May 22, 2019

Timothy Gordon: Including Accrued Interest in Lien Statement Does Not Render it Void as Excessive

Editor’s Note: The Colorado Court of Appeals’ opinion in Honnen Equipment Co. v. Never Summer Backhoe Service, Inc. can be read here.

In Honnen Equipment Company, Inc. v. Never Summer Backhoe Service, Inc. (Colo. App. July 7, 2011), a division of the Colorado Court of Appeals held that the inclusion of interest in a lien statement does not render the lien void as an excessive lien.  In doing so, the Court had to distinguish prior Supreme Court precedent holding that a mechanics’ lien may not include late charges.

Generally, the Colorado mechanics’ lien statute provides that a lien claimant is entitled to a lien in the amount of the value of the services rendered or labor performed and materials furnished for the improvement of real property.  C.R.S. § 38-22-101(1).  When recording a mechanics’ lien, one must be careful not to overstate the amount.  The reason is that anyone who knowingly records an overstated lien not only forfeits their lien rights but also can be liable to the owner for costs and fees.  C.R.S. § 38-22-128.

In Honnen Equipment Co., the lien claimant included accrued interest in its mechanics’ lien.  The owner argued that interest may not be included in a lien because interest does not represent the value of the work performed to benefit the property.  Therefore, according to the owner, the inclusion of accrued interest in a lien statement renders it excessive and therefore invalid pursuant to C.R.S. § 38-22-128.

The Court of Appeals disagreed.  In its holding, the Court of Appeals distinguished the Colorado Supreme Court’s holding in Independent Trust Corp. v. Stan Miller, Inc., 796 P.2d 483 (Colo. 1990).  In Independent Trust Corp., the Supreme Court held that late charges recoverable by contract were not lienable.  While the Court of Appeals acknowledge that interest, like late charges, does not represent the value of the work performed, the Court of Appeals held that interest is lienable because it is specifically mentioned in the mechanics’ lien statute as being recoverable.  See C.R.S. § 38-22-101(5).  According to the Court, “[t]he intent of section 38-22-128 is to punish and deter those who abuse the mechanic’s lien statute by knowingly and intentionally claiming excess amounts that are totally unrelated to the construction project.”

Timothy Gordon is a partner at Holland & Hart who focuses his practice on the construction and commercial real estate industries. He is the author of the firm’s Construction Law in Colorado blog, where this post originally appeared on August 9, 2011.He is also one of the managing editors for CBA-CLE’s Practitioner’s Guide to Colorado Construction Law.

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