Understanding the Unique Aspects of Condominium Lien Law

The construction industry was among those hit hardest by the recession. One of the sectors that exhibited the greatest downturn was multi-family housing. Now, this sector is showing some of the stronger signs of recovery. As multi-family projects increase, it is worth taking the time to review some of the unique aspects associated with filing a mechanic’s lien on a condominium project.

Contractors should always be mindful of a few key facets of mechanic’s lien law. A mechanic’s lien is an encumbrance against real property which has been improved by the labor performed or materials provided by a contractor. A lien is a means of securing the contractor’s claim for payment. Mechanic’s lien law is statutory. Mechanic’s lien law varies from state to state, so each time a contractor performs in a different state, it must be aware of that state’s particular mechanic’s lien law requirements and follow those requirements precisely.

Most mechanic’s lien statutes require that a certain type of notice be given to the owner of the real estate improvement within a certain period of time after the improvement has been performed. Identifying the owner is usually not that difficult if it is a single company or individual. However, the difficulty of identifying and notifying the “owner” increases substantially if the project is a condominium.

Whether a project is a “condominium” is also typically established by statute and thus varies from state to state. A contractor building a condominium, or a subcontractor working on any part of a condominium’s “common areas,” must determine who actually owns the common areas when attempting to perfect a mechanic’s lien and provide the required notice to the owner. Again, the answer will vary from state to state. Under the Alabama Uniform Condominium Act, the common areas of a condominium are not owned by the condominium association, which is likely the entity that entered into the construction contract with the contractor now seeking to file a mechanic’s lien. Rather, the common areas are owned in common by all of the unit owners. Each unit owner has an undivided interest in the common areas. So, each unit owner must be notified of the intent to file a lien and the lien must be filed against each unit owner.

To have a mechanic’s lien released, the owner must satisfy the contractor’s claim. In the case of a condominium, one, some, or all of the unit owners may have a compelling need or desire to have the lien released. For example, an owner of a single unit may have a pending sale that is being held up by the mechanic’s lien. The individual unit owner may obtain a release of the lien against his or her unit by paying a proportionate share of the claimed lien. An issue may arise with respect to the proper determination of a unit owner’s proportionate share. The condominium documents should provide guidance in this regard. In some instances, each unit owner owns an equal share; other times, when various units are of different sizes and configurations, the proportionate share is determined by the square footage of the particular owner’s unit.

In any event, a contractor must be aware that the procedures for perfecting a mechanic’s lien are likely different and probably more burdensome and time consuming on a condominium project than on other types of construction projects. To avoid losing a mechanic’s lien right, more time should be allowed for performing the necessary research to determine who the “owners” actually are and getting the statutorily required notice served on each of the owners of the condominium.

Read or download the Construction and Procurement Newsletter Q3 2014 >>