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The ability to use the mechanics lien instrument to secure extensions of labor and/or materials on credit is instrumental to the success of construction finance managers (CFMs). These statutory security instruments are granted to parties who perform labor and/or furnish materials to a construction project, provided the rules and requirements associated therewith are met, and provide strong security by encumbering the improved property itself. In some cases, however, the lien’s attachment to the improved property can be modified, or even blocked entirely, as a factor of which party originally contracted for the improvement. If the party that originally requested the work has less than full ownership interest in the property, the mechanics lien may not attach to the property itself.

Can a Mechanics Lien Attach to Something Other than the Property?

When a mechanics lien arises pursuant to a tenant improvement, the lien may attach to the interest of the originally contracting party (the tenant). This means that the mechanics lien may attach to the “leasehold” interest. However, while this is specifically allowed in some states, this ability is not universal. And, further, if the lien attaches to something less than the underlying property, is the protection worthwhile?

A mechanics lien attached to a leasehold interest can still provide protection, but without attachment to the underlying property, the protection is necessarily less than that of a lien attached to the property itself. In fact, some attorneys have even call leasehold-liens “illusory”, (even when specifically authorized by statute. This is likely hyperbole, but because 1) most leases have no-lien clauses allowing the lease (and therefore and lien attached to it) to be extinguished in the event a lien is filed; and 2) if the lien on a leasehold interest is successfully ‘foreclosed’ it requires the acceptance of both the lease benefits and obligations by the foreclosing party, i.e. the requirement to pay rent., the protection afforded by liens on leaseholds does not reach the level of those on the property itself.

This is not to say that such liens are worthless, however. In many cases, especially in the case of a large commercial lease, the pressure of potentially losing a lease due to a mechanics lien is enough to prompt payment by the tenant. In an even better situation for a potential lien claimant, some states, allow a mechanics lien that arose pursuant to a tenant improvement to attach to the fee simple interest of the property owner if certain conditions are met.

In many states, if the property owner had knowledge of the improvement (whether this knowledge is required to be actual or merely constructive varies from state-to-state), and consented to the improvement (whether this consent must be explicit or not is also a state-by-state determination), the lien may attach to the owner’s interest. Further, in a some situations, the lien may attach to the owner’s interest based solely on a determination of whether the owner received some benefit from the work performed. Additional questions that may be examined in order to determine to what the lien attaches may include whether the tenant was acting as an agent of the owner, or whether there was some set of facts that would lead the claimant to believe that was the case.

Recent Questions other Contractors Have Asked about Mechanics Lien
If a statutory mechanics lien gets tossed out, would a constitutional lien still be effective?

If I file one affidavit claiming both a statutory mechanics lien and a constitutional mechanics lien, and if the statutory lien ends up being thrown out - would the constitutional lien be thrown out simply because they're on the same document?

Does a Missouri based contractor who did work in Iowa file a mechanics lien in my county or their county in Iowa?

I am a Contractor in Missouri. I did a commercial job in Iowa (I was a sub conractor). The Iowa contractor has not paid me. (over $40k still due) Do I file the mechanics lien in Iowa or Missouri? If in Iowa, must I do this in person...

In Arizona, are we able to adjust the overall contract price when a change order is added?

The initial contract with our customer included millwork and stone. Weeks later, the customer decided they wanted to add installation, which accounts for close to $150,000.00. Rather than amending the contract, the customer treated the installation as a change order. In this situation, can we include the installation/change...

Last updated: Apr 20, 2020
Published: Nov 19, 2014
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Nate Budde 

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About the author

Nate is Chief Legal Officer at Levelset in New Orleans, LA, along with being a husband, father, Eagle Scout, and prior Jeopardy Teen Tournament participant. Nate began his legal career assisting people dealing with the aftermath of Hurricane Katrina, and now helps construction participants understand how to optimize financial and credit risk management through promoting visibility and collaboration. Nate has written for several publications, and is a member of the CFMA Publications Advisory Committee. Nate is a licensed attorney in Louisiana and Texas, is a graduate of Stanford University (B.A.) and Tulane Law School (J.D.), and has been honored as a “Top General Counsel” in the US.