Mechanic’s Liens: Equipment Rental Claims

Firms that rent machinery or equipment for use in construction are frequently concerned about whether they are entitled to pursue mechanic’s lien or public contractors’ bond statutory remedies.

In Colorado, this concern stems from a 1964 federal circuit court case holding that equipment rental claims were not covered by the Colorado mechanic’s lien statute. Bushman Construction. Co. v. Air Force Academy Housing, Inc., 327 F.2d 481 (10th Cir. 1964).

In 1965, the Colorado General Assembly amended the mechanic’s lien statute by specifically providing that persons supplying “…machinery, tools or equipment in the prosecution of the work…” were entitled to benefits under the mechanic’s lien laws.

Whether the legislature intended by that provision to include rentals is debatable since no appellate court decision in Colorado has yet ruled upon the effect of the 1965 amendment.

Mechanic’s lien rights apply only on privately-owned projects. On public projects, reference must be made to applicable statutes, including the Colorado Public Contractors’ Bond Statute and the federal Miller Act. The Miller Act court decisions almost uniformly permit recovery against the prime contractor’s bonds for rentals of equipment to the prime contractor and his subcontractors.

A contrary result might be expected under a Colorado Public Contractors’ Bond Statute which specifically lists the classes of persons eligible for relief. That list includes “team hire” but is silent as to other equipment or machinery rentals. The only Colorado Supreme Court case which appears to have considered this question back in 1925 involves a rental of an “auto truck.” The court said that the right to recover was “doubtful,” but since the amount involved was only $10, it refused to seriously consider the issue. Stryker v. Tolliner & Kinney Mercantile Co., 77 Colo. 347, 236 P.993 (1925).

Update note: In 1985, the Colorado legislature amended the public works statute to include rental equipment charges. Sections 38-26-105 and 38-26-106, C.R.S. (as amended).

F-40 At least one trial court judge upheld this author’s argument that a company renting a scaffold was not entitled to recovery under the public contractors’ bond on a school project.

Logically, any right to recovery of rentals should be limited to reasonable rental values only for the time during which the particular machinery or equipment was actually used on the project, perhaps including nights and weekends as well. From the lessor’s standpoint, he must be able to establish actual use on a particular project not interrupted by long periods of idleness or removal and use upon other projects.

Frequently, machinery and equipment leases are not leases at all but are disguised security transactions where the renter is really purchasing the machinery or equipment and the installment payments are mislabeled as rentals. In this instance, the “lessor” is probably not entitled to lien or bond remedies. He would be in the same position as the finance company who has a mortgage on the equipment or machinery purchased by the user.

Owners, contractors and lessors of machinery and equipment involved in construction should carefully familiarize themselves with the risks they may face in their claims for unpaid rentals. Because the law in this area has not been firmly settled in Colorado, greater caution should be exercised to prevent loss or claims.

With such caution, the owner and general contractor should assume rental claims are lienable and equipment rental concerns should treat their claims as not lienable and both should protect themselves accordingly.

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