Hayward Lumber & Investment Co. v. Graham
In Hayward Lumber & Investment Co. v. Graham, 104 Ariz. 103, 449 P.2d 31 (1968) a landlord leased unimproved land to a tenant, who purchased supplies from Laborers to improve the property. Id. at 104-05, 449 P.2d at 32-33.
After 90 percent of the improvements were completed, the landlord terminated the lease and took possession of the property and improvements. Id. at 105, 449 P.2d at 33.
The Laborers filed liens against the property and improvements. Id. In a subsequently filed lawsuit, the superior court ruled that because the tenant did not serve as the landlord's agent in making the improvements, the liens were ineffective. Id.
On appeal, the supreme court agreed that because the improvements were made solely at the instance of the tenant, the liens only could be foreclosed against the tenant's interests. Id. at 108, 449 P.2d at 36.
But the court rejected the notion "that if no lien could attach to the landlord's interest in the realty, then there could be no lien at all, including any possible lien on the improvements thereon." Id. at 108-11, 449 P.2d at 36-39.
The court examined A.R.S. 33-981(A), which authorizes imposition of a lien on "any building, or other structure or improvement," and A.R.S. 33-991(A) and (B), which provide such liens extend to the real property underlying the improvements, to conclude the legislature intended to permit Laborers to impose liens primarily on improvements and incidentally against the realty. Id. at 109-10, 449 P.2d at 37-38.
The court then adopted decisions from courts in California and Oregon, which construed lien statutes similar to Arizona's, to conclude that when improvements are made to property solely at the instance of a tenant, Laborers may impose liens on the improvements even though they may not impose liens on the underlying realty. Id. at 110-11, 449 P.2d at 38-39.
The court concluded "it would be manifestly unjust to construe the mechanics' lien statute as denying a lien on improvements merely because such lien cannot extend to the land upon which the improvements are located." Id. at 111, 449 P.2d at 39.
The court therefore reversed the judgment invalidating the liens against the improvements even though the tenant no longer had an interest in them. Id.