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Lien Right in Texas

TexasConstruction ContractMechanics Lien

In Texas, if a contractor was hired by the tenant (instead of property owner), or if a contractor was hired by a parent company of the property owner (company), would the contractor be entitled to lien? In Property Code, persons who is entitled to lien should be "under or by virtue of a contract with the owner or the owner's agent, trustee, receiver, contractor, or subcontractor." Do the owner's agent and contractor have to have directly contract with the property owner regarding this specific construction project?

1 reply

Jun 4, 2018
Let's look at those questions in reverse order. Regarding whether there must be a direct contract between the owner's agent/contractor and the owner... under the idea of "agency," the owner's agent is entitled to act on behalf of the owner. For all intents and purposes, the agent is the owner as long as the agent acts within their capacity as an agent. Thus, if that agent is truly the agent of the owner and within their rights as an agent, a contract for construction between the owner and the owner's agent would not be necessary. Now let's look at the parent company aspect of the question. It's a little abstract, but if the company that owns the property is owned by another company, that other company actually owns the property (via the subsidiary company). Courts tend to look down on manipulating corporate structure to divide and avoid liabilities - at least when it comes to construction payment. Taxes may be another story... Anyway, it would be a hard argument to make that even though a parent company authorized work, their subsidiary did not and that lien rights could not exist as a result. But to be safe, when dealing with both a parent company and their subsidiary, include both parties as "owner" (or as "owner" and "reputed owner") on all relevant documentation (i.e. communications, notices, and liens) might be a safer move. It's a little hard to tell based on the question posed, but it's worth noting that Texas has laws limiting the effect of what's called a "Sham Contract" under the Texas Property Code at § 53-026 which could apply. Finally, regarding a tenant improvement - this can be a tough question to answer, and most states don't have a very clear scheme for mechanics liens when work was done for a tenant. However, if the tenant has been authorized to make the relevant improvement by the owner, or if the tenant and owner have a deeper relationship than merely that of an owner and tenant (i.e. the parent company situation discussed above), a lien claim might be filed on the underlying property. Sometimes, the owner's mere knowledge and acquiescence when work is being performed. If the work was not, in fact, authorized by the owner at all, a lien on the tenant's interest in the property may still be available (though less impactful).
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