Contractors rely to a great extent on the mechanics lien as a way to secure payments they are owed. Most states, including Connecticut, have a statutory scheme that provides security, in the form of a lien on real estate, for payment for work performed. But what about when the work is performed on property that is leased to a tenant, commercial or residential? A contractor can still assert the lien, but what if the tenant wants to get rid of, or discharge the lien? Can it? No is the answer a Connecticut judge recently held in the first case of its kind. Many commercial ground leases state that a tenant is in default of the lease if a mechanics lien is recorded on the property as a result of work the tenant had performed. The tenants can avoid the default, or “cure” it, by getting rid of the lien. Connecticut’s mechanic’s lien statute allows two ways for an “owner” to dispose of the lien (other than paying the contractor and obtaining a release): one is to go to court to dissolve the lien after posting bond. The other is to go to court and have the lien discharged by court order. The latter typically occurs when the lien suffers from some legal defect. A lessee or tenant, however, by statute, can only dissolve the lien through a bond. And now it is clear, at least from this court’s decision, that a lessee or tenant has no right to discharge the lien (meaning get rid of it as a matter of law). The Court held that the lessee or tenant lacked standing to ask a court to discharge the lien. This means the tenant or lessee cannot prove it has a sufficient legal interest in the property.
This means the only remedy a tenant or lessee has to cure a default due to a mechanics lien is to post a bond. The owner, or landlord, of the property can obtain a discharge of the lien, but not the tenant.
In most cases this will not be an issue, but if it is, consider having the owner or landlord assign its right to the tenant or lessee to discharge the lien. Or, the owner can do it, and would likely chargeback to the lessee or tenant, as additional rent, the attorney’s fees and costs for the court action to discharge the lien.
Contractors can defend tenants’ or lessees’ attempts to discharge a mechanics lien based on the fact that the tenant or lessee has no right to discharge a mechanics lien, and can only post a bond – which also secures the contractor’s right to payment.
Q4U: Does your construction company use the mechanics lien as a way to get paid?