By Adam R. Burrus
Mechanic’s liens provide vendors and laborers with an important way of protecting themselves from the danger of not being paid. However, if the liens are not created correctly that protection can be lost.
Kansas law allows an entity providing improvements on real property a mechanic’s lien for the amount of the labor, equipment, materials, or supplies furnished, plus transportation costs. Under K.S.A. § 60-1101, the lien claimant must have had a contract with the owner of the real property or the owner’s representative. The statute further provides that a mechanic’s lien will have priority over all other liens which arise after the mechanic’s lien is created. However, Kansas case law is abundantly clear that in order to hold a valid mechanic’s lien, lien claimants have the burden of bringing themselves into compliance within the provisions of the law.
To comply with the mechanic’s lien statutes, a claimant must file and record a valid lien statement. A valid lien statement must include four items: 1) the name of the owner of the real property; 2) the name and address of the lien claimant; 3) a description of the real property upon which the mechanic’s lien is claimed; and 4) a reasonably itemized statement which includes the amount of the claim. K.S.A. § 60-1102(a). While the first three requirements are fairly straightforward, what qualifies as a "reasonably itemized statement" is more subjective, and has given rise to litigation.
In Kopp’s Rug Co, Inc. v. Talbot, 5 Kan. App. 2d 565, 571 (1980), the court examined the meaning of the word "reasonably" in the lien statute and concluded: "Reasonable would seem to require a well-balanced statement, one that is not extreme, i.e., one that is neither excessive nor insufficient in detail; a statement that is fair and sufficient to inform the landowner of the claim and to enable the landowner to ascertain whether the work was completed and whether the charge therefor is fair."
The issue arose again in Scott v. Strickland, 10 Kan. App. 2d 14 (1984), a case in which the lien claimant attached photocopied invoices to its lien statement. The landowners in Scott argued that the poor quality of the photocopied invoices prevented them from ascertaining whether the materials were actually provided by the lien claimant and whether the amounts charged were fair. The court admitted that the specific description and charges for items were of poor quality; however, the statement was found to be sufficient because the materials used for the project could be determined and the total of each invoice could be read.
While attaching invoices may satisfy the "reasonably itemized" requirement, merely attaching the contract with the landowner is likely insufficient, particularly if the contract does not indicate how the lien claimant calculated the amount due. In Huber Co. v. DeSouza, 32 Kan. App. 2d 614, 616 (1986), the court held that this deficiency was not cured simply because the lien claimant had provided the landowner with itemized billings outside of the lien statement, because "[t]he lien statement’s validity must be ascertained from its four corners." In other words, an invalid lien statement cannot be saved by reliance upon extraneous supporting documents.
The requirement of a reasonably itemized statement typically benefits the landowner; however, other stakeholders may also have the right to challenge the sufficiency of the statement. A recent decision issued by the United States Bankruptcy Court for the District of Kansas held that competing lienholders have standing to challenge the sufficiency of an itemized statement. In RIM Development, LLC v. KS Dept. of Transportaton, Case No. 10-10132 (Bankr. D. Kan. Mar. 31, 2011), the mechanic’s lien claimant argued that two other creditors holding mortgages on the subject real property could not challenge the sufficiency of the claimant’s itemized statement when the landowner itself had admitted the statement was sufficient. Further, the claimant argued it was irrelevant that the statement did not inform the mortgagees of the labor and materials provided on the real property, because the statement needed to only inform the landowner. In rejecting these arguments, Judge Robert E. Nugent noted that "Competing lienholders have a monetary interest in determining the validity and enforceability of liens claimed to be senior in priority to theirs and, accordingly, have standing to challenge the sufficiency of a lien statement."
The receipt of payment can hinge on the adequacy of lien statements. In light of the fact that these statements are open to challenge from a variety of interested parties, it is even more important that they be done correctly. Legal counsel should be consulted as to any questions or uncertainty that may arise in the preparation of these statements.