Lawscape: Which States Allow for Lien Waivers?
Giving tenants construction allowances to make improvements to the property exposes you to legal risks. If the tenant doesn’t pay its contractors, they may try to collect the debt from you, which can include placing a mechanic’s lien on the property. Requiring the tenant to get “lien waivers”—that is, contractual agreements by a contractor to waive its lien rights with regard to the contract work—from its contractors is one way to protect yourself, but lien waivers aren’t allowed in many states.
Several states (including Rhode Island, Connecticut, Maryland, Indiana, and Montana) ban lien waivers as against public policy. In others (such as California, Florida, New York, New Hampshire, Vermont, Virginia, West Virginia, Kentucky, Tennessee, Mississippi, Kansas, and Missouri), lien waivers are allowed only after the work begins. But the other states do allow for lien waivers (or at least don’t expressly prohibit them). See our Lawscape: Lien Waiver Laws to find out the lien waiver rules of your state.
Most leases expressly ban tenants from letting their contractors place a lien on the property and stipulate that the landlord isn’t liable for the tenant’s debts to its contractors. But those clauses often don’t go far enough to strip the contractor of its lien rights.
To safeguard your property from liens, you can adapt the Model Lease Clause in our recent feature, “Guard Against Mechanic's Liens by Making Tenant Set Up Construction Escrow,” available to subscribers here.