Lienable Services – Architects and Engineers Dilemma
If you are an architect or engineer and do work for a construction or land development project that does not go forward and your client fails to pay, do you have a mechanics lien that can be enforced to secure payment? In my opinion, the answer is yes but some Illinois Appellate Courts have a different view. I think they are wrong.
The Illinois Mechanics Lien Act (Act) provides that if you “perform any services or incur any expense as an architect, structural engineer, professional engineer…in, for or on a lot or tract of land for any such purpose” you have a lien. The phrase “for any such purpose” refers back to constructing improvements on the property. The Act does not say that if you are an architect or engineer there has to be an actual improvement of the property. However, some Illinois Appellate Court decisions have imposed this requirement.
A recent Appellate Court decision involved a situation where Power Holdings of Illinois LLC was a contract purchaser of property and intended to construct a coal gasification plant on the land it was acquiring. It contracted with an environmental firm to provide “air quality construction permitting and dispersion modeling services.” The environmental firm was to focus its permitting application process and efforts on securing construction permit approval for the property. The environmental firm did its work and was not paid. It recorded a mechanics lien and filed a lawsuit to enforce the lien. A motion to dismiss was filed and granted by the trial court. The environmental firm appealed.
The motion to dismiss argued that the environmental consulting services were performed to aid Power Holdings in determining if the land would meet the requirements of the Illinois Environmental Protection Agency for a coal gasification facility and that the services did not benefit the land directly or indirectly. The motion to dismiss further argued that the environmental firm did not provide any design or construction work. The Illinois Appellate Court upheld the dismissal of the complaint and stated in its decision that “the proper focus in determining the validity of a mechanic’s lien is whether the work actually enhanced the value of the land.” The Appellate Court went on to state in what I would characterize as a play on words “that the services rendered by the plaintiff were not for the purpose of improving the land but were for the purpose of determining whether Power Holdings should exercise its option to purchase the land and thereafter build a coal gasification facility thereon.” The Appellate court held these were not the type of services for which a lien can be filed and enforced under the Act.
In my opinion decisions such as the Appellate Court made in the environmental firm’s case are wrong for several reasons. First the courts are not distinguishing between an architect’s or engineer’s lien and that of a contractor, subcontractor or material supplier. The Act very clearly states that if you perform ANY services or incur ANY expense as an architect or engineer for the purpose of constructing improvements on the lot or tract of land you have a lien. The Act does not state that the improvements actually have to be constructed. In my over 30 years of experience architects and engineers usually have mechanic’s lien problems when the project does not go forward. It’s when the developer doesn’t succeed that he feels no one should get paid if he has not made a profit. This is not the risk that the architect or engineer has agreed to take.
An Appellate Court decision such as in the environmental firm case imposes a judicial requirement of adding value to the property for an architect or engineer to have a mechanics lien. This is improper and in my opinion not the law.
I also think the Appellate Court is wrong when it states the focus should be on whether the work actually enhanced the value of the land. Enhancement is only an issue in a mechanics lien case when a mechanics lien competes for priority with a prior recorded mortgage. As between the owner and mechanics lien claimant there is no issue of enhancement.
By their very nature, architectural and engineering plans and studies do not constitute a physical improvement to real estate. However, the Act recognizes this and states explicitly that all that is required for an architect or engineer to have a lien is that he provide services or incur expenses for the purpose of improving the real estate. A trial court’s ruling requiring that the services furnished “add value” will mean that in most situations an architect or engineer will be precluded from asserting a mechanic’s lien claim. As mentioned above most architect or engineer lien claims arise when a proposed development does not proceed. The Act takes this into account and explicitly provides that all that is required is that the services be rendered for the purpose of improving the property and not that an actual physical improvement be made.
A few years ago I encountered the same type of situation for a civil engineering firm that I represent. Civil engineering was done for a proposed development for the contract purchaser. The development did not proceed and my client was not paid for its work. We recorded a lien and filed suit to enforce it. A motion to dismiss was granted by Judge Clifford Meacham of the Circuit Court of Cook County. He made a ruling that the work had to “add value” to the land. I took his ruling up on appeal.
While the appeal was pending we settled the case and did not get an Appellate Court decision on my argument that an architect’s or engineer’s lien is different from that of a contractor. Judge Meacham retired about a year ago. I had many cases before him during the years he served as a judge. On the day he retired I went to his court room to say good bye and wish him the best in retirement. He saw me sitting in the back of his court room waiting for his call to conclude. He stopped what he was doing and called me up to the bench. He had surmised why I was there.
We exchanged best wishes and as I was ready to leave he said you remember that engineer’s case you took me up on, I’ve been thinking about it for a long time and on that one I got it wrong. He said “Al you were right.” While that is not much consolation for my client it made me feel good and convinced that my analysis is correct. Hopefully I will have another similar case and if I get an adverse trial court ruling I can take the issue up again and this time get an Appellate Court decision upholding my position. Stay tuned.