Can An Equipment Rental Company File a Mechanics Lien?

Yesterday, I presented at a CLE on Pennsylvania’s Mechanics Lien Law.  As usual, I received great questions from those in attendance.  One questioner asked an interesting questions regarding whether an equipment rental company was prohibited from filing a mechanics lien in Pennsylvania.  I thought the answer was fairly easy and gave a quick “No” response.  However, after emailing with the questioner following the presentation I realized that the question was more nuanced than I originally thought.  And, after further review, I believe the answer is “it depends.”

Three sections of the Pennsylvania Mechanics Lien Law make this question more complex than it appears.  First, let’s start by seeing who the Lien Law says is entitled to file a Mechanics Lien as a matter of right.  Section 1301 of the Lien Law states that a contractor or subcontractor is entitled to a mechancis lien to secure a debt incurred “for labor or materials furnished in the erection or construction, or the alteration or repair of the improvement, provided that the amount of the claim, other than amounts determined by apportionment under section 306(b) of this act, shall exceed five hundred dollars ($500).”  49 Pa. Stat. Ann. § 1301 (West).

Next, let’s look at what the Lien Law defines as “labor and materials furnished.”  According to Section 1201(9)  of the Lien Law “Labor” includes the furnishing of skill or superintendence.”  49 Pa. Stat. Ann. § 1201 (West).  According to Section 1201(7) of the Lien Law “materials means building materials and supplies of all kinds, and also includes fixtures, machinery and equipment reasonably necessary to and incorporated into the improvement.”  49 Pa. Stat. Ann. § 1201 (West).

If we stopped out analysis here, then the answer to our question appears straightforward because clearly the Lien Law includes “equipment reasonable necessary to . . . the improvement.”  Therefore, pursuant to Section 1301, a lien would be available for rental of such equipment, provided all of the other factors necessary for filing and perfecting a mechanics lien are met.

However, as the questioner pointed out Section 1303(e) of the Lien Law states ” Security interests. No lien shall be allowed for that portion of a debt representing the contract price of any materials against which the claimant holds or has claimed a security interest under the Pennsylvania Uniform Commercial Code or to which he has reserved title or the right to reacquire title.”  49 Pa. Stat. Ann. § 1303 (West)  Clearly, a company that rents equipment retains title to that equipment.  So, is a rental equipment company out of luck if it needs to file a mechanics lien?

If the rental company provides labor to operate the equipment, then it appears that the right to lien is clear because the labor provided was utilized in construction of the project.

But what about a rental equipment company that did not provide labor and just rents equipment to a contractor who will supply the labor?  Well, there is no controlling case law on point.  However, there are a few pre-1963 Lien Law cases that say equipment furnished to a project that is not incorporated into the project as a fixture is not lienable.  Moreover, the Westmoreland County Court of Common Pleas held “the equipment or fixtures must be of a permanent character which will pass as a part of the freehold and reasonably necessary to equip the building for the purpose for which it is intended.”  Joyce v. Sarnelli, 29 Pa. D. & C.3d 544, 547 (Pa. Com. Pl. 1984).  However, the question before the Court of Common Pleas Court involved whether refrigeration equipment used in a supermarket was lienable.  While the Court ruled that since the refrigeration equipment was not of a permanent quality of the building and thus lienable, it also should be noted that the refrigeration equipment was not used to construction the building either.

Moreover, the Lien Law’s use of the word “and” in the clause “equipment reasonably necessary to and incorporated into the improvement” seems to indicate that the equipment furnished must become a permanent part of the improvement.

Still its a close call.  Certainly, there is a good faith basis for a company that only rents equipment without providing labor to claim a lien.  Who knows, maybe that lien claim will end up with the Superior Court to clarify the issue.  In any event, great question!