Most construction projects are organized in a manner that looks like a tree’s roots. At the top is the owner standing as the trunk of the tree. Below the owner is a general contractor who sprouts several more “roots” to each needed subcontractor and vendor, each who may also sprout further “roots” to lower tiered subcontractors and vendors, all connected through a stream of contracts. This structure makes it easy for any lower tiered party to trace their way back to the owner. If you’re trying to understand your lien rights of filing a mechanic’s lien against the owner’s property, are you just the root to a vine which climbs up the tree, with no direct connection to the tree?
A Lien Against the Lease
In tenant build-out projects, you work for a tenant or lessee of property. Does the lease give you enough of a connection to the property owner to file a lien against the property or just the lessee’s interest in the property? This distinction is important because a mechanic’s lien against the property attaches to the entire property whereas a lien against the lease is only against the smaller leased interest in the property. Your lien cloud against the entire property is a much more powerful incentive to pay you for your goods and services than if it’s only against the smaller leased portion of the property.
What are the Terms of the Lease Agreement
While the lien laws under this scenario vary from state to state, most states answer this question based on the terms of the lease agreement and whether the owner agreed to the construction. If the lease agreement expressly requires the lessee engage contractors to improve the property, your lien will likely attach to the property. This is typical for commercial tenant build-out projects where the lease reflects that lessee will be unable to conduct business without first improving the property.
If the lease agreement merely allows the lessee to improve the property if the lessee desires, but the improvements are not necessary for the lessee to meaningfully occupy the premises, your lien may only attach to the lessee’s interest in the property. In this scenario, whether your mechanic’s lien will attach to the property will hinge on an owner’s consent beyond the terms of the lease agreement. If you seek and receive consent from the owner prior to performing work, it’s more likely your lien will attach to the property.
Consent inferred from the owner’s actions
Consent may also be inferred from the owner’s actions, such as providing information about the premise to assist with your performance of the construction or direction from the owner on what construction should be performed. Some courts will also consider whether and to what extent the owner benefits from the lessee’s improvements when deciding whether your mechanic’s lien will attach to the property.
Know if Your State limits a lien’s amount based on the value of improvement allowed by the owner
Several states limit the extent a lien attaches to a property. These states can even disregard the terms of the lease or the expressed consent of the owner. Such states only allow a lien to attach to a property strictly based on the value of improvement allowed by the owner. If the lease states the lessee may improve the property up to $10,000 in value, your lien against the property may be limited to only the first $10,000 for unpaid goods or services.
steps you can take to protect your lien rights when working for a lessee
There are steps you can take to protect your lien rights when working for a lessee. You can request to see a copy of the lease agreement to confirm if you are allowed to improve the property. When reviewing the terms, look for language reflecting owner’s direct consent, or at least allowance, of the construction. If the terms contain language specifically waiving owner’s liability for liens or disclaiming consent, you may think twice before agreeing to the project. You can also protect yourself by directly contacting the owner and requesting written consent to perform the construction services you are providing. In any case, you should always consult a mechanic’s lien expert to determine your lien rights for the state where you are working.
