116 (Minn. 1978) (legal estate under contract for deed).
[viii] Premier Bank v. Becker Dev., LLC, 785 N.W.2d 753 (Minn. 2010).
[ix] Menzel v. Tubbs, 53 N.W. 653 (Minn. 1892) (the “general” contract must include the multiple buildings or improvements spanning adjoining lots “so as to include them all, in order to connect them and make them one for the purpose of liens.”).
[x] Knauft v. Miller, 47 N.W. 313, 313-314 (Minn. 1890) (emphasis supplied).
[xi] S.H. Bowman Lumber Co. v. Piersol, 180 N.W. 106 (Minn. 1920).
[xii] LaValle v. Bayless, 257 N.W.2d 283 (Minn. 1977) (citing Minn. Stat. § 514.05).
[xiii] LaValle v. Bayless, 257 N.W.2d 283 (Minn. 1977).
[xv] Minn. Stat. § 514.03.
[xvi] Automated Bldg. Components, Inc. v. New Horizon Homes, Inc., 514 N.W.2d 826, 830 (Minn. Ct. App. 1994).
[xvii] See Premier Bank v. Becker Dev., LLC, 785 N.W.2d 753 (Minn. 2010).
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