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HOW DOES A DESIGN PROFESSIONAL FILE A LIEN ON A TENANT SPACE?

I AM A DESIGN PROFESSIONAL ON A COMMERCIAL TENANT SPACE UPFIT PROJECT. THE TENANT HIRED US DIRECTLY TO DESIGN THE UPFIT FOR CONSTRUCTION BY A GC. THE TENANT HAS FAILED TO PAY BALANCE OF FEES (PAST DUE 90+ DAYS BUT LESS THAN 120). WE WISH TO FILE A LIEN AGAINST THE PROPERTY TO PUT PRESSURE ON THE TENANT TO PAY. WHAT MUST WE DO?

2 replies

Jul 29, 2019

Great question. Mechanics lien rules and requirements can be confusing even in the most straight-forward application, when additional complexities get thrown into the mix, like tenant improvements, the regulations can become even more opaque.

In North Carolina, parties who contract directly with an "owner" of the property can proceed with filing a lien claim with no other intervening steps other than providing the generally required Notice to Lien Agent. For lien law purposes, the “owner” is defined as a “person who has an interest in the real property improved and for whom an improvement is made and who ordered the improvement to be made.” N.C. Gen. Stat. § 44A-7(3).

Accordingly, a tenant (a party with an interest in the property) can be considered an owner for notice and lien purposes. However, the interest to which the mechanics lien attaches when the project is a tenant improvement may be different than that on other projects. Generally, in North Carolina, unless the tenant who contracted for the work has some sort of agreement with the fee simple property owner specifically authorizing the work of improvement, any mechanics lien filed pursuant to the project will be limited to encumbering the leasehold interest of the tenant. That is, that the lien does not extend to the actual property being improved, but is limited to the interest of the tenant with whom the claimant contracted (the lease interest). While an express agreement (or potentially actual knowledge of the work and direct benefit therefrom) may be enough to encumber the real property itself, it is best practice for a lien claimant on a tenant improvement project to understand that their lien may be limited to encumbering the leasehold interest only, and not obligate the "true" owner of the property to pay the claim.

These rules and limitations do not change with respect to whether the claimant is a design professional. North Carolina allows for design professionals to file mechanics liens with no additional notice, timing, or other requirements. Accordingly, a notice to lien agent is technically required, and, a mechanics lien must be filed within 120 days from last furnishing labor to the project.

The process for filing the lien itself can be complex, but more helpful information and a step-by-step outline of filing can be found in a handy guide here. If you want to quickly complete a document and get it filed easily and without a headache, it may be worthwhile taking a look at using software like that available here.

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