Jay Sachetti joined Jeff O’Brien, partner at Husch Blackwell and Dyanne Ross-Hanson, president of Exit Planning Strategies talked about the market for mergers and acquisitions, exit planning opportunities for companies that don’t end up for sale and how companies can maximize their eventual sale price during an early October panel at the first Upsize on Tap event at Summit Brewing Co. in St. Paul.
When the state Legislature passed a law requiring employers to provide paid leave and safe time for employees, Justin Bieganek started hearing differing details from friends, colleagues and peers.
Jason Lien,
Maslon Edelman
Borman & Brand LLP:
612.672.8319
ja********@****on.com
www.maslon.com
THE DREADED mechanic’s lien. It often springs up, sometimes in multiples, after a tenant goes out of business and fails to pay contractors who performed construction work at the request of the tenant.
Minnesota law states that any property owner who knows tenant improvements are being performed is presumed to have authorized them and can be held responsible for paying for them through a mechanic’s lien. The end result: in addition to dealing with a defaulting tenant, you, the owner, are stuck paying for improvements that will likely be of no value and even removed once a new tenant takes over the space.
Fortunately, there are precautions under Minnesota law that property owners can use to protect themselves.
First, ensure that any lease you have with a tenant contains provisions requiring prior consent and notice for any tenant improvements, a list of contractors working on the project before any work begins, and defense and indemnification from any mechanic’s liens. Ideally, you should also insist that the tenant provide a bond or deposit sufficient to pay for any mechanic’s liens.
Second, provide prompt notice to all contractors performing tenant improvement work that you are not responsible for paying for that work. Minnesota law allows a property owner to disclaim liability for a tenant’s improvements by sending written notice to contractors that it is not liable for the work.
To be effective, the notice must be in writing, provided within five days after learning that the work is underway, and be personally served or sent via certified mail to the contractor.
Third, post notice on the premises where the work is being performed that states you, as the property owner, are not responsible for paying for tenant improvements. To be effective under Minnesota law, the posted notice must be “conspicuous” and “continuous.”
The best way to ensure these requirements are satisfied is to post multiple signs in the premises and check often to make sure they have not been torn down. Take photos as proof in the event the contractor later challenges that notice was never posted.
Finally, when possible, use all of these methods in combination. Don’t rely solely on the lease to protect you. A tenant who fails to pay rent will not be in a position to indemnify you from mechanic’s liens.
Likewise, your written notice will not be 100 percent effective if your tenant fails to give you an accurate list of contractors. You will cover any unknown contractors by also posting the notice on the premises.
Only a systematic approach that uses all three methods discussed above will best protect you from being subject to mechanic’s liens for unpaid tenant improvements. Before employing these strategies, however, you should consult with a lawyer to ensure that your procedures and documentation comply with Minnesota law.
For example, the notice procedures set forth above are a part of Minnesota’s mechanic’s lien statute, which must be strictly complied with in order to be effective.
Investing time and effort into these steps on the front end will help avoid paying for expensive and unwanted tenant improvements down the road.
