Even Landlords Need Protection Sometimes

My new, best client, Chief Hank Sawgas of the Hallnew tribe, came to see me yesterday. The tribe had leased a location in Mayo to the slightly shady developer Donald Trumpet.

Everything looked great until the Trumpet declared bankruptcy, apparently for the fourth time this decade. (I thought there were limits on this but, as we all know, the law treats the rich and those with poor hair pieces differently.)

It seems that El Trompeta (as he‟s known to his Hispanic crew) contracted to remodel the building into a new casino, to be called La Valencia.

The cost for the rebuild was merely $25 million. And now that he was bankrupt, the contractors were looking to La Valencia to foot the bill.

Tumpet had followed the lease and notified Chief Hank a month before he started any work. The Chief had his assistant, Canyon Country, post a Notice of NonResponsibility at the job site, and also record it with the L.A. County Recorder‟s office.

This is an excellent line of protection for landlords against any liability for construction bills incurred by their tenants to do construction at their buildings. Civil Code section 3129 says, essentially, that if you own property and there‟s some construction done there, it will be assumed it was done for your benefit as the landowner.

This applies even if the person who asked for the work to be done and who agreed to pay for it was your tenant. This means that if the contractor or materials supplier is not paid, then they have a right to place a mechanic‟s lien against your property.

But that same code section says that if you as the landlord post and record a Notice of Non-Responsibility, then you should not be held responsible for the construction bills. If you fail to do this, then you‟ll have a real tough time getting out from under your tenant‟s unpaid invoices.

Since Canyon Country had followed the procedure for notices of nonresponsibility, Chief Hank believed the tribe was out of the reach of the mechanic‟s liens. But what he did not know was that there is an exception to the nonresponsibility rule.

There are a line of cases that say that if you, as the landlord, have required the tenant to do the work, then the courts will hold that you can still be held liable for the construction costs.

“The Notice of Non-Responsibility shield is not bulletproof. If the property owner „participates‟ through lease provisions, by requiring the lessee to make improvements to the leasehold, the owner cannot shield its property interest.” Howard S. Wright Construction v. Superior Court.

But, Chief Hank protested, the Hallnew‟s had not required The Trumpet to do anything. The tribe simply leased the land and the building to Trumpet . So, they shouldn‟t have to pay the Trumpet‟s bills for him.

While the chief is correct, there is another line of court cases that hold if the landlord receives a significant benefit from the work being done by the tenant then the landlord may ultimately be required to pay for it.

The court in the Wright case ruled that since the landlord controlled how the property was going to be used, because the property was going to be significantly improved as a result of the tenant‟s work, and this work would survive the tenant‟s use of the property; because the landlord had reserved the right to review and approve (or withhold approval) of any work that the landlord was receiving such a significant benefit,
it could be held responsible to pay for the increased value in its property.

The chief and I discussed options about what to do in this case. But one valuable piece of advice that I gave him for future use (and which I tell all of my landlord clients) was to require tenants to post lien and completion bonds for work to be done by any tenant on any tribe property.

While this may not be practical in all cases, if the tenant is doing significant work then this preventative measure should be seriously  considered. After all, your tribe deserves protection from the Trumpets of the world.©

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