Illinois Appellate Court Extends Mechanics’ Lien Rights to Pre-Development Work — Even If Owner Claims to Have No Knowledge of the Work

October 18, 2016 Firm News

A Laurie & Brennan article featured in the Construction Law Corner Spring 2015 eNewsletter.

by Chad J. Shifrin1

An Illinois appellate court recently affirmed a trial court’s finding that pre-development work of surveying and preliminary engineering work is lienable even where the owner’s developer retains a third-party to perform such pre-development work without the owner knowing what that work was.   While the appellate court’s ruling is unpublished and therefore not binding precedent for other Illinois courts, it does illustrate how owners can face the risk of lien claims from downstream consultants and contractors performing pre-development services even when the owner does not know such entities are performing work.

In Young v. CES, Inc., 2014 Ill. App. Unpub. LEXIS 2336, 28 (Ill. App. Ct. 2d Dist. 2014) Norman Young’s trust (“Mr. Young” or “Owner”) owned two parcels of land and entered into a development agreement with Eagle Homes to develop the properties from agricultural farm land into residential communities.   The development agreement required Eagle to develop the properties through annexation, rezoning, and platting work.   Before construction commenced, Eagle would then purchase, in phases, portions of the properties from Mr. Young.

As developer, Eagle, without Mr. Young’s knowledge, hired CES to perform engineering and surveying services.   CES prepared surveys and infrastructure plans including sewer, water grading, and roads, among other infrastructure drawings.   While no final plans were prepared, the preliminary plans were shared with the municipality and preliminarily approved, subject to submittal of final engineering plans.   When Eagle failed to pay CES for its services, CES stopped work and recorded mechanics’ liens against the property.

In response to the recorded lien claims, Mr. Young filed a complaint to quiet title.   Mr. Young alleged that he never contracted with CES or authorized or knowingly permitted CES to perform any work, and, moreover, that the work was not lienable under Illinois law because the work did not benefit Mr. Young or improve the properties.   CES filed a counterclaim to foreclose on its lien claims for the approximately $140,000 CES claimed as due and owing under CES’s agreement with Eagle.

After a bench trial, the trial court found that (1) Eagle was Mr. Young’s authorized agent, (2) CES’s pre-development work was lienable, and (3) Mr. Young knew of and authorized CES’s work.   The court entered judgement in CES’s favor to foreclose on the lien claims for over $140,000 plus costs.   Mr. Young appealed the trial court’s order.

On appeal and specific to the lienability of CES’s pre-development work, Mr. Young argued that CES’s work 1) was merely preparatory to the later development and conferred no recognizable present benefit to the land; and 2) was done for the sole benefit of Eagle, the contract purchaser, and did not benefit the land or Mr. Young.   The appellate court rejected both arguments.

To determine whether the pre-construction services were lienable, the appellate court focused on whether the work improved the land; stating “the proper focus in determining the validity of a mechanic’s lien is whether the work actually enhanced the value of the land or benefited the landowner.”   Young, Unpub. LEXIS 2336 at 74 (quoting Mostardi-Platt Associates, Inc. v. Czerniejewski, 399 Ill. App. 3d 1205, 1211 (2010)).     In Mostardi-Platt, the court noted that “the purpose of the Act is to protect those who, in good faith, furnish material or labor for the improvement of property.”   399 Ill. App. 3d at 1209.

In Mostardi-Platt the plaintiff provided “air quality construction permitting and dispersion modeling services,” secured construction permit approval, and completed any other work that was “necessary for the improvement of the premises as a coal gasification facility.”   Id. at 1207.   The plaintiff had contracted for this pre-development work with a developer who held an option to purchase land owned by the defendants.   When the developer refused to pay, the plaintiff recorded a lien and filed suit to foreclose on its lien claim. Id.

The Mostardi-Platt court held that the pre-development services provided were not lienable because they were for the sole benefit of the developer, and did not benefit the land or land owner in anyway. Id. at 1211.   The court reasoned that the proper focus in determining the validity of a mechanics’ lien is whether the work actually enhanced the value of the land.   Id.   The court determined that the services rendered by the plaintiff were not for the purposes of improving the land but were instead for the purposes of determining whether the developer should exercise its option to purchase.   Id.   As such, the court held that the services are not the type for which a lien may be filed and enforced under the Act.   To support its analysis the court discussed several other cases involving services rendered for pre-development work.   See Ohrenstein v. Howell, 227 Ill. App. 215 (1922) (services rendered by architect were not for the improvement of the lot but were merely for furnishing defendant with information tending to show the possibilities of such an improvement); L.J. Keefe Co. v. Chicago & Northwestern Transportation Co., 287 Ill. App. 3d 119 (1997) (court held no lien was enforceable against an owner when a subcontractor constructs or installs apparatus for a contractor’s sole benefit and the work does not improve the land or benefit the landowner)

In Young, the appellate court   distinguished the pre-development services performed by CES from the previous cases finding that the pre-development work did enhance the value of the land and benefited the landowner.   Acknowledging that no final plats or permit drawings were submitted or approved, the court reasoned that CES’s pre-development work nonetheless created value to the land and reduced the Young’s risk in preparing to sell the property.   To reach its conclusion the court relied heavily on Eagle’s president’s testimony.   Mr. Wisniewski, Eagle’s President, testified that preliminary plan approval adds value to the property because the municipality has approved the project subject to final engineering.   Further, changing the property’s use from agricultural to residential creates value because residential lots are more expensive than agricultural land on a per-acre basis. This was sufficient evidence for the court to find that the pre-development work enhanced the value of the land.

The fact that the land actually remained unchanged and undeveloped at the time of trial did not factor into the court’s decision.   In rejecting Mr. Young’s argument that the actual condition of the land shows that there was no benefit, the court reasoned: “it remains that CES’s work moved the project in the direction of becoming . . . developable, which constitutes a benefit to . . . the landowner.”   Young, Unpub. LEXIS 2336 at 80.

In addition to finding CES’s work lienable, the appellate court affirmed the trial court’s finding that the developer, Eagle, was Mr. Young’s agent.   In affirming the agency relationship, the court relied on Mr. Young’s testimony where he stated that he had relied on the developer “to handle all aspects of the development and to handle whatever communications with third parties were necessary to make the developments come to fruition.”   Young, Unpub. LEXIS 2336 at 17.   That reliance on Eagle was sufficient evidence for the court’s conclusion that the owner authorized the developer to complete all necessary work, including CES’s pre-development work.   As Eagle was Mr. Young’s agent, the court held that CES’s lien claim was valid regardless of whether the owner knowingly authorized CES’s work.

While not a published opinion, this appellate court’s ruling and reasoning suggests that Illinois courts may take an expansive view as to whether pre-development services benefit real property and are therefore lienable under the Illinois Mechanics’ Lien Act.   Owners, in particular, should include appropriate provisions and protections in their developer and other agency-type contracts to avoid the undesirable scenario of a valid lien claim being recorded on its property by an entity that the owner did not even know was performing work.


1The author acknowledges the contribution of Pat Clair of Laurie & Brennan, LLP to this article.