Lien on Leasehold in New Jersey
A mechanic’s lien on real property is different from a lien on a leasehold interest. In an earlier post, we asked Notice/Mechanic’s Lien Specialist, Keely Bindas, what the difference is.
“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.” (read 3-in-3 Lien on Leasehold Interest for more)
A common question is “How do I know if the property is leased?” While each situation is different, there are some project commonalities you may encounter. For example, retail establishments are frequently leased spaces. Here’s more from NCS Executive Director, Nancy Kennerly:
“The biggest flag is when the project is for a retail establishment: stores, restaurants, etc. Other projects where leases come into play are large office buildings, where a tenant may contract for an improvement to their leased space. When reviewing the Job Information Sheets provided by your customer, if the name of the owner does not coincide with the name of the project, there may be a leasehold situation.” (read Furnishing to a Property That’s Leased? Serve the Owner & the Tenant for more)
The follow-up question almost always is “How do I know if my lien will be on the property or the lease?” Ultimately, each state may vary on how the lien attaches, but author Paul W. Norris, provides a great best practice.
In his article, Construction Liens on Leased Commercial Premises, Norris advises the lien may attach to the real property, if the property owner authorized the improvement.
“If the tenant of the property entered into a contract for the improvement of the property and the owner directly authorized the improvement in writing, the lien may attach to the real property.”
On the flip side, if the owner did not authorize the improvement, the lien may attach to only the leasehold interest of the property.
What is the actual value of a lien on a leasehold interest?
According to Norris, “…[I]f the tenant is fully invested in the property the lien claim may carry substantial value, as it may force the tenant to satisfy the claim. Then again, if the leasehold interest is solely an office or two within a commercial property the lien claim may not possess significant value.”
Good rule of thumb? Norris recommends having the owner agree to the improvement.
“The proper way to ensure that a lien may attach to the real property is to have the owner of the property sign off on and approve any contract for the improvement of the real property.”
And, of course, don’t go it alone – seek legal guidance!
Do you furnish to residential projects? Have you wondered whether apartments and condominiums are considered residential? Then you should read Residential Projects & Mechanic’s Lien Rights to learn more about notice and mechanic’s lien requirements specific to residential projects.
NCS Extra Credit
Are you caught up on NCS Extra Credit Videos? Binge-watch now & get ready for the 2018 line up!
Here’s a glance at our upcoming webinars!
- The Basics of the Lien & Bond Claim Process (1/23/18 @ 1:00 pm)
- An Advanced Look at the UCC Process (2/6/18 @ 1:00 pm)
- The UCC – A Powerful but Underused Collection Tool in Construction Lending (2/13/18 @ 1:00 pm)
- An Advanced Look at the Lien & Bond Claim Process (2/20/18 @ 1:00 pm)
Check out our 2018 webinar schedule & bookmark our Events page for an up-to-date listing of all educational opportunities.