A Mechanic’s lien legally guarantees that contractors, subcontractors, and suppliers get paid for their work. These liens can arise from any property improvement and cause major headaches if you don’t discharge them properly. An unresolved mechanic’s lien can prevent an owner from refinancing or selling his property and may even lead to foreclosure.
What is a mechanic’s lien?
A mechanic’s lien is a security interest in a property’s title. It becomes effective when the improvements begin and puts a hold on the property until the contractors or suppliers receive payment. Although the lien becomes effective at the beginning of any improvement, it isn’t perfected until the claimant records it and gives notice to the property owner. Once the claimant perfects the lien, the contractor or supplier can secure judgment through a court-ordered foreclosure proceeding. Since you can’t eliminate these liens easily, they put the claimant in a strong position. Therefore, you must handle liens promptly and carefully.
Are landlords responsible for mechanic’s liens arising from tenant improvements?
A landlord will always be responsible for mechanic’s liens brought by a service provider that the landlord contracted with directly. However, when the tenant hires the contractor or supplier, landlord liability depends on local laws and lease terms. Courts also consider whether the landlord was aware of the improvements and planned to pay for any portion of them. Sometimes, even when a landlord permitted the improvements, the court may release him from a mechanic’s lien if he didn’t agree to the specific contract terms the tenant signed. A legal professional can best determine whether applicable laws or surrounding circumstances are grounds for objection to a mechanic’s lien.
How can landlords keep their property free from mechanic’s liens?
One preventative measure is to cover mechanic’s liens in your lease. The provision would specify that tenants can’t allow mechanic’s liens to be filed against the landlord’s real property. The lease should also state that if the tenant does allow mechanic’s liens against the property, the tenant is responsible for discharging them. Note that when the tenant initiates property improvements, he must notify the landlord and employ only the landlord’s approved contractors. After improvements are underway, a landlord or tenant can request a lien waiver for early payment, keeping contractors satisfied and the property encumbrance-free.
Regardless of lease provisions, be aware of what’s happening on your rental property. If you don’t live nearby, ensure a trusted family member, friend, or business associate monitors the property for you. Preventing the legal turmoil of a mechanic’s lien may be as simple as catching unauthorized renovations and ensuring that trusted, licensed contractors complete all renovations.
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