Charlie Murawski
Under California law, contractors and materialmen may record a mechanics’ lien against real property when improvements are made “at the instance” of the owner or his agent. But what happens if the improvements are made “at the instance” of a landlord’s tenant and the tenant is later unable to pay?
Generally, if the property is leased and the improvements are performed at the tenant’s request, without the landlord’s knowledge, a mechanic’s lien will not be effective against the owner’s interest in the property. However, if the improvements are performed with the owner’s knowledge, the property is subject to a mechanics lien, unless the owner records and conspicuously posts a notice of non-responsibility in accordance with the requirements of Civil Code §3094.
Even if the owner of the property properly records and posts a notice of non-responsibility, all may not be lost for the contractor or materialmen, as the harsh effects of the notice may be avoided by applying a principle known as the “Participating Owner Doctrine.” According to the Participating Owner Doctrine, a notice of non-responsibility is ineffective if the property owner caused the work of improvement to be performed. Thus, when the terms of a lease require the tenant to make improvements, the tenant will be treated as the owner’s agent “by implication of law.”
For example, one California Appellate Court has held that a landowner’s notice of non-responsibility was not effective because the terms of the lease required the tenant to perform renovations and transform an obsolete warehouse into a modern telecommunications facility. In such a situation, the landowner is considered a participating owner because he approved and consented, via the terms of the lease, the construction of the improvements. Additionally, a landlord usually benefits from the higher rent made possible by the improvement and therefore should bear responsibility for the cost of those improvements.
Therefore, if an owner records and posts a notice of non-responsibility on a tenant’s improvement project, always check the terms of the lease to determine if substantial improvements to the premises are required. If so, the notice of non-responsibility is likely ineffective, and you probably have a valid lien claim against the property.
