Colorado Real Estate Journal -
The Colorado mechanics’ lien statute, C.R.S. §38-22-106, provides that,- “All liens established by virtue of this article shall relate back to the time of the commencement of work under the contract between the owner and the first contractor, or, if said contract is not in writing, then such liens shall relate back to and take effect as of the time of the commencement of the work upon the structure or improvement, and shall have priority over any lien or encumbrance subsequently intervening, or which may have been created prior thereto but which was not then recorded and of which the lienor, under this article, did not have actual notice.” Mechanics’ lien laws are designed for the benefit and protection of mechanics and others, and should be construed in favor of lien claimants. In accordance with this principle, the phrase “commencement of the work” is construed broadly. The principal factor to be considered in a determination of whether an activity constitutes an improvement to real property is the intention of the owner. Also, an activity is an improvement to real property if it is essential and integral to the function of the construction project. Thus, where the preliminary work allows the property owner to subdivide or renovate the property, or the work was relied upon by a subsequent lien claimant or others who performed lienable work on the project, it strongly suggests that the preliminary work was an integral part of the project. Colorado courts have consistently held that the work of architects and engineers in preparing preliminary plans and drawings for a project and in performing engineering work has constituted “commencement of the work upon the structure or improvement” under the relation-back doctrine. However, it has been argued that preliminary work done to re-plat property for eventual development does not constitute work upon the “structure or improvement” and, therefore, does not fall within the relation back statute because work prior to re-platting is technically work on differently described property. It has also been argued that surveying work to establish boundaries is “due diligence” and not work on a structure or improvement. These arguments have been fundamentally rejected by at least one Colorado court based on the lack of any case law support for such a strict interpretation of the relation-back statute. Moreover, strictly read, the relation-back statute does not place any condition on when work actually commences for purposes of relation back, let alone making “commencement of work” conditional upon re-platting or surveying work to establish property boundaries. The argument that surveying work to establish boundaries is “due diligence” and not work on a structure or improvement stems from Ciancio v. Serafini, 574 P.2d 876 (Colo. App. 1977) in which the Colorado Court of Appeals held that absent anything to indicate that property owners who ordered the survey contemplated construction of a building, and in view of the fact that the survey showed on its face that it was a boundary survey only, the survey was not part of a building project and was not an “improvement to real property.” The corollary to this is that if there is evidence that the survey work was ordered by the property owner in contemplation of construction on the property and was intended to be more than for just a boundary survey, it will constitute work on a structure or improvement under the relation back statute. Additionally, the relation-back statute technically requires the existence of either a written or oral agreement between the first contractor and the owner or lessee in order for a lien to attach. The Colorado Court of Appeals has held that work not performed at the instance of the owner could not support relation back of a lien claimant’s lien. In Printz Services Corp. v. Main Elec., Ltd, 949 P.2d 77 (Colo. App. 1997), an architect’s preliminary work had not begun at the instance of owner or a lessee, but rather solely at the request of contractor and, therefore, the lien claimant there could not relate his lien back to that work. In C & W Elec., Inc. v. Casa Dorado Corp., 523 P.2d 137 (Colo. App. 1974) – which did not specifically deal with relation back, but rather with a subcontractor’s right to file a lien – the subcontractor, which had performed electrical work on modular home, was not entitled to a mechanics’ lien for work performed on modules at the factory prior to their shipment to site for final assembly because no owner of real property had directly or indirectly requested the work. Conversely, the Colorado Supreme Court in 3190 Corp. v. Gould, 431 P.2d 466 (Colo. 1967) held that a general contractor could relate back its mechanics’ lien priority to a date prior to the time the owner with whom he was dealing acquired his interest in the property. In that case, building had commenced on raw land of a 43-unit apartment building. During construction, the owner at the time borrowed funds to pay debts related to the property, and the lender secured the loan by recording a deed of trust on the property. When the owner later began having financial troubles, several creditors stepped in and persuaded the owner to convey the property to a trustee who could complete construction and salvage amounts owed to them. The trustee hired the general contractor to complete the project, but the contractor was not paid in full and recorded a mechanics’ lien on the property. The deed of trust holder subsequently sought to foreclose the contractor’s lien, arguing that its deed of trust had priority because work on the project prior to the recording of the deed of trust was performed for a different owner and, therefore, there could be no relation back of the general contractor’s lien to that work. The Supreme Court, noting that mechanics’ lien laws are designed for the benefit and protection of mechanics and others and should be construed in favor of lien claimants, found that the contractor could relate his lien back as the general contractor was hired by a trustee for creditors of the owner and grantor, and his transactions were an attempt to complete the structure with the hope of salvaging the rights of various persons whom he represented as trustee.