Mechanic's Liens Cannot Include Equipment Rental Costs

by James R. Keller

This article appeared in St. Louis Construction News & Review, p. 18, May-June, 2002.

Contractors and subcontractors no longer can file a mechanic's lien in Missouri for the cost of rental equipment, according to a recent appellate court decision. The case is Bush Construction Mach. v. Kansas City Factory Outlets, Stahl Construction Co., Heartland Corp., Michigan Nat'l Bank and O'Flaherty, as trustee, No. WD 60217 (2002), decided April 23.

Equipment rental plays a prominent role in construction. This case will cause everyone involved in construction to rethink whether liens already filed are proper and to consider carefully what can be included in future liens.

The court decided that Missouri's mechanic's lien statute (Chapter 429) does not include rental equipment as lienable material. This issue has never previously been before a Missouri appellate court.

In reaching this decision, the appellate court urged Missouri's legislature to consider whether the statutory law on mechanic's liens should be changed to expressly allow for such a lien and if so when the six-month period to file the lien would commence. Missouri's mechanic's lien statute, one of the oldest statutes in Missouri, may need a 21st Century update, according to the court.

The court's request is rare. Appellate courts typically do not suggest changes in the law.

The project was the Odessa Mall in Odessa, Missouri. Stahl Construction Company was the general contractor. Bush Construction was an equipment supplier to Heartland Corporation, one of Stahl's subcontractors. Thus, Bush was a sub-subcontractor.

Heartland did the earthwork and utility work on the job. Heartland leased from Bush a Caterpillar scraper and a Caterpillar track loader. Bush did not do any work on the project site, a fact important to the outcome of this case.

Heartland "defaulted" on the job, causing Stahl to terminate Heartland's contract and replace Heartland with another earthwork subcontractor.

Bush sued to enforce its mechanic's lien and to recover $30,000 that Heartland allegedly owed for the equipment rental. The trial court denied the lien, finding that Bush's equipment was not used on the project within six months of filing its lien. In Missouri all liens must be filed within six months of the last day of work performed by that contractor on the project.

The appellate court changed the focus of the case from whether Bush timely filed to whether it could file a lien at all. The court examined Section 429.010 of the Revised Statutes of Missouri, the provision that sets out who may file a lien and for what. The law originated in 1821, a few months after Missouri became a state and when James Monroe was President of the United States.

In part, Section 429.010 provides that any person who furnishes machinery for any building under a contract with the owner or the owner's contractor can file a lien for such "machinery furnished." Since no prior court decision in Missouri had addressed this issue, the appellate court considered decisions from other states that have similar statutes.

The court found that courts elsewhere have gone both directions on this issue. A few courts have found rental equipment, since it is necessary to complete the project, to be lienable.

Most courts, however, have denied the lien unless the law expressly provided for rental equipment. Their rationale was that the company leasing the equipment (in this case Bush) does not perform any labor that actually improves the property, especially since the equipment does not become part of the property itself.

The court examined in particular a case where a court in New Mexico rejected a lien for rental of earth-moving machinery. The court also looked at similar decisions in Idaho, Rhode Island and North Carolina.

The New Mexico court noted that it was up to the legislature to change existing law. Two years later the New Mexico lawmakers did just that and now unpaid rental fees on leased equipment are lienable in New Mexico.

The Missouri legislature, the Bush court concluded, never contemplated when it created the statute that rental equipment would be used in construction. Today, of course, use of rental equipment is common place.

Instead, the Missouri legislature had emphasized whether the machinery became a permanent part of the job. If so, a lien could exist.

The court also referenced the National Conference of Commissioners on Uniform State Laws that created the Uniform Construction Lien Act. This Act allows a lien for the reasonable rental value for furnishing tools, appliances and machinery. Recovery is possible for the period of actual use and any reasonable periods of nonuse that were taken into account in the rental contract.

Considerable momentum and public policy, according to the court, favor "allowing a lien for providers of machinery." However, an appellate court is required to interpret and follow the law, not to make it. Thus, the court had no choice, in its view, but to deny the lien, despite its seemingly strong desire to do otherwise.

It is too early to predict how or if the Missouri legislature will respond to the court's request.

James R. Keller is a partner at HERZOG, CREBS & MCGHEE, LLP, St. Louis, Missouri, where he concentrates on business litigation and construction law. He also is a neutral/arbitrator with the American Arbitration Association and a court-certified mediator in state and federal courts.