Colorado Real Estate Journal -
Under Colorado law, every person who furnishes materials, machinery, tools or equipment (a “material man”) and every contractor, subcontractor, architect, engineer or other person who performs labor (a “mechanic”) in connection with the design, construction, alteration, addition to or repair of any building, has a lien on the property for the value of the materials, machinery, tools, equipment and labor supplied. This lien is referred to as a mechanic’s lien. Following a court action to enforce the mechanic’s lien and entry of a judgment in favor of the mechanic or material man, the court will order the sale of the property and use the proceeds to pay the mechanic’s or material man’s claim. Further, the effective date of all mechanics’ liens on a project will relate back to the date on which the first mechanic began work on the project. This means the date on which the mechanic’s lien attaches may be the date on which an architect began preliminary work on the improvement or structure. The effect is that the sale of the property in connection with the enforcement of the mechanic’s lien may result in the termination of any interests in the property created after the date the lien attaches. Interests that may be terminated in this manner might include a security interest under a deed of trust, the interest of a purchaser of the property, or the interest of a tenant under a lease or grantee of an easement in the property. Materials or labor furnished with the knowledge of the owner of the property are deemed to have been done so at the request of the owner for purposes of the Colorado mechanics’ lien law. This is true even where the work was contracted for by a tenant with respect to the tenant’s leased premises, by a licensee with respect to the licensed premises, by a contract purchaser, or even by the holder of an option to purchase or lease. In such circumstances, although the Colorado mechanics’ lien law will not make the owner personally liable to the mechanic or material man, it will establish a lien on the owner’s property for the value of the materials, machinery, tools, equipment and labor that was supplied. Colorado law allows an owner limited protections from the liens of mechanics who perform labor or material men who furnish materials, machinery, tools and equipment on the owner’s property at the request of another, such as a tenant. Pursuant to CRS § 38-22-105, an owner can protect his interest in the subject property from these liens by, within five days after learning of the construction, alteration, addition or repair, giving notice that his interests will not be subject to any lien for such work. The notice can be given either by serving a written notice to that effect on all mechanics and material men providing labor materials, machinery, tools and equipment or by posting and keeping posted a written notice to that effect in a conspicuous place on the property.
These protections are not foolproof, however. • First, they will not apply where the work is performed at the request of the owner or any other person acting by the owner’s authority or as agent for the owner. That being said, Colorado courts have held that an owner’s interest will not be subject to a mechanic’s lien on these grounds where work is performed at the request of a tenant operating under a lease arrangement pursuant to which the tenant, using tenant improvement allowance funds provided by the landlord, contracts for the construction of improvements on the leased premises. • Second, the protections will not apply where mechanics and material men were not given the requisite notice. • Third, regardless of the availability of these protections from mechanic’s liens, it is possible that mechanics and material men could, in certain circumstances, successfully assert that they should recover from the owner the value of materials, machinery, tools, equipment and labor furnished or supplied because otherwise the owner would be unjustly enriched by their contributions to the owner’s property. Nevertheless, owners should avail themselves of these statutory protections for their own benefit and for the benefit of those to whom they convey other interests in the subject property. An owner should also bear in mind that he may be required to avail himself of these protections by, for example, the terms of any deed of trust encumbering the property. * This article is not intended as legal advice to anyone and does not create any lawyer-client relationship.