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In a decision from the Supreme Court of Iowa, a landlord was found responsible for tenant improvements costing over $8,000.00 because the lease required the tenant to obtain all necessary licenses and permits. A & W Electrical Contractors, Inc. v. Petry. In this case, Glen Petry owned a building in Des Moines which he leased to Midwest Concepts II (“Midwest”). The four-year lease with Midwest specified that the property was to be used as a nightclub. An addendum to the lease stated that “This lease is conditioned upon tenant obtaining all licenses and permits necessary in the operation of a retail liquor business.”
After signing the lease, Midwest applied for a liquor license. The process involved an electrical inspection, and it was discovered that the building did not meet the city code’s minimum electrical wiring requirements. In order for Midwest to obtain a liquor license, the building had to be rewired. Midwest hired a general contractor, which subcontracted with A & W Electrical Contractors, Inc. (the “Contractor”), which performed the electrical work. The nightclub never opened. Midwest only partially paid the Contractor, so it filed a mechanic’s lien against Petry’s property and then filed a petition to foreclose its lien. The district court granted summary judgment for the Contractor, and the court of appeals reversed that decision.
In its review of the grant of summary judgment, the Supreme Court of Iowa stated that a mechanic’s lien should be construed liberally in order to “promote restitution, the prevention of unjust enrichment, and to assist parties in obtaining justice.” Then it explained that, usually, a lessor’s knowledge of, or consent to, a tenant making improvements to the leased premises does not make the lessor subject to a mechanic’s lien. In order to successfully claim a lien upon a lessor’s property for work done for a tenant, the claimant must be able to prove the existence of either an express or implied contract whereby the tenant is bound to improve the lessor’s property.
Here, the question was whether the addendum requiring Midwest to obtain all necessary licenses and permits impliedly required Midwest to have the electrical work done. The court found that it did. The lease required Midwest to operate a nightclub, and to do so, it had to have the electrical wiring replaced. The court found that this amounted to an “implied authorization to contract for the wiring, and thereby enable a supplier to file and enforce a mechanic’s lien.” It upheld the district court’s summary judgment in favor of the Contractor. The court also pointed to cases from Missouri and New York with similar holdings.
A & W Electrical Contractors, Inc. v. Petry, 576 N.W. 2d 112 (Iowa 1998).