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Our attorneys stay on top of changes in legislation, agency regulations, case law, and industry trends—then craft timely legal alerts to keep clients up to date on legal developments important to their business.

April 23, 2020

Mechanics' Liens on IDA Projects: Architect's Lien Dismissed for Failing to Identify "Beneficial Interest"

The Appellate Division of the Supreme Court, Fourth Department recently affirmed an order dismissing a complaint to foreclose a $252,736.94 mechanics’ lien against a major industrial development agency (IDA) retail and entertainment venue project. Barclay Damon LLP represented the developer of the project and the IDA. The decision resolved an interesting issue previously unaddressed by NYS courts related to filing mechanics’ liens against IDA projects.

Prior to a 1992 amendment to the Lien Law, IDA projects were considered “public improvements” and exempt from private improvement mechanics’ liens. Recognizing that private developers have a unique “beneficial interest” in these projects, the NYS Legislature amended the definition of “public improvement” to exempt IDA projects and make them susceptible to private improvement liens. In doing so, however, it was noted that the change would not create any liability for IDAs.

Since the 1992 amendment, there have not been any published decisions clarifying how to properly file a mechanics’ lien against an IDA project and, specifically, what entity shall be named as “owner.” In the case at issue, an architectural firm filed a mechanics’ lien against the IDA project, naming only the IDA as “fee owner.” However, in its complaint, the lienor sought to foreclose the lien against the IDA and the private developer who retained the beneficial interest and incidents of ownership in the project.

Barclay Damon filed a motion for summary judgment to dismiss the lien foreclosure complaint against the IDA and the developer on the grounds that a lien cannot be filed against the IDA’s fee interest, even after the 1992 amendment to the Lien Law, and the lien may not be enforced against the developer’s beneficial interest because it was not named as owner in the notice of lien. In response, the lienor argued that a developer who retained the beneficial interest in an IDA project is not specifically identified in Lien Law § 2(4) as an “owner,” and the lienor was not required to identify the beneficial ownership interest because the IDA, as owner of the fee, was the only “true” owner of the property under the Lien Law. In the alternative, the lienor filed a cross-motion to amend its lien to identify the developer and its beneficial interest.

The trial court granted Barclay Damon’s motion in its entirety and denied the lienor’s cross-motion. The decision, which was recently affirmed on appeal, contains important guidance for IDAs, developers of IDA projects, and potential lienors. It reaffirmed that a mechanics’ lien may not be enforced against an IDA’s nominal fee interest in those projects notwithstanding that they are no longer considered public improvements, and that the owner of a “beneficial interest” in an IDA project is an owner as defined in Lien Law § 2(4). In this case, the lienor failed to identify an owner or ownership interest against which its lien could be enforced.

The decision also serves as a cautionary reminder that there are limits to what errors may be corrected by way of amendment under Lien Law § 12-a. As in this case, where a lienor completely misidentifies the proper owner and ownership interest, such a defect may not be remedied by way of amendment. Rather, such relief would amount to the creation of a lien where none presently exists. By contrast, courts routinely permit amendments where the notice of mechanics’ lien merely “misdescribes” an owner.

Mechanics’ liens can serve as a powerful tool if filed and enforced correctly. The attorneys in Barclay Damon’s Construction & Surety Practice Area have the knowledge and experience to provide accurate, effective advice on any mechanics’-lien-related issue.

If you have any questions regarding the content of this alert, please contact Jim Domagalski, Construction & Surety Practice Area chair, at jdomagalski@barclaydamon.com; Michael Balestra, partner, at mbalestra@barclaydamon.com; or another member of the firm’s Construction & Surety Practice Area.

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