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Who pays contractor when renters skip out? Rent it Right by Janet Portman, Inman News

Q: We rent a single-family house to tenants who have been there for several years. We gave them permission to build a new backyard fence and do some landscaping; they agreed to pay for it. The work landlord helpwas done and finished a month ago, and now we’ve received a letter from the builder saying that unless he gets paid, he’ll slap a lien on our property! To make matters worse, the tenants moved out in the middle of the night and are long gone. –Mike L. A: The builder is threatening you with a mechanics’ lien, which is a legal remedy used by general contractors, subcontractors, and material suppliers to get paid for work they’ve completed or materials they’ve supplied. If the workers follow the required steps and you still don’t pay, they can force a sale of your home and collect what they are owed from the proceeds.
Mechanics’ liens are a very old legal remedy, and they’re serious business — in California, the right to slap a lien on an owner’s property is part of the state Constitution. Once a lien is placed on the property, the owner will have great difficulty refinancing or selling the property (these liens are aptly called “clouds on the title”). But in California, and most other states, the right to this drastic step is closely controlled by statute.

Common to most states is the requirement that contractors notify owners that they reserve the right to file a lien if it becomes necessary. Called a “preliminary notice,” this notification lets owners know that they must promptly pay up or risk a lien against their property. An owner who has a dispute with a contractor over, say, whether work was done or done right, may dispute the legitimacy of the lien but must usually post a bond to cover the amount in issue.

If you did not receive a preliminary notice, the contractor may still be able to use a lien for work that wasn’t paid for. In California, the preliminary notice can be filed after work begins, but will relate only to work done up to 20 days before it was served, and any work going forward.

Most serious contractors file their notices before even beginning work, to capture all of their work on the project. Because you don’t mention receiving a preliminary notice, it’s doubtful that the contractor can take advantage of his lien remedy because he finished the job more than a month ago. In short, maybe the letter is a hollow threat.

Though you may not face the specter of a lien, the contractor can still sue your tenant for payment. But if your tenant is truly long gone, the contractor won’t be able to serve him with notice of the lawsuit. And even if he finds the absconding tenant, the tenant may have no money to pay. The contractor could end up with a judgment that he can’t collect on.

If you had nothing to do with negotiations and signed no contract, you may escape being named as a defendant. If I were the contractor, however, and I knew that the tenant could not be found, I’d name you in the lawsuit, too. I’d argue that the work has obviously and materially improved your property, and it’s not right for you to enjoy the benefits of the work without paying for it.

A defense on this score would be to say that the improvements were done by an “officious benefactor” (that really is a legal term), or someone who improved your property without your knowledge or consent.

In the circumstances as you’ve described them, you can’t make this argument. You knew of the plan and agreed to it in advance, which puts this defense out of your reach.

There’s a lesson here — one that residential landlords can take from their commercial cousins. A typical commercial lease includes a clause specifying that if the tenant contracts for physical improvements, the tenant promises not to allow any liens to be placed on the property.

In practical terms, this means that a tenant who has a beef with a contractor will need to pay first and argue about the quality of the job later, such as in a court case. To do otherwise would risk a lien against the property (assuming the contractor follows proper procedures, such as filing a timely preliminary notice). Once that happens, the tenant is in breach of his lease and can be evicted.

Copyright 2010 Janet Portman
See Janet Portmans feature, Rules for Showing Leased Properties.
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  • This is a very good post, and a very important one for property owners who lease their property. Almost every lease contains a provisions restricting tenants from allowing liens against property…but what if this provision is breached? What happens if a lien is filed?

    Depending on the state, a property owner may be responsible for construction costs incurred by a tenant if a lien is filed. This means the construction lien is filed against the actual property (and not just the tenant’s interest in the property). Other states will restrict the lien to the tenant’s interest in the land.

    Regardless of the state, the fact the law restricts the effectiveness of a lien does not necessarily mean it will not cause the property owner headache. When the lien is filed against a tenant’s interest, it is sometimes not clearly indicated in the property records. This means the lien actually causes the property owner problems, and legal action is frequently the only way to solve the problem.

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