Takeaways
- Construction liens aren’t given much thought until they cause a major problem
- Liens can have serious implications for both landlords and tenants
- You can’t assume that the professionals you hire will protect you from liens
I’ll actually share two quick lien stories here. They share common themes, and together they illustrate a powerful larger point.
Downtown High-Rise. “I’ve never seen anything like that,” said the glass installer they sent to the meeting. Everyone was bickering and I’d just shut down the unproductive chatter. I am often surprised how difficult it can be to get a group focused on the real, underlying issue.
There was a dispute about the quality of some glass office fronts done as part of a tenant buildout. The tenant was unhappy and funds were withheld. The general contractor filed a lien.
The whole thing had been sitting unresolved for about a year.
Suddenly, it became a major issue because the landlord wanted to refinance the loan on the property…and you need a clean property title to satisfy one loan and initiate another.
The matter was really very simple. It no longer mattered what was wrong with the glass. It no longer mattered who was right or wrong. An entire deal worth almost $100 million dollars was being hamstrung by an unpaid bill of about $20,000.
The landlord used third-party building and project management staff to complete the initial project. Yet, they asked me to get involved because the original team had been unsuccessful in resolving the issue and because I “understood how liens work.”
The technical aspects of the lien and its resolution were the easiest pieces of the puzzle to solve.
The challenges I am most proud to have worked through were:
- Keeping the private equity landlord calm and helping them understand what was happening each step of the way
- Getting the contractor to settle down long enough to hear that we were planning to pay him and resolve the issue
- Quietly getting the glass installer to agree to just enough fixes to satisfy the tenant
- Coaching the original property and project management team through the process
After a couple of tense meetings and a few hectic weeks, including taking conference calls from a nice hotel suite during my vacation in Manhattan, we exchanged a check for a final lien release.
No one was particularly happy, but everyone was satisfied—including the lien.
Suburban Shopping Center. “This is a completely clueless group of people in suits, sitting here without any idea what to do.” As I walked into the hotel lobby, this was my thought.
A bad contractor collected payment on a tenant improvement within an existing shopping center and then skipped town without paying the downstream trades. About a dozen subcontractors had filed liens against the entire property (not just the leasehold improvement).
The company I was working for represented the tenant, and the tenant had a “no lien” clause in their lease. This meant the tenant was financially responsible to satisfy the liens in order to meet its legal obligations to the landlord.
Except…the tenant was seeking resolution and/or payment from my firm because “we” were paid to provide project management services and this all transpired on “our” watch. “We” were the professionals after all.
The irony of it all hung heavily over the hotel lobby that morning. I was not involved in the original project but that clueless group of professionals in suits asked me to assist in trying to find a resolution. Again, because I was the only person who seemed to have any idea about the rules and practicalities governing liens.
The situation was absolutely dire by the time I got involved. There would be no mutually agreeable resolution on this one. I tried to explain that to the people in the lobby.
And yet, we set out from that hotel and piled into the tenant’s conference room with a very angry CEO and Corporate Counsel. It did not go well (and I still wonder who paid for all those people to travel down and stay overnight in a hotel just for the privilege of being so thoroughly embarrassed in person).
I felt really bad and was a little embarrassed myself. I try not to attend meetings where I have less than nothing to offer—where we are actually making it worse by wasting everyone’s time.
Fast forward to my firm eventually ponying up the money to pay the claims on behalf of the tenant. It was a fitting resolution I suppose.
“We” as the professionals allowed the problem to occur on our watch, and we eventually “solved” it (if you can call losing a major client and paying out hundreds of thousands of dollars a solution).
Powerful Larger Point. Every single landlord, tenant, developer and owner can be impacted by liens. Most leases contain lien language of some type, but the provisions and responsibilities are shockingly inconsistent.
On several occasions, I have been witness to otherwise sophisticated landlords leaving themselves entirely exposed by not taking advantage of some simple language in their leases.
On even more occasions, I have watched unsuspecting tenants get into trouble because they just don’t know any better.
Lawyers are good at understanding the language, but they may not always be knowledgeable about where the actual risk lies during a project. Further, they will likely not be around to enforce or protect against those provisions after the lease is signed and work is in progress.
I am not aware of any formal training provided to brokers, property managers or project managers regarding the risks associated with liens. If these folks become educated about the risks and the remedies, it is likely because they have learned the hard way.
And yet, major corporations and large firms are doing deals and expecting to be protected from risk by the professionals they hire.
Don’t allow your company or your project to find out how bad liens can be. Ask your prospective team about their knowledge and experience with liens. Read some of the great articles available online about lien law.
Or just call us anytime. Don’t be left wondering “Whose job is that?” It’s ours.
