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Ask Habitat: How Can Boards Protect Themselves From a Mechanic's Lien?

New York City

Nov. 10, 2014

HABITAT ANSWERS: A mechanic’s lien is part of a legal process that seeks to guarantee payment for contracted services on a piece of property. Contractors, subcontractors, and suppliers that haven't been paid for their finished work within an agreed-upon time period can file liens.

Until the debt is paid, the landowner does not own a clear title. That means that in a co-op or condo, neither the corporation nor individuals can borrow money, nor can the property get city work permits, among other things.

Construction projects are often started and finished without guarantees, which gives the property owner much more leverage over the contractor. It is this inequality that makes a mechanic’s lien so appealing to contractors and vendors. The threat of a lien can guarantee payment. Many states require that contractors and vendors first file a 20-day notice before pursuing an official lien. Although property owners may dread receiving the notice, contractors and vendors must file it to qualify for the actual lien.

A mechanic’s lien is not a quick fix, but it does offer workers more legal protection. Some contractors consider a mechanic’s lien to be a last resort, since they prefer to maintain good working relationships with property owners whenever possible.

Lien Lessons

One way boards can protect themselves is by obtaining a lien waiver. Every time a payment is made, get a mechanic’s release. You should also have your contractor stipulate in writing that there are no subcontractors. If there are subcontractors, make sure the contractor gets lien waivers from them.

If you do not have waivers and you get hit by a mechanic’s lien in an already established co-op or condo, the board may consider taking out an indemnification bond for the amount of the claim, guaranteeing any future potential lenders that the property is a good risk.

In a newly constructed condo, however, such an indemnification should be taken out by the sponsor/developer. The reason? Legally, a lien cannot be placed against the owner of a new condo unit because the buyer was not the one who hired the contractor placing the lien. In short, you are not legally liable for actions taken by the developer — therefore, you aren't responsible for the money the developer owes.


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