Lessees Must Timely File Mechanic’s Liens to Recover for Costs of Improvements

January 23, 2012 | Erika Eckley

Typically, knowledge of, or consent to, improvements on property completed by a lessee does not subject the lessor to a mechanic’s lien for the work done. But, if the work is done “by virtue of a contract” either by an express or implied agreement with the lessee to make the improvements, then the lessor may be subject to a mechanic’s lien for the reasonable value of the labor and materials furnished. If the lessee establishes that a contract for the work existed, the lessee must also prove several things:  (1) that the improvements will become the property of the lessor in a short amount of time; (2) that the additions were beneficial to the realty and contemplated by the parties to the lease agreement, and (3) that the rental payments reflect the increased value to the property as a result of those improvements.

In this case, the appellate court reviewed whether work by a lessee was done “by virtue of a contract” with the lessor to provide the basis for a mechanic’s lien. The court also determined whether several claims were time barred under Iowa Code § 572.9 because materials and labor were supplied more than two years and ninety days before the lien was filed.
In August 2000, the defendants, husband and wife, purchased a farm. The plaintiff, as tenant, had rented the tillable acres of the farm for decades prior to the sale to the defendants. The plaintiff was offered the opportunity to purchase the farm before it was sold to  the defendants. The defendants promised that they would continue to rent the tillable land to the plaintiff for a reasonable rate for as long as he was interested, if they were allowed to purchase the farm. The plaintiff was also promised the first option to purchase if the defendants decided to sell the farm.

The parties agreed that the plaintiff could make improvements to the farm, at no cost to the defendants, so long as the plaintiff had the right to lease the farmland. The parties also agreed that if the agricultural lease was terminated and the plaintiff no longer had the option to purchase the land, then the defendants would be responsible for any unpaid costs of the improvements made by the plaintiff. There was no written lease or other written agreement regarding the costs of the improvements.

The plaintiff continued to lease the agricultural land until 2009. In July 2008, the defendants proposed a rent increase that the plaintiff did not accept. The defendants sent a notice of termination of the farm tenancy to the plaintiff in August 2008. Another party began leasing the land in March 2009. In August 2009, the defendants accepted an offer from another party to purchase the farm and did not give the plaintiff and opportunity to purchase the farm. The plaintiff filed a mechanic’s lien on the farm and served the defendants with the lien. The lien listed the costs of several improvement projects completed on the farm from 2001 until 2009. 

The plaintiff filed a petition to foreclose the lien. The defendants answered and asserted that several claims were barred by the statute of limitations under the mechanic’s lien statute, Iowa Code § 572.9. The matter proceeded to trial. At trial, the district court found all but one of the projects were either time-barred or were not done “by virtue of any contract” with the defendants.  The plaintiff was awarded the costs of the one project and an amount for attorney fees. The plaintiff appealed.

On appeal, the court agreed that there was a general unwritten agreement by the parties that the plaintiff could make improvements on the land and that if the plaintiff lost all rights to the land, the defendants would pay for any unpaid portion of the improvements. The court found, however, that the plaintiff’s suit was not for breach of this oral agreement, but was instead to foreclose upon the mechanic’s lien he filed. Because of this, the court concluded that labor and materials provided for all of the projects prior to 2006 were furnished more than two years and ninety days prior to the filing of the mechanic’s lien and were, therefore, time-barred under the statute. For the remaining claims, the appellate court adopted the findings of the district court that there was evidence of contract between the parties to complete only one of the projects and that the plaintiff could recover for the labor and materials necessary for that project. The court also upheld the district court’s award for attorney fees. Thorson v. HoylandNo. 1-942/11-0630 (Iowa Ct. App. Jan. 19, 2012).