Articles

Important Exception to Pre-Lien Notice for Mechanics Lien is Clarified

Steven V. Rose
Attorney at Law

It is well known that a mechanic’s lien allows individuals to obtain payment for furnishing materials, labor, skill or other services to improve real property. However, the right to obtain payment through a mechanic’s lien is somewhat an obstacle course rife with pitfalls designed to trap the unwary.

The pre-lien notice is the first of many traps that must be evaded in order to successfully navigate the remaining obstacle course. The pre-lien notice is important because, as a general rule, the failure to provide the notice will invalidate the mechanic’s lien unless an exception to the general rule applies.

Under the Mechanic’s Lien statute, a pre-lien notice is not required when the real property being improved contains more than 5,000 square feet and is used wholly or partially in commercial use. Minn. Stat. 514.011, Subd. 4(c)b. Certainly the exception seems quite clear if the property you are improving is more than 5,000 square feet and used for commercial purposes the exception should apply.

However, that seemingly simple concept was the subject of a recent Minnesota Court of Appeals decision in Wallboard, Inc. v. St. Cloud Mall, LLC., 758 N.W.2d 356 (Minn. Ct. App. 2008). In that case, the property being improved was a leased space that consisted of less than 5,000 square feet in a strip mall that consisted of more than 5,000 square feet and the lien claimant failed to provide the tenant with a pre-lien notice. Wallboard at 357-358. The Court, for the first time, had to decide if the entire square footage of the strip mall was to be considered or just the square footage leased by the tenant when applying the exception to the general rule. Id. at 359. The Court determined that when applying this exception, the square footage of the leased space is the only square footage that is considered. Id.361-362. As such, if the leased space is less than 5,000 square feet the lien claimant must provide pre-lien notice to the tenant.

In another recent Minnesota Court of Appeals decision, S.M. Henteges & Sons, Inc., v. Mensing, et al. 759 N.W.2d 229 (Minn. Ct. App. 2009), the Court was once again required to determine if an exception to the general rule was applicable to the facts before the Court. Under the Mechanic’s Lien statute the notice is not required if the improvement is provided to more than four family units which is wholly residential in character. Minn. Stat. 514.011, Subd. 4(b). However, in Henteges, the improvement was provided to 22 single family lots and the claimant had not provided a pre-lien notice and the term “family units” is not defined by the statute. The land owner argued that “family units” meant multi-unit buildings such as condominiums or town homes. The Court in its analysis, looked to the size and character of the project to determine whether the statute intended to protect the land owner and require the pre-lien notice. The Court determined that there is no difference between the owner of property whose improvement consists of five condominium units and an owner whose improvements consist of a five-lot residential development. Henteges at 234. As such, the Court ruled that because single family lots are included in the definition of “family units” and because the development was residential in nature the lien claimant was not required to provide a pre-lien notice. Id. at 234-235.

As you can see from the two cases above identifying when the pre-lien notice is required is not a simple task. Wallboard, identifies that even in a situation where it seemed obvious that a pre-lien notice was not required the Court ruled that it was required. In Henteges, the Court ruled that a pre-lien notice was not required in a situation where it seemed clear that notice was necessary.

As such, the best practice with any project is to simply provide the pre-lien notice at the commencement of the relationship. Some may consider it to be a bad way to start a relationship, identifying that the claimant will attempt to take the owner’s property if he is not paid. However, the stigma can be easily dealt with if you simply include it in your contract or provide the land owner with the notice on your first day of work. Had the two claimants in the above cases simply provided the notice, they would have saved themselves a lot of grief and probably legal fees. As such, do not rely on the exceptions to save your lien—be proactive and save your lien by providing the notice. You should, of course, consult your favorite neighborhood attorney when drafting the notice, because if you do not include the proper language and format the notice properly, your efforts to comply may be in vain and your lien invalid, a victim of yet another trap of the Mechanic’s Lien obstacle course.