It’s a situation that comes up again and again: the owner of a commercial property leases property to a tenant. The tenant then decides to remodel or refinish the premises to better suit the tenant’s business operations. The tenant hires a contractor who remodels the property but doesn’t get paid for the work. The landlord then receives notice that a lien is being filed against the property by the contractor as a result of nonpayment for remodel or tenant finish work. How can this happen? Well, Colorado law allows for a mechanics’ lien claim, a manner of attaching a debt on real property for certain services rendered or materials provided, to protect contractors who would otherwise have difficulty recovering in these situations. The flip-side of this scenario, of course, is the innocent landlord, who in some cases may be unaware that any work has even been done. The following actions will help commercial property owners protect themselves against mechanics’ lien claims for unauthorized work:
- Review your lease. Make sure it contains clear provisions that:
– require written permission for any construction work-repairs or improvements.
– the tenant does not have the right and may not allow any mechanics’ liens to attach to the property.
– neither the owner nor the property will be subject to unauthorized liens and the tenant will indemnify the owner for defending any such claims, all legal costs included. - Record the lease. Record the lease document with the County Clerk and Recorder in the county where the property is located. This provides notice to potential contractors that the tenant has no right to subject the property to a mechanics’ lien and that a contractor must look only to the tenant for payment for work done without prior written owner permission.
- Post a non-liability for mechanics’ lien notice. If you give written approval to your tenant for construction work, it is wise to post a clear non-liability for mechanics’ liens notice in a conspicuous place on the property, such as the front door. This notice needs to remain in place for the entire construction project–from materials delivery through work completion. If the notice sign is removed, it needs to be promptly replaced, so the protections of the notice remain in place. Consult with your attorney to make sure the notice complies with relevant statutory requirements.
These steps must be taken before any authorized “first lienable” construction work is done. What this means is that commercial property owners must make sure the lease is recorded, complete with the provisions noted above, and that a non-liability for mechanics’ lien notice is posted conspicuously on the property before the date construction plans are begun. By doing these things, the commercial landlord preserves protections offered by the mechanics’ lien statute.
Though it looks like a lot of work for protection against something that may seem unfair, such precautions are prudent for commercial landlords to protect themselves. Failure to accomplish these measures may result in a commercial property becoming liable for all construction costs and any litigation costs that are incurred as a result of a dispute.
Contact us at [email protected] for more information.