Lien Subordination Agreement Held Unenforcecable
The Washington Court of Appeals recently refused to enforce a lien subordination agreement against a contractor and its subcontractors because the subordination agreement said the lender was making a $24 million loan when the loan documents only provided for a $22 million loan.
When the developer of a 20 story office and retail project got into financial trouble, it secured a bridge loan from one of its shareholders. The contractor and subcontractors entered into a lien priority agreement providing that the lender would loan the developer $24 million, the contractor and subcontractors would be paid from the loan sums owed for previous work and would subordinate their lien rights to a mortgage securing the $24 million loan.
Two days later the lender and developer signed loan documents providing for only a $22 million loan. Eventually the developer ran out of money again and defaulted.
The appellate court held the bridge lender could not enforce the lien subordination provisions against the contractor and subcontractors because the lender had not loaned the full $24 million promised in the lien priority agreement. The court concluded lien subordination provisions should be strictly construed against the party s eeking to enforce it. The case is styled Bellevue Technology Tower, LLC v. DPR Construction, Inc.