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Real Estate

Real Estate

Landlord is Not Liable For Tenant's $186,000 Construction Bill Nov-Dec-04

                       First Industrial, Inc. (“First”) owned 4307-09 South Morgan Street, Chicago, Illinois (the “Premises”).  First leased the Premises to the Stiffel Company (“Stiffel”).  Stiffel’s lease provided the Premises were leased “as is” and Stiffel was responsible for the build-out of the Premises. 

                        Upon signing the lease, Stiffel contracted with Hayes Mechanical, Inc. (“Mechanical”) to renovate the Premises.  Thereafter, Stiffel failed to pay the final $186,000 of the cost of the renovation. Mechanical responded by recording a claim for a mechanics’ lien and filing suit to recover the balance due from Stiffel.  Stiffel proceeded to make an assignment for the benefit of creditors and Stiffel’s assets were sold by the assignee.  Mechanical did not receive any of the sales proceeds, however, because Mechanical failed to file a claim with the assignee.  Mechanical then released its claim for mechanics’ lien, for reasons not discussed in the court’s opinion, and pursued First on the quasi-contractual claims of quantum meruit and unjust enrichment. 

                          A quasi-contractual claim imposes contractual-like duties on parties to prevent an injustice when no contract exists.  The quasi-contract claims of unjust enrichment and quantum meruit are similar in that a party must show that valuable services or materials were provided by one party and received by the other party under circumstances which would make it unjust for the other party to retain such benefit without paying. 

                        The mere fact that a third party receives a benefit from a contract between two other parties is not sufficient to require the third party to pay for such benefit.  There must be some action or inaction by the third party that would make imposition of liability for the receipt of such benefit equitable.   This general rule seeks to protect rights of choice and personal autonomy.  Thus, an owner of property should not be forced into a legal relationship with someone other than its tenant simply because the tenant has entered into a contract with a third party that benefits the owner. 
                          Applying these principles, the court rejected Mechanical’s argument that the nature of First’s involvement in the renovation project was sufficient to render First’s retention of the benefit unjust, stating:

                         A landlord will virtually always retain the right to give or withhold permission for work to be done on its premises.  As owner of the premises, the landlord is generally required to apply for and execute building permits or other necessary documents. The landlord has a strong and legitimate interest in pre-approving and monitoring any significant construction.  Similarly, the landlord’s participation in creating and/or approving specifications is a natural product of its interest in the property and is a matter of concern solely between the landlord and the tenant.

                        Thus, the court held First’s conduct was insufficient to hold it liable under a quasi-contractual theory.  To rule otherwise would require the court to adopt a rule that essentially makes landlords the insurers of risk assumed by contractors in extending credit to their tenants.  This the court would not do.

                        Mechanical could have avoided the outcome in this case had it not released its mechanics’ lien claim.  Mechanics’ liens are the most effective tool a contractor has to recover from the owner of property for work done for a tenant.  If you have a question about mechanics’ liens, please telephone a member of the firm.

Attorney to Contact

• Ronald P. Duplack
• Douglas C. Conover
• Bernard A. Henry