I'm sometimes hired by a tenant for remodel purposes. If I file a lien claim, who is liable to pay me? The tenant or the owner? What is the owner did not authorize the work done?
1 reply
Feb 16, 2018
This is a really good question, and depending on the state, it can be tough to answer. Tennessee makes this situation relatively clear, though. Under § 66-11-102(d) of the Tennessee mechanics lien statute, a party contracting with a lessee to improve property may only encumber the owner's interest if the lessee is considered the owner's agent. So, if a lessee is considered the owner's agent, a mechanics lien can create liability for the owner. Determining whether a lessee is the owner's agent depends on whether the owner has control over the conduct of the lessee. Some factors that will determine control include: (1) Whether the lease requires the lessee to construct a specific improvement;
(2) Whether the cost of the improvement actually is paid by the owner via offsets in the amount of the lessee's rent; (3) Whether the owner maintains control over the improvement; and
(4) Whether the improvement becomes the property of the owner at the end of the lease.
If the lessee is not considered an owner's agent, it may be possible to lien the lessee's interest in the property (that is, file a lien that would only encumber the leasehold interest - leaving only the lessee liable), but Tennessee statute appears to be silent on that issue. If a lien is filed on a leasehold interest (rather than the owner's interest), only the lessee will be liable to make payment in the face of foreclosure.
Regardless of whether lien rights will eventually be available, sending the owner a copy of a Notice of Intent to Lien (or really any demand for payment/threat of lien) will usually help put pressure on a nonpaying lessee.