Back in 1999, in an attempt to make Connecticut’s mechanic’s lien law more contractor-friendly, the Legislature saw fit to tweak the mechanic’s lien statute. However, in doing so, it carved out some protection for Landlords and property owners. The relevant portion of the statute reads as follows:

If any person has a claim for more than ten dollars for materials furnished or services rendered in the construction, raising, removal or repairs of any real property, and the claim is by virtue of an agreement with or by consent to the lessee of such real property or of some person having authority from or rightfully acting for such lessee in procuring the materials or labor, then the leasehold interest in such real property is subject to the payment of the claim. (emphasis added)1

In its simplest form, Connecticut lien laws allow contractors, subcontractors, and alike the right to file mechanic’s liens against a piece of property or leasehold under two scenarios: “(1) by virtue of an agreement with or the consent of the owner of land, or (2) by the consent of some person having authority from or rightfully acting for such owner in procuring labor or materials.”2

Clearly, the law does not grant contractors the right to attach the property owner or developer’s property if the property owner or developer did not agree or consent to pay for their services. The definition of the term “consent” is crucial: It indicates either an agreement that the Landlord shall or may be liable for the contractor’s labor and services, or by circumstances indicating an implied contract by the landowner to pay for the contractor’s services. More importantly, it is of no consequence that the Landlord or landowner may have been aware that work was being done on the property, or that it had granted permission to the tenant for such work to take place.

With this statutory backdrop, why does there continue to be the misconception that a contractor has the right to attach the property owner or developer’s property even if the property owner or developer did not provide its consent to the contractor in the manner contemplated by the statute? I believe the reason is that contractors have not bothered to distinguish the term “leasehold” from “land.” It is a truism that a Tenant’s “leasehold” is not synonymous with the term “land”: the “leasehold” interest is an estate in real property held by a Tenant/lessee under a lease, including the asset representing the right of the Tenant/lessee to use leased property. Whereas in this context, a leasehold interest is subject to the “payment of a claim,” the land or property owned by the Landlord or developer is not. Further, in some cases, the contractor’s basis for attaching the Tenant’s “leasehold” is completely negated if a notice to quit had been, or was subsequently served on the Tenant. In Connecticut, the mere service of a valid notice to quit terminates the Tenant’s leasehold. Consequently, if there is no lease in effect, there is simply is no “leasehold” subject to attachment.

In most instances, the lease contains a specific provision requiring the Tenant to keep the premises “free and clear of all liens arising out of work performed, materials furnished or obligations incurred by the tenant.” Furthermore, with very few exceptions, Landlords rarely agree to pay the Tenant’s contractor directly for labor and services provided to the Tenant. That a Landlord may have agreed contractually to provide reimbursements to the Tenant at the completion of the Tenant’s build-out, should not and cannot be construed as “consenting” to pay for the contractor’s services.

Invariably, Landlords are left holding the bag – metaphorically speaking – either because the Tenant has simply failed to fully compensate the contractor, or there appears to be a legitimate dispute between the Tenant and the contractor regarding payment for the contractor’s services.

Unfortunately, Landlords often do not have the luxury of sitting back and waiting for the contractor and Tenant to work out their differences. To that end, Landlords have to move swiftly to discharge any invalid liens in anticipation of notices from their lenders and title companies.

LANDLORD’S COURSE OF ACTION

In the event that an invalid lien is filed, the following course of action should be implemented: First, the Landlord must promptly serve a notice of default on the Tenant notifying the Tenant of its obligations to keep the premises free and clear of all liens. This should be followed by a timely Notice to Quit if the Tenant fails to cure the default either by paying the claim or bonding against it.

Secondly, and concurrently with the Tenant’s default notice, the contractor should be promptly put on notice that the lien must be immediately discharged because the Landlord did not consent to pay the contractor for services it may have rendered to the Tenant. The notice to the contractor should further apprise the contractor that to the extent that it has now been notified of the current state of law with regards to mechanic’s liens, its failure to discharge such lien will be considered an act of bad faith which could entitle the Landlord to attorney’s fees in addition to other remedies under Connecticut law.

Thirdly, if the lien is not voluntarily discharged by the contractor, the Landlord must itself move to discharge the lien by commencing an action against the contractor under the appropriate statute (Conn. Gen. Stat. §49-35a). In accordance with the Lease, the Tenant should be responsible for any and all costs incurred by the Landlord in performing this exercise.

As noted above, most contractors who file mechanic’s liens do so under a misapprehension. Other contractors are a bit more calculating: they know they are not entitled to do so, but they do so in any event because they are hoping that once the Landlord becomes aware of the liens, it will give the Tenant a tongue-lashing. Unfortunately, the Landlord cannot always assume the role of a parent or arbiter of disputes. Rather, the Landlord must act swiftly to do what is necessary to protect its interests by keeping the property free and clear of any and all invalid liens.

[1] Conn. Gen. Stat. §49-33(h).

[2] Hall v. Peacock Fixture & Electric Co., 193 Conn. 290, 293, 475 A.2d 1100 (1984).