In 2010 we completed a lease with a tenant for 4,000 square feet. The tenant accepted the premises as-is with no improvements required of the landlord. The tenant was a research and development company based out of Texas, and they made significant upgrades to the premises, spending approximately $300,000 (at tenant’s sole cost).
Shortly after the tenant completed their upgrades, the landlord was provided with written notice that the general contractor had not been paid for the construction completed, and that the general contractor was filing a mechanic’s lien against the property. The tenant informed the landlord that they were possibly filing for bankruptcy. This meant that the landlord was possibly financially responsible for paying the general contractor for construction that they completed at the property, even though the landlord did not hire them for such work nor did the landlord benefit from the construction, as the construction was customized for lab use for the tenant’s specific use.
To help prevent these issues from occurring in the future, we are providing a basic overview of mechanic’s liens and options that landlords may consider taking to protect their property. Mechanic’s Liens are primarily used by general contractors and subcontractors (contractor) to ensure contractors are paid for services provided. If a contractor is hired by a landlord or tenant, and they are not paid for their services, the contractor has the right to file a mechanic’s lien against the property.
The issue that landlords face is when a tenant hires a contractor to complete tenant finish, and does not pay the contractor, the contractor still has the legal right to file a mechanic’s lien against the property (even though the landlord did not hire the contractor), in which case the landlord may be financially responsible to cure the lien.
To help prevent this from occurring, we advise landlords to take the following actions:
This issue may be rare, but it can be very frustrating and potentially expensive when it does occur. Hopefully by taking these steps you can prevent this situation from happening to you.