Pre-Development Engineering Services Are Lienable Improvements

The Illinois Supreme Court recently reversed the Third District Appeals Court and found that an engineering firm’s pre-development services supplied to an unfinished real estate project were still lienable even though the services didn’t physically alter the land or improve the property value.

In Burke Engineering, Ltd. v. Heritage Bank of Central Illinois, 2015 IL 118955 (Nov. 19, 2015), Plaintiff was hired in April 2008 by a future property owner (“Owner 2”) who was in the process of buying the property from its then owner (“Owner 1”).

The sale from Owner 1 to Owner 2 (whom plaintiff contracted with) closed in August 2008 – about four months after plaintiff’s contract with Owner 2. Owner 2’s lender recorded its mortgage lien after Owner 2 bought the property and after Owner 2 hired plaintiff.

When Owner 2 decided to abort the project, the plaintiff liened the property and sued to recover about $100,000 worth of pre-development services. The plaintiff named Owner 1, Owner 2 and the lender as defendants.

The trial court found that the plaintiff’s services weren’t lienable and granted summary judgment for the lender (the owner defendants were dismissed out by now) on the basis that the plaintiff didn’t improve the property or increase its value. The Third District affirmed.

Reversing the appeals and trial courts, the Illinois Supreme Court considered the purpose of the Illinois Mechanics Lien Act (770 ILCS 60/1) and what constitutes a lienable improvement.

Section 1(a) of the Act confers lien rights on anyone contracting with an owner for improvements. The Act defines “improve” to encompass furnishing “labor, services, material, fixtures, apparatus or machinery, forms or form work in the process of construction or for services as an architect, structural engineer, professional engineer, land surveyor or property manager 770 ILCS 60/1(b).

While the Third District majority found the plaintiff’s services non-lienable, a thorough and vigorous defense found just the opposite. The dissent viewed the plaintiff’s services as clearly lienable noting that the Act specifically allows engineering companies to lien for their services.

Adopting the spirit of the dissent, the Illinois Supreme Court posited that Section 1 of the Act provides a lien if services are completed “for the purpose of improving the property.”

Under this standard, the Court found that the plaintiff’s services of (i) creating a plat of subdivision, (ii) surveying the property, (iii) planning out roads and sewers – all were done to allow (“for the purpose of”) Owner 2 to eventually develop the property. (¶ 12)

The Court bolstered its finding with decades-old case authorities, statutory evolution and construction, and policy concerns. The Court pointed to case precedent that allowed architects to claim a lien for drawn up plans that never came to fruition. The court found that plaintiff’s services here were no different than the architectural drawings for unfinished projects that were still lienable in those cases.

As a policy reason for allowing plaintiff’s lien, the court held that if physical improvement was a prerequisite for an engineer like plaintiff to have lien rights, it would unfairly subject him to the whims of a property owner who could decide to abort a project at any time. To put a contractor at the mercy of a capricious property owner ran contrary to the “protective purpose of the Act. (¶¶ 12-13)

The court looked to various Act amendments across decades to find an “overarching intent to expand the availability of mechanics lien, pointing out that Section 1’s reach had gradually broadened over the past century to include structural engineers, professional engineers, land surveyors and property managers as possible lien claimants.”

Concerning the specific services furnished by the plaintiff, the court stressed that under the Plat Act (765 ILCS 205/1 et seq.), an undeveloped tract of land must be surveyed and a plat recorded before any building can be erected on the land. (¶¶ 18-20)

Taken together, these factors all weighed in favor of finding the plaintiff’s engineering services were lienable improvements under the Act.

Takeaways:

This is significant pro-contractor decision as it provides expansive protection for lien claimants who perform services on uncompleted projects.

The case’s clear lesson is that pre-development engineering, platting and surveying work can be lienable, even where the services don’t physically alter the property or increase its dollar value.