Iowa Supreme Court Declares Major Change in Mechanic’s Lien Rights
On April 12, 2019, the Iowa Supreme Court issued an opinion in Winger Contracting Co. vs. Cargill, Inc., the consequences of which means less mechanic’s lien rights for Iowa contractors on certain projects.
In this case, a chemical manufacturing company leased land from Cargill, Inc. The company intended to build a new chemical facility, which it would own and operate on the leased land which would continue to be owned by the lessor-owner, Cargill.
The company contracted with two design-builders for the construction of the new facility, who contracted with a number of subcontractors. Problems arose in the project, including problems stemming from allegedly defective work, with numerous subcontractors later filing mechanic’s liens based upon allegations of millions of dollars of unpaid work that the subcontractors performed in constructing the facility. Those subcontractors then sought to foreclose their mechanic’s liens against both Cargill’s underlying property, as well as the newly constructed facility.
The Supreme Court Decision
In its decision, the Iowa Supreme Court overruled previous precedent, due to subsequent statutory changes in Iowa’s lien law, and ruled that mechanic’s liens arising from construction contracts with a lessee company (and not the property owner) will ordinarily not attach to the underlying property of the property owner-lessor. Instead, in these situations, the contractor’s mechanic’s lien rights will ordinarily be limited to being merely against the lessee’s leasehold interest rather than against the property and land in whole. While the Court’s decision does leave some room for potential arguments to be made in these situations that mechanic’s lien rights may, in fact, apply to the property owner-lessor’s underlying realty in certain situations, as discussed further in this more detailed analysis of the case, such arguments have very limited applicability.
Impact on Contractors
This decision is significant to Iowa lien law. In particular, going forward, contractors must know that they likely will have no mechanic’s lien rights against the underlying property when they perform build-out work for commercial lessee-clients or otherwise perform work for any client who is merely leasing the property. Instead, lien rights will be limited to merely covering the lessee’s leasehold interest. Contractors should, therefore, consider whether other protections and security are available to help secure their rights to payment under contracts with lessee-clients.
Further details regarding the facts of the Winger case, as well as a detailed legal explanation of the Iowa Supreme Court’s decision can be found here. If your company performs work for lessee-clients and you have questions about this area of law, please contact Jodie McDougal at 515-246-7951 or JodieMcDougal@davisbrownlaw.com.
– Darrel Bullock, President, HBA of Greater Siouxland