Liens On Tenant Projects

By: James C. Busch

The State of Georgia generally does not allow for the filing of a Mechanic’s and materialmens’ Lien for work ordered by a tenant upon the property of a landlord. This general rule has many fact sensitive exceptions which any party rendering goods or services to a tenant location should be aware of and guard against.

A lease providing that any improvements made by the tenant shall be the sole responsibility of the tenant and shall be made at the tenant’s sole cost and expense, protects and makes immune a landlord’s interest in the improved property for liens for labor or materials furnished to the tenant.

The first exception to the general rule is a landlord is not responsible for tenant-ordered work or materials unless a contractual relationship, express or implied, exists between the landlord and the contractor or materialmen. The Georgia Courts have held that the mere knowledge by the landlord that improvements are being made is not sufficient contractual relationship to impose a lien for unpaid materials upon the landlord’s property. Thus, to impose a lien on a landlord, a claimant should involve the landlord in some manner other than merely making it aware of the claimant’s work.

Another area of limited responsibility is where a lease authorizes and/or obligates a tenant to make improvements or repairs. While, the Georgia Courts have held that this authorization does not make the tenant an agent of the landlord nor does the tenant become a contractor within the meaning of the word as used in the lien statute. Further, lease provisions which provide that part of the rent to the landlord under the lease is the erection of the improvements, do not alone make the landlord’s property subject to a lien for tenant ordered improvements. The Georgia Courts have held that the latter actions are insufficient to show the landlord’s ratification of the contract or assumption of liability for the work performed. Landlord liability in this situation arises from the degree the landlord or lease authorizes or obligates the tenant to perform improvements.

However, potential lien claimants should note a landlord’s interest is lienable if work starts before the lease commences. A person who contracts with the tenant for improvements is entitled to a lien against the landlord’s interest in property where the lease provides for construction of improvements before the lease commences and the tenant is given a construction allowance by the landlord. In this lease situation, the tenant is construed as acting as a contractor or agent for the landlord thus subjecting the landlord’s property to liens for tenant-ordered improvements.

In addition, a tenant maybe considered an agent of the landlord for purposes of contracting for construction work performed on the tenant’s leased premises to the extent that a construction allowance is provided by the landlord. The lien claimant who has contracted with the tenant can enforce a lien against the landlord’s interest in the premises only for amounts which due not to exceed the construction allowance given to the tenant by the landlord under the lease. It is important to note that the granting of a construction allowance by a landlord to a tenant in a lease does not by itself make the landlord liable for the full costs of all construction work contracted for by the tenant.

The law with respect to liens on landlord’s property is very, very fact sensitive. Often the most important fact is what is contained in the lease regarding the parties construction allowance. What this means to subcontractors and suppliers is they should be very cautious when doing tenant improvements. It would be prudent to obtain a copy of the tenant lease prior to commencing work in order to determine the lien claimants position. Another alternative would be to establish a direct contractual relationship with the landlord rather than the tenant. By establishing a direct relationship with the landlord a potential lien claimant avoids all the confusing and conflicting issues associated with performing for tenants.

When working on a tenant project, there are no simple answers. A potential lien claimant should exercise a great deal of caution if a job is particularly large or the tenant is questionable since it is very easy to lose lien rights on a tenant project. When in doubt contract with the landlord or at the very lease obtain a copy of the lease to determine what if any lien rights you would have on the project. This area of the law is gray at best and requires a potential lien claimant to be proactive in establishing and protecting their lien claim.

Mr. Busch is an attorney specializing in commercial and construction litigation for Busch, Reed, Jones & Leeper, P.C. in Marietta, Georgia