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“Affirmative Act” in Lease Terms
by Michael Blahy

A contractor, subcontractor, laborer, [or] materialman, ... who performs labor or furnishes materials for the improvement of real property with the consent or at the request of the owner thereof, or of [the owner's] agent ... shall have a lien for the principal and interest, of the value, or the agreed price, of such labor ... from the time of filing a notice of such lien.

Liens are a tool to protect those who provide materials and services that improve real property, but the improvements must be consented to by the owner of the property. “The consent required … is not a mere acquiescence by the owner to improvements by a lessee in possession at [the lessee's] own expense. There must be some affirmative act by the owner”.

COR Ridge Road Company, LLC (COR) and PEACHES CAFE, LLC (Peaches) entered into a ten year lease agreement where Peaches would build and operate a full-service restaurant. The lease agreement made some stipulations as to the build out of the restaurant, where Peaches shall:

  • retain the services of a competent experienced architect(s) and engineer(s)

  • retain competent and skilled contractors for the completion of …

  • use only contractors approved by [COR]

  • provide [COR] with detailed plans and specifications for the build-out of improvements to be constructed on the [p]remises” and “design drawings … ‘shall include’ electrical plans

  • revise “ design drawings … according to any proposed changes by COR

  • not make ... any ... improvements ... without first obtaining the consent of [COR]
The lease agreement set out that the restaurant be adequately staffed during a set minimum days and hours of operation. It also “provided that any improvements made to the ‘vanilla box’ space would become part of the realty at the end of the lease.

Peaches contracted Quinlan Ferrara Electric, Inc., who assigned its rights to Angelo Ferrara (Ferrara), for the electrical work, which was completed satisfactorily.

Peaches operated for a while, but Ferrara was still owed over $50,000 when the restaurant ceased operations. Ferrara noticed both Peaches and COR when it filed a mechanic’s lien against the property. Two years after filing the lien, Ferrara started a court action to foreclose.

The case was heard at the Supreme Court, Monroe County where Ferrara sought partial summary judgment on that cause of action; COR moved for summary judgment dismissing the complaint. In January 2015, the Supreme Court, denied Ferrara's motion and granted COR's motion to dismiss the complaint. Ferrara appealed to the Appellate Division which, in April 2016, reversed the order.

COR filed its appeal to the Court of Appeals of New York arguing “that the Appellate Division erred because, as a matter of law, a contractor working for a tenant may not place a lien on a landlord's property unless the landlord has ‘expressly’ or ‘directly’ consented to the performance of the work, which COR says it did not do”.

COR cited the Delany & Co. v Duvoli (278 N.Y. 328 [1938]) decision and others which successfully used that decision to dismiss liens on their properties “when no direct relationship between a tenant's contractor and the property owner is present”.

In the cited cases, the Court of Appeals of New York said “The most that can be said ... is that the owner did not object to improvements by the tenants at their own expense. That the lienors never dealt with the record owner or her agent in respect to those improvements”. But it also said, “Contrary to COR's argument, Delany does not stand for the proposition that consent under Lien Law section 3 requires a direct relationship between the property owner and the lienor. Instead, Delany stands for the proposition that some ‘affirmative act’ by the landowner is required to find consent for the purposes of Lien Law section 3. Our decisions make clear that that ‘affirmative act’ can include lease terms requiring specific improvements to the property”.

In this case, the Court of Appeals of New York said “Adhering to our longstanding precedent, we hold that consent, for purposes of Lien Law section 3, was properly inferred from the terms of the lease agreement between COR and Peaches, and that the Appellate Division appropriately declined to impose a requirement that COR either expressly or directly consent to the improvements”. Concluding with “Judgment appealed from, and Appellate Division order brought up for review, affirmed, with costs”.

(Ferrara v. Peaches Cafe LLC (New York Court of Appeals, 2018 NY Slip Op 07925))

Decided: November, 2018
Published: November, 2018

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