A statutory lien that secures payment for labor or materials supplied in improving, repairing, or maintaining real or personal property, such as a building, an automobile, or the like.

Black’s Law Dictionary 935 (7th ed. 1999).

A mechanic’s lien is a “creature of statute.” In other words, it only exists due to a statute that permits it to exist (not unlike condominiums!). In Illinois the relevant act is 770 ILCS 60/1 (the “ML Act”). The purpose of the ML Act is to permit a contractor to place a lien against title to premises whereon such contractor has conferred a benefit by increasing or improving the value or condition of the property through furnishing labor and materials. Its purpose is to ensure payment to the provider of that labor and materials.

There are two types of mechanic’s liens, the general contractor’s lien and the
subcontractor’s lien.

In order, to maintain a general contractor’s lien claim, there must be a contractor
who enters into an express, implied, partly express, or partly implied contract with an owner or an authorized agent of the owner, to improve property. The contractor must provide a written verified statement of the names and addresses of all parties furnishing materials and labor and of the amounts due or to become due to each. The claim for lien must be filed in the office of the recorder in the county in which the improvement is located within four calendar months (not 120 days), after substantial completion of the work as to the owner and third parties. The original contractor’s lien should be verified, contain a statement of the contract, state the balance due, contain a legal description, and claim a specific amount. All of these requirements must be met in order to be able to ultimately enforce the general contractor’s lien.

In order to maintain a claim for a subcontractor’s lien there must be a valid contract between an owner and a general contractor, as well as a valid contract between a general contractor and a subcontractor. The contract must be for the furnishing of services or materials and the contractor must have completed performance of the contract or show a valid excuse for nonperformance. Like the general contractor’s lien, the subcontractor’s lien must be filed within four months after completion of the work.

Mechanic’s liens in the condominium arena can be particularly cumbersome for both the contractor and the association.¹ Contractors place liens relating to work performed at the request/direction of the association on common elements, against the common elements. However, since the common elements are owned by ALL owners as tenants in common, in accordance with their percentage interests, and the common elements do not have separate legal descriptions or PIN’s, mechanic’s liens must be placed against the ALL of the units at an association.

Though the work that is the subject of the lien likely does not have the specific,
actual consent of each unit owner, the owners’ express consent is deemed to exist based on the consent of the association through its board for the contractor’s provision of labor and materials. Each owner, therefore, is liable for the payment of his/her unit’s proportionate share of any due and payable indebtedness.

Liens against title can hinder free transfer of units. This is a source of frustration to owners who are trying to sell their units against which contractors have placed liens.

The owner feels that he/she has no direct control over the situation (true), and that the association has intentionally placed the owner in the position of having a tougher time transferring title (rarely true). An owner seeking to sell his/her unit may well find that the existence of a lien relating to common element work is precluding easy transfer due to title company issues or purchaser lender issues. Generally speaking, however, the association (through its board) is not deliberately opting to leave contractors unpaid, resulting in liens, but more likely is dealing with a problem in the work that was performed, or a problem with a contractor recording liens too freely or (worst case) a problem of having good work performed and a cash crunch for an unrelated reason.

No matter the genesis of the problem, it is the association’s responsibility to
undertake to remove liens placed against owners’ titles by association contractors. This can be accomplished through payment, negotiation, litigation or a combination of means.

To help the unsuspecting unit owner in the middle of a sale transaction, however,
and to avoid rushes to ameliorate lien situations at times that the association has a valid dispute with the contractor, we have found that title companies will often accept specific written undertakings of the association as an entity, to ensure payment of a the selling owner’s percentage interest in the gross lien amount, in the event the lien is found to be valid/enforceable and is not otherwise removed through payment and agreement of the lienor (contractor) and the association. Providing the specific undertaking to the title company can help smooth the sale of a unit that is otherwise subject to a mechanic’s lien relating to common element work.

The Mechanic’s Lien Act precludes advance agreements that remove the ability of a contractor to place a lien. It does, however, contemplate the waiver of a lien by the taking of additional security. We are unaware of any court opinions about substitute collateral in the condominium context. Given the expense involved to the contractor in liening each and every unit (in order to perfect the lien on the common elements, that are owned by all of the owners), as well as the expense to the association in ultimate adjudication, we have found that many contractors’ attorneys agree with our suggestion that an alternate arrangement be made between the parties. Specifically, we often suggest that in lieu of liens, the contract provide that any amount in dispute be placed in escrow (so the contractor knows that the money is available, and it is only the contractor’s right to the money that is in dispute) pending agreement of the parties or adjudication as to the right to payment.

This precludes the expense to the contractor of liening ALL units at an association, as well as the clouds on owners’ titles that will result from the mechanic’s liens, all while providing substitute collateral for the contractor (available and segregated funds). While this type of agreement may be ruled unenforceable were a court to subsequently determine it to be a waiver of lien in anticipation of a contract, rather than an agreed substitute of collateral, until such time as there is situation-specific case law or statute on the subject, we believe that associations and contractors can continue to agree on secure procedural solutions to potential monetary disputes. As the ultimate purpose of
the ML Act is to provide contractors with a method to obtain monies validly due from recalcitrant owners, and not to cloud numerous titles with one inked flourish, we believe that this method is the best for protecting the contractor and the owners.

Section 9.1 of the Illinois Condominium Property Act also provides a remedy to a
unit owner who may feel “trapped” by a lien on his/her unit due to services rendered on common elements. It provides for a unit owner to eliminate a mechanic’s lien recorded against his/her condominium by paying the lien claimant the proportionate amount of the indebtedness that is determined by the owner’s percentage of interest in the common elements as set forth in the declaration. This may be a viable option in the event the association or the title company is not helpful in terms of the specificundertaking concept. The encumbrancer must execute and deliver to the unit owner a release of the lien as to such paying owner’s unit. The release must include the unit’s percentage of interest in the common elements, and it should be recorded in the same place that the lien was recorded. One downside in this scenario, however, is that the owner must pay its proportionate share of the lien, which can be substantial, and which may be unnecessary in the event the association were to be successful in its position
that the contractor is not entitled to the money for one reason or another. Further, since amounts ultimately paid by an association to a contractor come from common expenses, the unit owner who has paid a proportionate share to effectuate a lien release, may pay a share again through his/her assessments, later used to pay the contractor its remaining balance due. The statutory provision does not provide for an accounting whereunder the owner will pay an association a lesser assessment later to reflect his/her prior payment of a portion of an amount demanded by a contractor to release the lien on his/her unit.

In summary, the Mechanic’s Lien Act is a powerful tool for ensuring payment for
work or materials provided. As it can result in “overkill” in a condominium situation, however, as well as financial detriment for the contractor/lienor (depending on the number of units at the association), we consider the alternative of substitute collateral more of a “win-win” resolution for all those concerned. No matter the ultimate method of handling liens, it is important to have at least a basic understanding of them and their impact on ownership in a condominium association.

¹ This article does not address liens against one specific unit for work performed at the request of the
owner on that specific unit.

Shelley R.Z. Barnett is the principal of Barnett and Goldberg, Ltd., a law firm that
concentrates its practice in condominium and homeowners association representation. Ms. Barnett thanks her former associate, Martavious A. Thomas, for his assistance in the preparation of this article, and her counsel, Jeffrey A. Goldberg, for his metaphorical slap in the face, facilitating the finalization of the article.

DISCLAIMER:
This article is NOT legal advice and does NOT substitute for legal advice; it is an article of general interest on a difficult and exacting subject. In the event an association or a contractor has a question about the legalities of a lien situation or a contract clause, such person should contact his/her/its own lawyer for legal advice.