What Every Landlord Needs to Know
Creation and Perfection
NRS 108.221-246 provide lien rights to “lien claimants”. NRS 108.222. “Lien claimants” include any persons “who provides work, material or equipment with a value of $500 or more to be used in or for the construction, alteration or repair of any improvement, property or work of improvement. The term includes, without limitation, every artisan, builder, contractor, laborer, lessor or renter of equipment, materialman, miner, subcontractor or other person who provides work, material or equipment, and any person who performs services as an architect, engineer, land surveyor or geologist, in relation to the improvement, property or work of improvement.” NRS 108.2214(1).
Two steps are required of most lien claimants to perfect a lien. In order to perfect such lien rights, a lien claimant other than one who provides labor only must mail or deliver a Notice of Right to Lien to the owner and, if the claimant is a subcontractor, to the prime contractor at any time after the claimant’s work begins or material is first delivered under the contract. 108.245(1). The form of the Notice of Right to Lien is set forth in NRS 108.245(1). The Notice of Right to Lien gives the lien claimant lien rights with respect to the thirty-one (31)-day period preceding the Notice of Right to Lien and until the completion of the applicable work of improvement. 108.245(6).
After the work is complete, a further notice must also be filed by all lien claimants, including those who provide labor only. Specifically, all lien claimants must record a Notice of Lien in substantially the form set forth in NRS 108.226(5) within ninety (90) days after the latest of:
(1) the completion of the work of improvement;
(2) the last delivery of material or furnishing of equipment by the lien claimant for the work of improvement; or
(3) the last performance of work by the lien claimant for the work of improvement.
NRS 108.226(1)(a). However, the owner can reduce that ninety (90)-day period by recording and serving a Notice of Completion in accordance with NRS 108.228. If a Notice of Completion is duly recorded and served, the lien claimant’s Notice of Lien must be filed within forty (40) days after the recording of the Notice of Completion. NRS 108.226(1)(b).
The Notice of Lien must also be served upon the owner in accordance with the requirements of NRS 108.227 within thirty (30) days after it has been recorded. NRS 108.227(1). If the lien claimant is a subcontractor, copies of the Notice of Lien must also be delivered to the prime contractor. NRS 108.227(3). A court action must be commenced within six (6) months after the recording of the Notice of Lien, unless the person in interest of the property whom the lien claimant wishes to preserve its lien rights against agrees (on a one-time basis) to extend such period in a recorded extension agreement. NRS 108.234.
Exemption for Disinterested Owners
NRS 108.234 provides an exemption from a lien claimant’s lien rights to certain “disinterested property owners”. In order to qualify as a disinterested property owner, an owner must:
(a) not have recorded a notice of waiver of the benefits of NRS 108.234 as provided for in NRS 108.2405; and
(b) not have personally or through his agent or representative, directly or indirectly, contracted for or caused a work of improvement, or any portion thereof, to be constructed, altered or repaired upon the property or an improvement of the owner; and
if a landlord, the owner’s tenants must have satisfied the requirements set forth in NRS 108.2403 and 108.2407. NRS 108.234(7).
NRS 108.2403 requires lessees to:
(a) record a notice of posted security that complies with NRS 108.2403(2); and
(1) establish a construction disbursement account, fund that account in an amount equal to the total cost of the work (but not less than the amount of the prime contract), obtain the services of a construction control to administer the account, and notify by mail each person who gives the lessee notice of a right to lien of the establishment of the disbursement account; or
(2) record a surety bond for the prime contract that complies with NRS 108.2415 and notify by mail each person who gives the lessee notice of a right to lien of the recording of the surety bond.
NRS 108.2407 requires lessees to deposit additional funds into the construction disbursement account if the construction control determines that the amount remaining in the construction disbursement account is not sufficient to complete the work or improvements.
A disinterested property owner may qualify for the exemption only if the owner records a Notice of Non-Responsibility within three (3) days after the owner “first obtains knowledge of the construction, alteration or repair, or the intended construction, alteration or repair” and, in the case of a landlord, such notice will be deemed timely recorded if the Notice “is recorded within 3 days immediately following the effective date of the lease or by the time of the execution of the lease by all parties, whichever occurs first”. NRS 108.234(2). The required contents of the Notice of Non-Responsibility are set forth in NRS 108.234(3). In addition to being recorded, the Notice of Non-Responsibility must be delivered or mailed:
(a) to the lessee within ten (10) days after the date on which the Notice of Non-Responsibility is recorded; and
(b) to the prime contractor within ten (10) days after the date on which the lessee contracts with the prime contractor.
NRS 108.234. The prime contractor must then post the Notice of Non-Responsibility on the property within three (3) days after receipt of the Notice of Non-Responsibility and must serve a copy of the Notice of Non-Responsibility on each lien claimant from whom the prime contractor received a Notice of Right to Lien within ten (10) days after the prime contractor’s receipt of the later of the Notice of Non-Responsibility or the applicable claimant’s Notice of Right to Lien.
Waiver or Release of Lien Rights
Lien rights may be discharged or released either by filing a surety bond in the manner prescribed in NRS 108.2415 to 2425, inclusive, or by obtaining a waiver and release in the applicable form set forth in NRS 108.2457. A Notice of Lien may be discharged by recording a discharge or release in the form set forth in NRS 108.2437. A Discharge or Release or Notice of Lien must be recorded by the lien claimant as soon as practical (but in any event within ten (10) days) after a Notice of Lien is fully satisfied or discharged. NRS 108.2437.
What Should Be Required of a Tenant
Following is a checklist of items to be addressed in a tenant’s alterations or initial construction obligations in a lease with respect to mechanics’ and material persons’ liens:
¨ in order to monitor the tenant’s compliance, the tenant should be required to keep a register of all claimants who fall within the definition of “lien claimant”. As a practical matter, the tenant will likely delegate this responsibility to its prime contractor in the prime contract, but as between the landlord and tenant, this should be the tenant’s responsibility;
¨ the lease should not have an effective date that is prior to the date it is fully signed, so as to ensure the landlord has the maximum permitted time within which to file a Notice of Non-Responsibility;
¨ the tenant should be expressly required to comply with the requirements of NRS 108.2403 (see NRS 108.234(3)(e));
¨ the tenant must inform the landlord immediately upon entering into a contract with its prime contractor for the tenant’s work and, given the importance of the notice that this triggers, the landlord should consider requiring that the prime contract and at least the prime contractor (and, perhaps, all contractors) be approved by the landlord in advance so that the landlord can more closely monitor this aspect of the process;
¨ the tenant should be required to include in its prime contract a requirement that the prime contractor comply with NRS 108.234(5) and provide all other notices to its subcontractors and other lien claimants as are required under NRS 108.221-246, as amended or supplemented from time to time;
¨ the tenant should be required to establish either a construction disbursement account or a surety bond that complies with NRS 108.2403 and provide the notice of posted security in accordance with that section;
¨ the tenant should be required to record a Notice of Completion upon the completion of the work and to deliver copies of such Notice of Completion as required under NRS 108.228 and should require the tenant to inform the landlord immediately upon the completion of the tenant’s work, so that the landlord can monitor the status of the filing of the Notice of Completion. The landlord should also have a self-help right that, if exercised by the landlord, would either (a) require the tenant to provide all information required to complete, record and deliver the Notice of Completion as required under NRS 108.228 or (b) allow the landlord to collect such information itself and would allow the landlord to complete, record and deliver the Notice of Completion, all at the tenant’s expense and on the tenant’s behalf;
¨ if the tenant elects to establish a construction disbursement account, the tenant should be required also to fund the account as required under NRS 108.2407;
¨ the tenant should be required to obtain Discharge or Release of Notice of Lien and/or Waivers and Releases (conditional or unconditional and final or for progress payments, as applicable) from each lien claimant prior to making any payments to the applicable lien claimant. Upon the lien claimant’s receipt of final payment, the tenant should obtain a Final and Unconditional Waiver and Release from the applicable lien claimant. As a practical matter, this obligation for subcontractors and material suppliers will likely be delegated to the prime contractor under the prime contract. However, as between the landlord and the tenant, this should be the tenant’s responsibility;
¨ payments under any construction allowance should not be made by the landlord unless the tenant, at a minimum, provides conditional (or unconditional, if the tenant is not a credit tenant) lien waivers in the amount of the applicable construction allowance request;
¨ all Notices of Lien must be discharged promptly upon the completion of the work of improvement, either by the tenant paying the amount claimed by the lien claimant or recording a surety bond in the required amount, and tenant’s failure to do so should trigger a landlord self-help right to do so at the tenant’s cost and on the tenant’s behalf; and
¨ the landlord should have the right to examine and audit lien waivers and other relevant documents to ensure the tenant complies with its lease requirements.
What Steps Must a Landlord Take Beyond the Above Lease Requirements?
In addition to providing the above requirements in its leases, several steps should be taken by the landlord itself to protect its property from liens arising from tenant’s work.