In the gameshow “The Price Is Right,” if a contestant bids over the price of the item, they lose the whole game. Mechanic’s liens have a similar restriction – if a contractor or subcontractor claims the value of their work is higher than it is, then the owner can bring an action to vacate and discharge their lien. Indeed New York’s lien laws also provide a heavy penalty for a “willfully exaggerated” value of the work set forth in a mechanic’s lien: the lien is void and no recovery can be had by anyone under the same claim. See N.Y. Lien Law § 39. Even more, when a lien is declared void for willful exaggeration, the contractor or subcontractor is also liable for damages including “(i) the amount of any premium for a bond given to obtain the discharge of the lien or the interest on any money deposited for the purpose of discharging the lien, (ii) reasonable attorney’s fees for services in securing the discharge of the lien, and (iii) an amount equal to the difference by which the amount claimed to be due or to become due as stated in the notice of lien exceeded the amount actually due or to become due thereon.” See N.Y. Lien Law § 39-a. With such steep penalties in mind, a prudent contractor or subcontractor, and their counsel, should be aware that the goods and labor subject to the protections of the lien law are not absolute or universal. The value amount of a mechanics lien is not merely what the contractor or subcontractor believes they are owed or even what might be contractually owed.
The recent First Department decision of W 54-7 LLC v. Intersystem S&S Corp., 210 A.D.3d 454 (1st Dep’t 2022) provides just such an example of construction labor and materials that are not enforceable via mechanic’s lien. In W 54-7 LLC, an owner brought an action to vacate and discharge a subcontractor’s mechanic’s lien for work and labor for the supplying and installation of scaffolding and a sidewalk shed at the subject premises.
By way of background, generally, an underlying principal of the lien law is that “a person who, at the request, or with the consent, of the owner of real property, enhances its value by furnishing materials or performing labor for the improvement thereof, should be deemed to have acquired an interest in such property to the extent of the value of such materials or labor.” Wahle-Phillips Co. v. Fitzgerald, 225 N.Y. 137 (1919). More specifically, Lien Law § 2(4) defines “improvement” as “the demolition, erection, alteration or repair of any structure upon, connected with, or beneath the surface of, any real property and any work done upon such property or materials furnished for its permanent improvement.” Therefore, while the installation, maintenance and removal of scaffolding and a sidewalk shed are undoubtedly significant expenditures of labor and materials, the W 54-7 LLC Court found that “the structures themselves effected no permanent change to the building. The project therefore falls outside the scope of labor and materials protected under the Lien Law.” W 54-7 LLC, 210 A.D.3d 454. The court accordingly discharged the mechanic’s lien.
The Court further acknowledged that the scaffolding and shed were required for the permanent repair work and public safety, but nonetheless because the scaffolding and sheds themselves were not permanent, they were not covered. Contractors and subcontractors that install and maintain scaffolding and sidewalk bridges should take note.
Further though, that this old issue (Wahle-Phillips Co. is over a hundred years old) is still being litigated shows that there is room for argument over what is a “permanent” improvement and what is not, with high stakes if the value of a mechanic’s lien is padded with non-permanent improvements, every contractor and their counsel should stay up-to-date on cases like W 54-7 LLC, or risk overbidding on the value and losing big time at court, especially if the court finds the overbid willful.