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

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.

Because mechanic's lien laws vary from state to state and because the court holdings are fact-specific even within a given state, there is no single answer as to when a mechanic's lien can be enforced against an owner's real property when the tenant has contracted for but failed to pay for improvements to the property, or what an owner should do to protect its interests. Indeed, states have taken widely varying positions on the enforceability of such liens, with some states favoring the contractor and others using a more 'bright-line' approach, such as requiring evidence of the owner's express consent to the lien for improvements. Of the states that adopt the former approach, mechanic's liens may or may not be allowed based on whether or not the owner had knowledge or control over the improvement process, the extent to which the owner received a benefit from the improvements, and the terms of the lease agreement between the owner and tenant.