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— Property Management Quarterly — January 2016
Y
our tenant has been making
improvements to his leased
premises and everything
seems to be moving along
smoothly until you receive a
notice of intent to file a mechanic’s
lien in the mail. If you have taken
those steps necessary to insulate
yourself from liability, this could be
of minimal concern to you. If not,
you could find yourself responsible
for the payment of those obliga-
tions not honored by your tenant.
A mechanic’s lien is a statutory
lien on real property and improve-
ments that secures payment for
labor or materials used in improv-
ing, repairing or maintaining that
particular property and its improve-
ments. It is a powerful, long-stand-
ing and well-recognized tool used
by general contractors, subcontrac-
tors and suppliers of materials to
collect monies due to them.
It might surprise some to learn
that mechanic’s lien rights apply
to a property even in those circum-
stances where a tenant, not the
landlord, directly contracts for the
improvements. The theory is that
the property value is enhanced by
the improvements notwithstand-
ing who contracted for or requested
them. Consequently, a contractor or
supplier of materials is permitted to
collect what is owed by enforcing a
mechanic’s lien against the owner
of the property.
A landlord’s first line of defense is
to protect himself by including the
following language in the lease:
1. Requiring a tenant to pay all
costs incurred in
connection with its
improvements to
the leased prem-
ises;
2. Indemnifying
the landlord from
any claims result-
ing from default of
that obligation;
3. Requiring a
tenant to obtain
lien waivers from
its general contrac-
tors, subcontrac-
tors and material
men at the time
payment is tendered; and
4. Requiring a tenant notify the
landlord in advance of any work
being performed so that the land-
lord will have ample time to post a
notice of nonliability prior to com-
mencement of any work.
A landlord also might consider
lease provisions requiring a tenant
to obtain a payment or performance
bond in advance of any proposed
work or to bond around any lien
that might be asserted at any time
during the term of the lease.
Perhaps one of the most effective
tools in a landlord’s arsenal is the
posting of a notice of nonliability
pursuant to C.R.S. § 38-22-105, stat-
ing that the landlord’s property will
not be subject to any lien. Ideally,
the notice of nonliability should be
posted in a conspicuous place at
the leased premises in advance of
the work being initiated by the ten-
ant’s contractors but to be effective,
in no more than five days after the
landlord obtains notice that work is
being performed. The notice of non-
liability should remain posted at
the leased premises until the work
is completed.
The posting of a notice of non-
liability frequently serves as an
effective affirmative defense to a
mechanic’s lien foreclosure and,
oftentimes, a mechanic’s lien claim-
ant will dismiss such a foreclosure
upon receipt of documentation
showing that the notice was timely
posted and remained posted for
the duration of the work. With that
in mind, it is recommended that a
landlord keep records detailing the
date on which the notice was first
posted and records confirming that
the notice was posted for the dura-
tion of the work. Dated photographs
can prove to be a useful tool.
Relying on a tenant to post the
notice of nonliability is not advised.
At the end of the day, a contrac-
tor is under no duty to confirm
whether a tenant has authority to
contract for work, and the burden
of notifying lien claimants that its
interest in the property is not sub-
ject to a lien ultimately rests on the
owner of the property.
It also should be noted that a
notice of nonliability is only effec-
tive if the tenant, not the landlord,
contracts for the work. If the land-
lord contracts for the work, the
posting of a notice of nonliability
will not insulate the property from
a mechanic’s lien claim.
Next Steps
So, what should you do if you
receive a notice of intent to file a
mechanic’s lien from a contractor
hired by your tenant? First, review
your lease and put your tenant on
notice of its obligations to indem-
nify you from claims and to timely
pay whatever amounts may be due.
Next, contact the lien claimant and
provide it with documentation that
the notice of nonliability was post-
ed in compliance with applicable
statute. Be sure to use or direct a
lien claimant to any payment or
performance bonds that may have
been obtained in connection with
the work. And, perhaps most impor-
tantly, contact your attorney.
The statutes governing mechan-
ic’s liens contain rules, require-
ments and specific time frames that
must be strictly complied with. A
lien claimant’s failure to fully and
timely comply with each and every
one of those requirements could
render a mechanic’s lien claim
invalid. In most instances, an expe-
rienced attorney should be able to
quickly advise you whether a lien
claimant has missed one of the
deadlines.
Although there is no method by
which to completely insulate an
owner from mechanic’s lien claims
asserted in connection with ten-
ant improvements, by following
the suggestions described here, you
may be able to avoid some of the
headaches and expenses associated
with mechanic’s lien claims and
litigation.
s
Legal
Amanda H.
Halstead, Esq.
Member, Mills,
Schmitz, Halstead,
Zaloudek LLC,
Denver
