Did the services of an engineer constitute an improvement to property, and thus entitle engineer to a construction (mechanic’s) lien? by Hugh Anderson

Issue: Did the services of an engineer constitute an improvement to property, and thus entitle engineer to a construction (mechanic’s) lien? Christopher B. Burke Engineering, Ltd., v. Heritage Bank of Central Illinois. Supreme Court of Illinois (2015).

Summary: Burke Engineering was retained by a prospective developer to survey a tract of land, prepare and record a plat of subdivision, and plan roads, utilities, and sewers. When Burke was first engaged, the developer had not yet purchased the property; the transaction closed while services were in progress. The services continued until the land had been subdivided, and Burke had incurred $109,000 in engineering fees. Burke unsuccessfully sought payment from the developer/owner, and then filed a construction (mechanic’s) lien on the property.

The developer/owner contended—and lower courts agreed—that under Illinois law a claimant should not be entitled to a lien unless there is a physical improvement to property or a calculable increase in value. The developer/owner’s lender, Heritage Bank, also raised issues regarding the priority of its mortgage rights. The dispute eventually reached the Illinois Supreme Court.

Decision: The Illinois Supreme Court rejected the notion that there must be a physical improvement in order for a lien to be viable. The court held that  the services must be for the purposes of improvement, but that engineers and architects should not be at the whim of owners who might decide to not proceed with construction. The lien statute has a “protective purpose” and should protect those who serve the project in good faith. The court cited precedent for its conclusion dating back to 1900.

Heritage Bank opposed Burke’s foreclosure of the lien. Heritage parsed the words and punctuation of the statute and presented a strained argument that design professionals have lien rights only if their services relate to raising, lowering, or removing a house on the property. The court found this argument to be illogical, and referred to the bank’s “absurd” interpretation of the statute.

The court did conclude that there was some merit in the issue of whether the prior owner knew of the scope of Burke’s contract or services with the developer. If so, the prior owner had knowingly permitted the contract, and Burke’s rights had commenced at that early point in time. In the alternative, if the prior owner had not permitted the developer-­‐engineer contract, then Burke’s rights accrued only when the real estate transaction closed and the developer became the property owner. This was significant because under the latter scenario the Heritage mortgage would take precedence over the subsequent (or perhaps contemporaneous) lien. The court remanded the case to a lower court for adjudication of the timing issue, revolving around the first owner’s knowledge of the advance work being done by the developer.

Comment: Each state’s lien laws have specific wording and related case law regarding the rights of design professionals and others to lien rights. The laws also tend to have strict requirements for notice, filing, foreclosure, and the relationship of lien rights to other interests such as those of subsequent purchasers and of lenders.