Mechanic’s Liens and Leases Don’t Often Mix Well

Christopher G. Hill | Construction Law Musings

As those who read my “musings” here at this construction law blog are well aware, the topic of Virginia mechanic’s liens is one that is much discussed.  From the basic statutory requirements to the more technical aspects of these tricky beasts.  One aspect of mechanic’s liens that I have yet to discuss in detail it how these liens attach in the situation where the contractor does work for a lessee and not for the owner of the underlying fee interest in the property.

A recent case out of the Western District of Virginia federal court, McCarthy Building Companies Inc. v. TPE Virginia Land Holdings LLC,  discusses the interaction of Va. Code 43-20, work on a leasehold, and parties necessary to any litigation relating to a lien for the work on that leasehold. The basic facts, outlined more thoroughly in the linked opinion, are these.  MBC provided certain work to TPE Kentuck Solar, LLC on property leased from TPE Virginia Land Holdings, LLC.  The lease was for a fixed term and for a fixed amount regardless of the work performed at the property.  MBC was unpaid by the Kentuck entity and then recorded a lien on the property and then sued to enforce that lien and for unjust enrichment against TPE Land Holdings.  TPE Land Holding filed a motion to dismiss the mechanic’s lien and unjust enrichment counts.

The Court heard oral argument and then went into an analysis of the above-referenced statute and whether TPE Land Holdings was a necessary party that had any interest in the “property” subject to the lien.  The Court put the question as follows:

The question, therefore, is not who has an interest in the land generally; rather, the court must ask who has an interest in the “part” of the land that Kentuck possesses. Specifically: Who has an interest in Kentuck’s leasehold interest?

Upon review of the lease and the relationships among the parties, the Court determined that the only party with an interest in the leasehold was Kentuck and that no action on the lien could diminish the property interest in the underlying property owned by TPE Land Holdings.  In short, TPE Land Holdings gave up its interest in the leasehold when it leased the land to Kentuck.  Even in the event that the lien suit lead to foreclosure, the worst that could happen is a new tenant would take over the lease and TPE Land Holdings would have potentially worse luck enforcing the lease.  Even in this scenario title to the underlying land would not be affected by the lien or its enforcement.  Therefore, the Court stated, TPE Land Holdings is not a necessary party or even a proper party to the lien counts and must be dismissed.

The Court dismissed the unjust enrichment count as well.  The Court stated that due to the fixed nature of the lease payments along with the fact that MBC failed to plead the requisite elements of an unjust enrichment claim, key among them that TPE Land Holdings was aware it may have to pay for the work performed under the contract with Kentuck.  Aside from MBC’s failure to plead all of the elements of such a claim, the Court stated that nothing MBC did affected the value of the leasehold from the perspective of TPE Land Holdings given the way the lease was drafted such that the work at the property would not affect the lease payments or other lease aspects that were set long before the work was performed.

My take?  Aside from the usual advice to read the opinion in full and to consult an experienced Virginia construction attorney, this case is a good primer on the interaction of leases and Virginia mechanic’s liens.  I recommend it to your reading.