New Hampshire’s mechanic’s lien statute, RSA 447:2, gives a lien to those “erecting or repairing a house or other building or appurtenances . . . by virtue of a contract with the owner thereof.” The lien is on “any material so furnished and on said structure, and on any right of the owner to the lot of land on which it stands.” Nothing in the statute mentions lessees/tenants, even though they often contract for improvements to their leased premises.
While our Supreme Court has never ruled on whether a lessee hiring a contractor to improve the leased premises is an “owner” under this statute, our trial courts have assumed that a leasehold interest qualifies as “any” right to the land, and therefore can be liened. An example is Dandreo Brothers General Contractors & Masonry, LLC v. CMAB Associates II, LLC, No. 218-2018-CV-00653 (January 10, 2019) (“In this case, the Tenant is the contracting ‘owner’ within the meaning of RSA 447:2 because (a) it contracted with the Contractor for improvements to the real estate and (b) it held a long-term lease.”). But a recent case may call this into question.
In Appeal of Port City Air Leasing, Inc., the New Hampshire Supreme Court held that a lessee did not qualify as a “landowner” under RSA 482-A:9, a statute which specifies that an “abutting landowner” is entitled to notice of wetlands permit applications. While noting that “‘landowner’ means one that has the legal or rightful title to land whether the possessor of that land or not,” the Court reasoned that because “Port City may use the leased premises only for the limited purposes enumerated in the lease” and was required “to obtain lessor approval before making any improvements or alterations to the leased premises,” its interests in the leased land were not tantamount to ownership. The same thing can be said of most commercial tenants.
The Court further found that “Port City holds title to only the buildings and improvements on the leased premises. And it holds that title only for the duration of the lease, which has a five-year term with options to extend for additional five-year terms up to a maximum of thirty years. Nor are Port City’s interests in the property freely transferable: its ability to assign or sublease any part of the premises is, with limited exception, subject to the lessor’s approval.” These features are likewise true of many commercial leases. Indeed, unlike Port City, many commercial tenants don’t hold title to the occupied buildings or improvements even during the leasehold term.
Port City’s focus on “landowner” rather than “owner” could make a difference in interpretation of the two statutes. The lien statute’s phrase “and on any right of the owner to the lot of land on which [a building] stands,” rather than on the right of the owner, indicates legislative recognition that the building owner need not be the landowner – a scenario commonly referred to as a ground lease. But as noted above, few commercial lessees own the buildings they occupy. Given the applicability of Port City’s rationale to lessees in general, the “landowner” distinction seems inconsequential.
If having a leasehold interest does not qualify the lessee as an “owner” under the mechanic’s lien statute, the only way to bring the lessee’s contracted improvements within the reach of the statute will be as an agent of the owner under RSA 447:5 – which, as the Dandreo case points out, can be an uphill battle. Unless that agency is established, the contractor will have a lien against neither landlord nor tenant.
Pragmatically speaking, not much contractor protection is lost if leasehold interests aren’t lienable. While attached interests can theoretically be auctioned off at a sheriff’s sale to satisfy contractors’ unpaid judgments, nobody is likely to bid at a sheriff’s sale for a leasehold interest. As I have said elsewhere (Blog #18), transfer of a tenancy, whether voluntary or involuntary, without the landlord’s consent is virtually certain to be a breach of the lease, giving the landlord the right to kick the new tenant out!
While our Supreme Court has never ruled on whether a lessee hiring a contractor to improve the leased premises is an “owner” under this statute, our trial courts have assumed that a leasehold interest qualifies as “any” right to the land, and therefore can be liened. An example is Dandreo Brothers General Contractors & Masonry, LLC v. CMAB Associates II, LLC, No. 218-2018-CV-00653 (January 10, 2019) (“In this case, the Tenant is the contracting ‘owner’ within the meaning of RSA 447:2 because (a) it contracted with the Contractor for improvements to the real estate and (b) it held a long-term lease.”). But a recent case may call this into question.
In Appeal of Port City Air Leasing, Inc., the New Hampshire Supreme Court held that a lessee did not qualify as a “landowner” under RSA 482-A:9, a statute which specifies that an “abutting landowner” is entitled to notice of wetlands permit applications. While noting that “‘landowner’ means one that has the legal or rightful title to land whether the possessor of that land or not,” the Court reasoned that because “Port City may use the leased premises only for the limited purposes enumerated in the lease” and was required “to obtain lessor approval before making any improvements or alterations to the leased premises,” its interests in the leased land were not tantamount to ownership. The same thing can be said of most commercial tenants.
The Court further found that “Port City holds title to only the buildings and improvements on the leased premises. And it holds that title only for the duration of the lease, which has a five-year term with options to extend for additional five-year terms up to a maximum of thirty years. Nor are Port City’s interests in the property freely transferable: its ability to assign or sublease any part of the premises is, with limited exception, subject to the lessor’s approval.” These features are likewise true of many commercial leases. Indeed, unlike Port City, many commercial tenants don’t hold title to the occupied buildings or improvements even during the leasehold term.
Port City’s focus on “landowner” rather than “owner” could make a difference in interpretation of the two statutes. The lien statute’s phrase “and on any right of the owner to the lot of land on which [a building] stands,” rather than on the right of the owner, indicates legislative recognition that the building owner need not be the landowner – a scenario commonly referred to as a ground lease. But as noted above, few commercial lessees own the buildings they occupy. Given the applicability of Port City’s rationale to lessees in general, the “landowner” distinction seems inconsequential.
If having a leasehold interest does not qualify the lessee as an “owner” under the mechanic’s lien statute, the only way to bring the lessee’s contracted improvements within the reach of the statute will be as an agent of the owner under RSA 447:5 – which, as the Dandreo case points out, can be an uphill battle. Unless that agency is established, the contractor will have a lien against neither landlord nor tenant.
Pragmatically speaking, not much contractor protection is lost if leasehold interests aren’t lienable. While attached interests can theoretically be auctioned off at a sheriff’s sale to satisfy contractors’ unpaid judgments, nobody is likely to bid at a sheriff’s sale for a leasehold interest. As I have said elsewhere (Blog #18), transfer of a tenancy, whether voluntary or involuntary, without the landlord’s consent is virtually certain to be a breach of the lease, giving the landlord the right to kick the new tenant out!
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