3 in 3 Mechanic’s Lien Rights on Leasehold Interest

Today’s 3-in-3 Topic is Mechanic’s Lien Rights on Leasehold Interest

3-in-3 is a 3 question, 3 minute interview with an NCS colleague.

Today’s 3-in-3 features Notice & Lien Specialist, Keely Bindas. Read on to learn more about mechanic’s lien rights on leaseholds.

“What is a lien on leasehold interest and how does it differ from a mechanic’s lien on real property?”

Keely: When a lessee/tenant contracts for an improvement on real property, the mechanic’s lien may be available against the property, the leasehold interest of the lessee/tenant, or both.  When contracting with the fee simple owner of the real property, the mechanic’s lien attaches to the property itself.

“How would I know if my project is a leasehold situation? And, what if I’m in a situation where I file my mechanics lien and I don’t necessarily know that it is a leasehold situation. How would that impact my lien?”

Keely: For example, a big box retail store may sometimes own the property that the store sits on. In other cases, they may have a lease with the actual property owner.  So, if you can obtain a copy of the lease or the general contract, it would help in moving forward to protect your rights.

In some states, you can simply file your lien against the property and it will filter down to any leasehold interest that may exist if the fee owner isn’t responsible for the improvements.

However, there may be other factors that come into play, so it is important to know up front if there’s a lease situation.  For example, a separate lien filing may be required when there is a leasehold interest.

So, it may be necessary to pull a copy of that lease to obtain the tenant information as well as to obtain a copy of the agreement between the fee owner and the tenant to know who’s responsible for the improvements.

Generally speaking, it is best to have a lien against the real property, but a lien on an active lease can also prompt payment.

“What if I’m told on a project that the owner is a private entity but I think it is a public entity. Does this leasehold impact that?”

Keely: It can. We’ve seen many projects where the city, county or state owns the land, but they’ve provided a lease to a third party who happens to be a private entity. So, although a lien against the property isn’t available on public land, a lien against leasehold interest may be something that we can look at when the private entity contracts for the improvement.

3-in-3 Takeaway

  • Lease information may not be in public record. At the start of every project, complete a project information sheet so you know the key players and request a copy of the lease.
  • Know the state, as there may be varying requirements on what you must do to protect your rights in a leasehold situation.
  • Be prepared for the possibility that multiple liens may be required or that the tenant may need to be served with the preliminary notice.

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