A mechanic’s lien (also known as construction lien, laborer’s lien, artisan’s lien, supplier’s lien, materialman’s lien, and professional’s lien) is a special security interest that may be acquired in property by someone who expends material, resources or labor working on that property, and is, generally, effective until the lien holder gets paid for services provided. (Definition from Cornell University Law School, Legal Information Institute as published at https://www.law.cornell.edu/wex/mechanics_lien).
In some instances, tenant improvement work may lead to a mechanic’s lien on the owner’s property. Due to the fact that mechanic’s lien laws are not uniform in each state, there are many factors to consider when your company is getting involved with tenant improvement projects.
In Missouri, a contractor performing work for a tenant may acquire mechanic’s lien rights on a landlord’s property interest if certain factors surrounding the landlord-tenant agreement are present, including (but not limited to) the “mandated nature to perform a complete build-out” of the premises by tenant, and whether such “improvements are required and completed under the control of the owner with the view of improving the property.” See Crafton Contracting Co. v. Swenson Construction Co., No. ED102910 (Mo. App. E.D. April 12, 2016); see also Missouri Revised Statute § 429.010.
In Minnesota, a property owner is not subject to a mechanic’s lien for improvements contracted by another if the owner gives “adequate notice of the owner’s intent not to be bound” by such contract. See Marksman Const. Co., Inc. v. Mall of Am. Co., C0-97-1030, 1997 WL 757392 (Minn. Ct. App. 1997); see also M.S.A. § 514.06. This practice is also known in some states as the “Notice of Non-responsibility” and may require to be properly recorded by the owner with the county land records in order to be enforceable.
In Virginia, generally, a mechanic’s lien in tenant improvement projects extends only to that portion of property on which the laborer or materialman has worked, precluding the lien from extending to the entire building or property. See Elder-Jones, Inc. v. Byers, Inc., 23 Va. Cir. 40 (Va. Cir. Ct. 1990); see also VA Code Ann. § 43-20.
Similarly, Texas laws support the proposition that a lien on real property cannot be established simply by nature of a construction contract between a tenant of the property and the laborer or materialman, and the mechanic’s lien should attach only to the leasehold interest of the tenant, and not to the entire land interest of the owner. See 2811 Associates, Ltd. v. Metroplex Lighting and Elec., 65 S.W.2d 851, 852 (Tex. Ct. App. 1989).
In Maryland, a mathematical formula, estimating the value of improvements made to leased premises as compared to the value of entire building, will be used to determine if a mechanic’s lien is “substantial enough” to be placed on the entire building or property. See MD. Real Prop. Code Ann. § 9-103; see also Hurst v. V & M of Virginia, Inc., 293 Md. 575 (Md. App. 1982).
Given the complexities of the mechanic’s lien laws, it important to obtain all the relevant information on the tenant improvement project in order to better protect your lien rights and avoid becoming subject to various limitations. Please contact CMA’s Forms Filing team if you have questions.
Source: Krista C. McCormack, “Tenant Improvements Lead to Mechanic’s Lien on Owner’s Property”, Commercial Leasing Law and Strategy: Pg. 3, Vol. 29, No. 3, September 1, 2016, Copyright 2016 ALM Media Properties, LLC.
Sergey Garanyants runs CMA’s Construction Forms Filing Services, helping CMA members in the construction industry protect their lien rights in all 50 U.S. states. For information about CMA’s construction forms filing services, visit http://creditmanagementassociation.org/services/construction-forms-filing/