When improvements, alterations, or repairs are made to real property, the owner of the property is usually involved in the process. But what happens when work is done on behalf of a lessee without the owner’s knowledge, approval, or participation, and the owner issues a valid notice of non-responsibility? In this situation, does a contractor have valid lien rights? The answer is yes, but not against the owner.
If the person who causes work to be performed is not the property owner, only the contracting party’s interest in the property is subject to a mechanics lien. Therefore, when work is authorized only by a lessee, a lien may attach only to those improvements, alterations, or repairs. For example, if a lessee hires a contractor to build a structure on leased property and does not pay the contractor, the contractor may file a mechanics lien against the specific structure. Likewise, if a contractor installs fixtures on leased property, a mechanics lien may be asserted against those fixtures as well.
Additionally, if a lease has a separate value, the lien claimant may foreclose against it and sell the leasehold interest to satisfy the lien amount. In fact, if foreclosure is successful, the contractor has the right to remove the structure(s) and fixtures from the land and sell them. Even if the property owner issues a valid notice of non-responsibility, the contractor is not prevented from foreclosing against specific structure(s) or fixtures. Furthermore, termination of the lease does not void the mechanics lien.
Therefore, lien remedies against a lessee are available to contractors making tenant improvements. Importantly, if a contractor does not have a direct contractual relationship with the lessee, a Preliminary Notice must be served on the lessee in order to preserve those mechanics lien rights.