A recent Utah case interpreted Utah Code Title 38, which governs mechanic’s liens. Specifically, the court looked at the issue of whether, when a tenant fails to pay a contractor for work performed on the tenant’s leased premises, the contractor’s lien may attach to the landlord’s interest in the property or just the tenant’s leasehold interest in the property. The Court of Appeals indicated the lien would attach to the landlord’s interest under the current statutory scheme in Utah. Vineyard Properties of Utah LLC v. RLS Constr. LLC, 2021 UT App 144.
Vineyard Properties of Utah LLC was the owner of a 63,000 square-foot commercial building. The space was leased to a tenant. The tenant contracted with RLS Construction LLC to make improvements to the property. Vineyard was aware of the work and authorized the tenant to carry out the work, but Vineyard did not hire RLS or become contractually obligated to pay for the work.
After the work was completed, RLS received only partial payment from the tenant, with an unpaid balance of over $13,000. The tenant subsequently abandoned the property. RLS recorded a construction lien against the property for the remaining balance. Vineyard sued, claiming that RLS’s lien could only extend and attach to the tenant’s leasehold interest in the property. The district court ruled in favor of RLS, determining that Vineyard, as the “owner” of the property under the statute, was obligated to RLS based on the lien.
On appeal, Vineyard asserted the district court erred, arguing that RLS’s lien only attached to the tenant’s leasehold interest, not to Vineyard’s fee interest. RLS argued that, regardless of whether or not the lien attaches to the tenant’s leasehold interest, the lien certainly attaches to the fee interest.
The appellate court pointed to statutory amendments in 2011 and 2012 as the primary reasoning for why Vineyard’s argument was unsuccessful. In these amendments, a definition for the terms “owner” and “project property” was added. “Owner” was defined as “the person who owns the project property,” and “project property” was defined as “the real property on or for which ... construction work is or will be provided.” ”
The court then looked to the primary provision at issue, Section 301, which states “a person who provide[d] ... construction work on ... a project property has a lien on the project property,” but that a lien “attaches only to the interest that the owner has in the project property.” As noted, the “project property” is “the real property on or for which” the construction work is done, id. § 38-1a-102(31), and an “owner” is “the person that owns the project property,” id. § 38-1a-102(26).”
Vineyard contended that RLS’s lien was valid but “attaches only to Tenant’s leasehold interest in the Property because only Tenant, and not Vineyard, contracted for RLS to perform the work.” RLS argued that its lien attached to Vineyard’s fee interest in the property because the entire property is the “project property” and Vineyard was the “owner” of that project property.
In examining the statutory definitions, the court agreed with RLS, concluding that:
- “The statutory definition of “project property” is broad enough to include Vineyard’s fee interest in the Property. As defined, “project property” is “the real property on or for which” the work was performed.”
- “Vineyard is unquestionably an “owner” of the property under the current statutory definition of that term. Because Vineyard is an “owner” of the Property, RLS’s construction lien attaches to Vineyard’s interest therein.”
The court concluded by affirming the district court’s decision, indicating the RLS’s lien properly attaches to Vineyard’s interest in the property as an owner based on Utah’s current statutory scheme.
Prior to the Vineyard case, precedent had been set in Interiors Contracting Inc. v. Navalco, where it was established that a tenant’s leasehold interest was the only interest that was subject to lien in the event that the tenant hired the contractor. Interiors Contracting Inc. v. Navalco, 648 P.2d 1382, 1384 (Utah 1982). As referenced above, Vineyard temporarily shifted the law, making the underlying ownership fee interest was subject to lien.
Even more recently, the Utah State Legislature has determined that the state should adhere to the sentiment laid out in Navalco. S.B. 119 regarding Preconstruction and Construction Liens Amendments, effective as of May of 2022, emphatically rejects the Court’s ruling in Vineyard. Specifically, the new law states:
“If an owner possesses an interest in the project property that is less than fee simple, a preconstruction or construction lien attaches only to the lesser interest of the owner and does not attach to the fee simple interest.”
The law goes on to explain that the underlying fee owner will only be subject to contractor lien attachment if they authorize the work and obtain a substantial benefit from the work being done beyond the time of the possession of the lesser interest.
Because of the Vineyard ruling, Utah law was in temporary flux on the issue of contractor liens and their attachment to underlying property interests when contracted by leaseholders. Utah has elected to return to the status quo under the logic expressed by the Navalco court, a decision codified by the Utah State Legislature.