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Don't Lien On Me: Considerations for Commercial Landlords When Tenants Improve Property

By Suzanne Ilene Schiller and Monica Mathews Reynolds
April 28, 2008

Mechanic's liens are creatures of state law, allowing mechanics, materialmen, contractors, and others such as laborers or architects ('contractors') to place a lien for payment against real property after they have provided work or materials that constitute an improvement to real estate. Mechanic's liens are commonly placed on property when an owner contracts for work to be performed but fails to pay for the work, or when a general contractor fails to pay its subcontractors for work the subcontractors performed on the job, even if the failure to pay is the result of a dispute between the owner and the contractor over the work that was done. It is easy to see why, as an equitable matter, a contractor or supplier might be entitled to a lien, given the presumption that the property has become more valuable as a result of his work, but in practical terms, no owner wants his or her property subject to such a lien.

This is especially true when the owner is neither the party who contracted for the work nor is responsible for paying for it, i.e., when a tenant contracts for work to be performed on leased premises. In these cases, an owner might not even be aware that such work is taking place, and the question of 'fairness' necessarily becomes far more complex when a lien being placed on the owner's property is for improvements for which the tenant has contracted but not paid. Similarly, questions of fairness arise when a contractor seeks to enforce a lien for improvements made solely for the benefit of the tenant ' as is often the case with tenant-specific fit outs ' against an owner who has received little if any value for the improvements, but from whom payment for the improvements is being demanded in the form of a lien on his or her real estate.

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