October 14, 2019

October 14, 2019

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Lien, Lien Go Away: Construction Liens

Construction liens can become an issue during the improvement of commercial and retail property in a number of ways and at various times during the improvement project. A developer/landlord may face a construction lien issue during the completion of a new building or turn-key build out for a tenant. On the other hand a tenant may contract for alterations or tenant improvements which could result in contractors or material providers having construction lien rights. Under either scenario, you could find yourself being on the receiving end of a lien claim if there's non-payment or a dispute with a contractor, subcontractor or supplier on the project.

Under the laws of many jurisdictions, a person who has improved property by providing labor, materials, and other services, whether new construction or remodeling, may have a lien against the "owner's" interest in the property if the contractor complies with the notice requirements and deadlines set forth in the statute.

In a landlord/tenant situation, the question often arises as to who is the "owner" of the property. Where a tenant has contracted for the work to be done directly, the answer to that question is not always crystal clear. In that context under the laws of a number of states, in order to have a claim against the property owner's interest in the underlying property – and not just the tenant's leasehold interest in the leased premises – the lien claimant would have to prove that the landlord had knowledge of the tenant's improvement project and the landlord consented to the improvement. By doing so, the lien claimant is proving that the tenant was acting as the landlord's agent, and had the right to act on landlord's behalf in contracting for improvements to landlord's property, and therefore, the lien claimant may have a lien against the underlying property.

If a lien is filed, landlord and/or tenant may have to take prompt action to try to prevent things from getting contentious. For instance, if a lender is involved in funding the improvements, the lender or the title company may refuse to release further funds until the lien is resolved. To avoid that, the disbursing agreement could provide that the title company can hold funds equal to the amount of 150% of a lien claim, if one is filed. Or, it may be possible to have a bond or other form of security posted with the clerk of courts in order to have the lien released from the property. By way of example, Wisconsin law allows this type of undertaking to be posted, and once approved the lien becomes a claim against the security and is no longer a claim against the property.

The law of the state in which the project is located should be reviewed to determine whether the general contractor has an obligation to defend the lien claim. The duty of defense is typically conditioned on payment of the general contractor for the work performed. The contract may also require the general contractor to bond over the lien claim. In either case, the landlord or tenant should promptly contact the general contractor about the lien claim.

Finally, if the lien was filed as a result of work being done by the Tenant, it is important to review the lease language. Most "tenant improvement" or "alterations" sections of leases will include language prohibiting tenants from allowing liens on the property and requiring them to take action to remove the lien in the event one is filed. A brief review of the law, your contracts, and the lease terms could go a long way in resolving the situation, avoiding delays on the project, and making sure that the lien claimant is no longer in a position to force a foreclosure sale of the property.

©2019 von Briesen & Roper, s.c

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About this Author

Chris A. Jenny, von Briesen Roper Law Firm, Madison, Corporate, Real Estate and Family Estate Law Attorney

Chris A. Jenny is a Shareholder in the Madison office of von Briesen & Roper, s.c. He focuses his practice on representing business owners in a wide variety of niche markets to become more profitable while minimizing their risk and expenses. Chris’s practice has a heavy concentration in the real estate, construction, and information technology industries. This practical experience is a tremendous benefit to the contractors, suppliers, landlords, tenants and real estate developers he represents. Chris’s construction...

608-661-3973
William West, von Briesen Roper Law Firm, Milwaukee, Corporate and Real Estate Law Attorney

Bill West is a Shareholder. He Chairs the Firm’s Business Section and the Firm’s Mergers & Acquisitions Section.

Bill is a trusted advisor to his clients and they rely on his ability to achieve desired outcomes in a practical, timely and cost-effective manner – in other words, he gets things done. He has over 30 years of experience in corporate and business related transactions including:

  • Mergers and acquisitions

  • Complex corporate and commercial transactions

  • Corporate governance and business counseling

  • Business formation, strategy and structure

  • Business succession planning

  • Commercial real estate

Bill’s clients are involved in a range of industries, and include public and privately held businesses engaged in a wide variety of domestic and international transactions including asset and equity acquisitions, mergers, reorganizations, divestitures and restructurings.

Bill is also co-chair of the firm’s Retail Real Estate section. He represents clients nationwide in the purchase and sale of commercial real estate. Bill has a national practice handling the retail real estate leasing needs of both tenants and landlords.

Bill is a member of the American Bar Association (member of the Business Law, Real Estate and Taxation sections), and the State Bar of Wisconsin. He is also a co-author of LLCs and LLPs: A Wisconsin Handbook, 1st, 2nd and 3rd Editions, published by the State Bar of Wisconsin.

Bill is recognized by The Best Lawyers in America® as “Lawyer of the Year” for Closely Held Companies and Family Businesses Law in Milwaukee (2017). He is listed in The Best Lawyers in America® for Business Organizations (including LLCs and Partnerships) (2015-2018) as well as Closely Held Companies and Family Businesses Law (2014-2018).

Bill served as Chair and a member of the Board of Directors of Catholic Memorial High School.

414-287-1375
Jennifer Kraemer, von Briesen Roper Law Firm, Madison, Corporate, Construction and Real Estate Law Attorney

Jenifer Kraemer is a Shareholder in the Madison office. Her practice focuses primarily on construction law and litigation, real estate and business law. Jenifer is listed in The Best Lawyers in America® for Real Estate Law. She represents business owners, architects, contractors, subcontractors, developers, landlords and homeowners on a variety of issues. Her experience includes:

  • Reviewing and negotiating construction contracts for large commercial and multi-family residential projects.

  • ...

608-310-3608