Imagine a scenario where your tenant undertook an improvement of your commercially leased space without your knowledge. Now the tenant is in a dispute with its contractor and the contractor has filed a lien under the Builders Lien Act. Under the act, you may be responsible for the lien as a landowner, despite not being involved in the dispute or even knowing about the improvement. In other words, you may need to pay out the contractor for a construction project that you were not aware of.
Can you do anything to protect yourself from this scenario? Fortunately, you can.
The problem for commercial landowners arises because the act makes owners responsible for all improvements on their properties of which they have knowledge. In the commercial context, if your lease provisions allow tenants to carry out improvements, this lease provision is likely to be sufficient knowledge under the act of any improvements undertaken. As a landowner, you knew that your lease allowed tenants to undertake improvements, and therefore the act deems you sufficiently aware of such improvements to make you liable for the tenant’s debts.
To protect themselves from this outcome, commercial landowners frequently make broad use of a tool under the act called a notice of interest. When you conduct a land title search of a commercially leased property, you are likely to find a filed notice of interest.
A notice of interest is a warning to others that the owner’s interest in the land is not bound by a claim of lien unless the improvement was undertaken at the express request of the owner. A landowner can register the notice of interest on title by simply filing the prescribed form in the land title office. Once filed, the notice of interest safeguards the landowner from lien claims arising from their tenant undertaking improvements on the property.
The notice of interest is a powerful and broadly used tool because it can be added to a landowner’s title at minimal cost and provides broad protection for liens on improvements for which the landowner was not involved. It is a remarkably simple and effective tool that provides landowners with considerable lien protection.
However, a notice of interest does not provide blanket protection to landowners from any and all lien claims. The act imposes limitations as to when a landowner can rely on the protections of a notice of interest.
First, a notice of interest can only shield landowners from lien liability where the claim arises from improvements that were not authorized by the landowner. Consequently, a landowner cannot rely on a notice of interest for protection from a lien claim arising from improvements that they expressly requested.
What if you become aware of a project that your tenant is undertaking that was not at your request? In that circumstance, a landowner would be well advised to send an express notice to the tenant that it did not request or authorize the improvement. While such a notice will not be conclusive, it will assist in providing the evidentiary basis that the improvement was not requested by the landowner.
Second, a notice of interest will not shield landowners from lien liability if they had knowledge of the improvement prior to the notice of interest being registered. In other words, a landowner cannot shield itself by quickly filing a notice of interest after becoming aware of a tenant improvement. A landowner is therefore well advised to simply have notice of interests on all of their tenanted properties.
In you are a contractor working for a tenant, you should determine whether a notice of interest has been filed for the property. If one has, you should be aware that your ability to file a lien is limited. In such circumstances, it will be prudent to request confirmation in writing from the landowner that the improvement is not covered by the notice of interest and the improvement is at the landowner’s request.
As a commercial landlord, there is no reason not to have a notice of interest filed on all your properties. The cost is minimal and there is no downside to filing. If you do not know if all your tenanted properties have a notice of interest, it is well worth your time to check to ensure they are in place.
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