Testing the Waters of Kansas Mechanic's Liens
| Publication year | 2005 |
| Pages | 16-22 |
| Citation | Vol. 74 No. 5 Pg. 16-22 |
74 J. Kan. Bar Assn. 5, 16-22 (2005). Testing the Waters of Kansas Mechanic's Liens
74 J. Kan. Bar Assn. 5, 16-22 (2005)
Kansas appellate courts recently issued several substantive rulings that examined novel issues pertaining to Kansas mechanic's liens. Largely an area of law that remains under-examined by our appellate courts, and misunderstood by many more, mechanic's liens can be a powerful tool to collect debt. However, mechanics' liens are notoriously tricky; one small drafting mistake can conceivably invalidate the entire lien by preventing its attachment to the property.(fn1) Consequently, practitioners find the process of drafting liens frustrating because court cases seem to provide little concrete guidance in an area requiring perfection - in more ways than one.
In the past few years, Kansas appellate courts have examined several specific areas of Kansas mechanics lien laws and, in the process, have provided some guidance to practitioners. At the same time, the courts' decisions have also muddied waters once thought to be clear, creating some doubts about the validity and priority of liens. The purpose of this article is to examine the lessons of the courts' recent decisions and also to explore those questions.
I. Reversal of Fortune: Is Visibility of Work no Longer a Consideration?
The Kansas mechanic's lien statute, K.S.A. 60-1101, provides any contractors who furnish:
"labor, equipment, material, or supplies used or consumed for the improvement of real property, under contract with the owner or with the trustee, agent, or spouse of the owner, shall have a lien upon the property for the labor, equipment, material, or supplies furnished, and for the cost of transporting the same."(fn2)
Subcontractors who provide similar services or materials may also file liens upon property but may do so only if they contracted directly with the contractor, rather than the owner of the property.(fn3)
Pursuant to K.S.A. 60-1101, any "labor, equipment, material, or supplies used or consumed for the improvement of real property" may be lienable.(fn4) However, this definition does not define or qualify improvements to property required for the lien statute to take effect. In dealing with the question of the quality of the improvement necessary to constitute lienable work, the Kansas Supreme Court, in the 1996 opinion of Haz-Mat Response, Inc. v. Certified Waste Services, Ltd.,(fn5) stated the phrase "improvement of real property" was defined as:
"A valuable addition made to real property (usually real estate) or an amelioration in its condition, amounting to more than mere repairs or replacement, costing labor or capital, and intended to enhance its value, beauty, or utility or to adapt it for new or further purposes."(fn6)
The court also devised a seven-part test to determine whether an activity improves real property: (1) considerations must be made on a case-by-case basis; (2) it does not require the actual construction of a physical improvement; (3) it need not be visible, though most often it is; (4) it must enhance the value of the property, though it need not enhance its selling value; (5) the products or labor must become part of the real property; (6) the purpose of the activity outweighs the nature of the activity; and (7) whether the activity is part of an overall plan to improve the value of the property.(fn7)
The case-by-case criteria in Haz-Mat does not resolve the definitional issues of an "improvement" as the term is used in K.S.A. 60-1101, but, instead, leaves it open to interpretation. In 1990, previous to Haz-Mat, the Court of Appeals, in Mark Twain Kansas City Bank v. Kroh Bros. Development. Co.,(fn8) specified that nonvisible work performed on real estate was not lienable and, in order to become lienable, the present lien statute would have to be amended.(fn9) The Haz-Mat criteria retreated from this unequivocal statement, simply providing that an improvement need not be visible to be lienable, though in most cases it would be.(fn10) In Mutual Sav. Assoc. v. Res/Com Properties, L.L.C.,(fn11) the Kansas Court of Appeals in 2003 seems to abandon this preference for visible improvements altogether.
In Mutual Savings, the parties argued whether an engineering firm perfected its mechanic's lien prior to the recording of a mortgage on the real estate. In this dispute, the Court of Appeals first considered whether an engineering company's preliminary staking and surveying of real estate was a lienable improvement under the definition of K.S.A. 60-1101. Using Haz-Mat's criteria as a guideline, the court rightly found that the engineer's activities were indeed lienable, but also stated:
"This record is silent as to whether stakes installed by Peridian were still on the property at the time Mutual's mortgages were filed, but this is irrelevant under the Haz-Mat test."(fn12)
With this statement, the court seems to completely disregard the third Haz-Mat element and instead states that the visibility of an improvement is irrelevant. As a result, Kansas appellate courts complete their reversal from the 1990 mandate in Mark Twain that calls for an amendment to the mechanic's lien statute to create liens when the work is not visible.
II. Unpreferred Banking: When Unknown Improvements Become a Big Headache.
A. Everything new is old again.
Kansas mechanic's liens are preferred similarly; that is, the statute provides that each lien claimant's date of preference relates back to the date of the "earliest unsatisfied lien" of any lien claimant.(fn13) Though a simple concept in principal, the courts have increasingly scrutinized the preference of a lien claimant to other encumbrances on real estate. Surprisingly, although the Legislature added the word "unsatisfied" to K.S.A. 60-1101 in 1977,(fn14) the appellate courts never specifically discussed its application to lien preferences until 2003.
The Court of Appeals finally discussed the 1977 amendment in Davis Electric, Inc. v. Showalter.(fn15) There, a bank sought the preference of its mortgage over that of a mechanic's lienholder, an electrical contractor. The contractor began working on the project on June 21, 2000. The bank filed a mortgage on the property the following day, June 22, 2000. On Sept. 18, 2000, during the course of performance on its single, continuing contract with the owner of the property, the owner paid the contractor in full for all work and material furnished through Aug. 29, 2000.
The bank argued that the full payment of the contractor on Sept.18, 2000, caused the contractor's preference period to begin anew and thus caused the bank's lien to be preferred over that of the contractor. This argument focused on the Legislature's inclusion of the word "unsatisfied" in the lien statute. If the contractor had been fully satisfied, then he could no longer claim preference over the bank.(fn16)
The court found no guidance in the legislative history to the 1977 amendment.(fn17) Speculation by the court concluded that the amendment "was intended to preclude unpaid lienholders from claiming a...
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