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Be careful if contracting work is ordered by a tenant

Businesses that perform contracting work at a property are generally entitled to a “lien” against the property to make sure they get paid. This means that if the property owner fails to pay, the contractor can in some circumstances foreclose on the property, have it sold, and collect payment from the sale proceeds.

These types of liens can benefit building contractors, laborers, carpenters, plumbers, electricians, architects, engineers, and suppliers of materials (such as lumber yards). Sometimes liens also apply to cars and trucks, and can be claimed by mechanics and towing companies.

There are special rules for making sure there’s a right to such a lien, so it’s good to talk to an attorney if you have any questions.

For instance, if contracting work is authorized by a tenant, extra care is required.

An Alabama company called Matador Holdings found this out the hard way. Matador signed a contract to supply about $60,000 worth of materials to a company called Stratford. Stratford had leased a warehouse from a landlord and planned to convert it into a plastics manufacturing plant.

Stratford did some work on the property, but ended up abandoning it before the lease ran out, and never paid Matador for the materials.

Matador complained to the landlord. When the landlord refused to pay, Matador sued, claiming it had a supplier’s lien on the property.

But the Alabama Supreme Court sided with the landlord. Why? Because the lease with Stratford was very clear that if Stratford did any work on the property, it had to pay cash in advance to avoid the existence of any liens.

Because Stratford violated the lease, the landlord was off the hook.

The lesson for contractors is to be very careful if you work for a tenant. You might want to ask for a copy of the lease in order to protect your rights, or consider demanding payment in advance.

There’s also a lesson here for landlords, which is to protect yourself in your lease in case tenants order work performed on the property and then don’t pay.

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