Don’t Get Pulled into a Mechanic’s Lien Nightmare

March 17, 2016
| Share | Print

If you want to alter or make improvements to your space, you might choose to do your own buildout prior to moving in. But don’t underestimate how difficult and costly these construction projects can be—and how crucial organization and communication are leading up to and during the process. If you’ve gotten in over your head financially because of poor planning or other setbacks, you could face legal problems when one or more of the professionals working on the project files a mechanics’ lien claim because you failed to pay them as agreed. (A mechanics’ lien, created by statute, gives certain people who have worked on real estate a security interest in the title to a property if they are owed money for supplying labor or material that improves that property.) Following these tips can help you to avoid mechanics' liens.

  • Ask attorney to review work letter. Typically, in the work letter the tenant agrees, among other things, that it will not allow any liens to be filed on the property. It’s important to have your attorney review the work letter so that you understand what you’re committing yourself to, such as indemnifying the owner, providing a certain amount of insurance, or providing plans and specs before you move forward. But you should know what you’ve committed to ahead of time. For example, you should make sure that the insurance provision makes sense, that this is something you really are able to do, and that you can negotiate lower insurance terms if the ones suggested by the owner are not feasible.
  • Leave construction matters to the professionals. Even small projects can be too complex for tenants to handle while operating their main businesses or getting them off the ground. Part of being successful in this is to get the right team together; regardless of your budget, you need to hire and then communicate with several specific types of professionals, including: (1) an attorney; (2) an architect; and (3) a facilities/construction manager.

For a detailed explanation of how you can set up your project in a well-managed fashion that makes it less likely that there will be liens, and language you can use in your lease to require the owner to work with you to get the job done in a timely manner, see “Organize Construction Projects to Avoid Mechanics' Liens,” available to subscribers here