When a contractor wants a lien against a commercial property

There are many reasons why an individual or business with commercial real estate holdings may want to make modifications to a facility. Maybe they have negotiated to take on a new tenant who requires specialized amenities to operate their business. Perhaps the facilities have become outdated and no longer align with necessary standards.

Whatever the reason behind a remodeling or expansion project at a commercial facility, the support of construction professionals is often necessary. Property owners may hire a construction firm to manage the whole process or may hire subcontractors to perform certain aspects of the project. Occasionally, the parties that perform work on a commercial property in California may then try to take legal action against the property owner by seeking a lien against the property.

When is a lien possible?

There is one primary scenario in which a mechanics lien or construction lean might follow claims or complaints by construction companies or contractors. A failure by the property owner to pay construction professionals or businesses in full might lead to litigation. California’s civil code permits such lawsuits as a way for those who provide construction services or materials to recover the amount invested in a project.

What does a lien do?

A mechanics lien granted to a contractor, subcontractor or material provider turns the property where they performed the work into the collateral for their unpaid wages or invoices. The lien prevents the owner from selling the property or refinancing it to withdraw equity without first paying those parties the full amount due.

If a prompt resolution to the financial dispute is not forthcoming, the lien holder then has the option of foreclosing on the lien as a means of enforcing it. Doing so can force the property owner to sell or refinance as a means of securing the capital necessary to pay the party in full.

How can property owners avoid liens?

Contracts are crucial when acquiring support for a construction project. Property owners need to make their expectations about the finished product very clear. They also need to negotiate a specific amount of pay for the parties providing goods and services as well as a timeline for their payment in full.

In some cases, it may even be possible to include a lien waiver in the contract to prevent the other party from using the commercial property as leverage for payment. Sometimes, the scenarios that lead to a lien request involve professionals or businesses that did not meet a client’s expectations or complete a project.

The more thorough a contract is, the easier it may be for a property owner to defend against construction-related litigation. Understanding potential risk factors for construction litigation and how to handle different types of disputes can be beneficial for commercial property owners as a matter of course, given how much is potentially at stake.