Who pays contractor when renter skips out?

Rent it Right

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Jun. 17, 2010

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Rent it Right

Janet Portman
Inman News

Q: We rent a single-family house to tenants who have been there for several years. We gave them permission to build a new backyard fence and do some landscaping; they agreed to pay for it. The work was done and finished a month ago, and now we've received a letter from the builder saying that unless he gets paid, he'll slap a lien on our property! To make matters worse, the tenants moved out in the middle of the night and are long gone. --Mike L.

A: The builder is threatening you with a mechanics' lien, which is a legal remedy used by general contractors, subcontractors, and material suppliers to get paid for work they've completed or materials they've supplied. If the workers follow the required steps and you still don't pay, they can force a sale of your home and collect what they are owed from the proceeds.

Mechanics' liens are a very old legal remedy, and they're serious business -- in California, the right to slap a lien on an owner's property is part of the state Constitution. Once a lien is placed on the property, the owner will have great difficulty refinancing or selling the property (these liens are aptly called "clouds on the title"). But in California, and most other states, the right to this drastic step is closely controlled by statute.

Common to most states is the requirement that contractors notify owners that they reserve the right to file a lien if it becomes necessary. Called a "preliminary notice," this notification lets owners know that they must promptly pay up or risk a lien against their property. An owner who has a dispute with a contractor over, say, whether work was done or done right, may dispute the legitimacy of the lien but must usually post a bond to cover the amount in issue.

If you did not receive a preliminary notice, the contractor may still be able to use a lien for work that wasn't paid for. In California, the preliminary notice can be filed after work begins, but will relate only to work done up to 20 days before it was served, and any work going forward.

Most serious contractors file their notices before even beginning work, to capture all of their work on the project. Because you don't mention receiving a preliminary notice, it's doubtful that the contractor can take advantage of his lien remedy because he finished the job more than a month ago. In short, maybe the letter is a hollow threat.

Though you may not face the specter of a lien, the contractor can still sue your tenant for payment. But if your tenant is truly long gone, the contractor won't be able to serve him with notice of the lawsuit. And even if he finds the absconding tenant, the tenant may have no money to pay. The contractor could end up with a judgment that he can't collect on.

If you had nothing to do with negotiations and signed no contract, you may escape being named as a defendant. If I were the contractor, however, and I knew that the tenant could not be found, I'd name you in the lawsuit, too. I'd argue that the work has obviously and materially improved your property, and it's not right for you to enjoy the benefits of the work without paying for it.

A defense on this score would be to say that the improvements were done by an "officious benefactor" (that really is a legal term), or someone who improved your property without your knowledge or consent.

In the circumstances as you've described them, you can't make this argument. You knew of the plan and agreed to it in advance, which puts this defense out of your reach.

There's a lesson here -- one that residential landlords can take from their commercial cousins. A typical commercial lease includes a clause specifying that if the tenant contracts for physical improvements, the tenant promises not to allow any liens to be placed on the property.

In practical terms, this means that a tenant who has a beef with a contractor will need to pay first and argue about the quality of the job later, such as in a court case. To do otherwise would risk a lien against the property (assuming the contractor follows proper procedures, such as filing a timely preliminary notice). Once that happens, the tenant is in breach of his lease and can be evicted.

Q: The ancient stove in our apartment is broken and has been so for several weeks. The owner sent a repairman, who said repairs were more costly than the worth of the unit, but the landlord hasn't replaced it yet. Instead, he gave us his personal toaster oven and an electric hot water kettle! How long must we put up with these substitutions before withholding rent? Our landlord is pleading poverty; we're sick of toast and one-skillet dinners. --John and Martha M.

A: Your problem is pretty straightforward, legally speaking, up to a point. First, there's no denying that a working stove is part of what you're paying for when you pay the rent, and that the landlord is obligated to keep the stove in working order unless its demise is due to your carelessness or intentional misuse.

If the old stove has simply worn out, as you imply, that's part of the "normal wear and tear" that all landlords must deal with. Only occasionally, in single-family rentals particularly, can landlords foist appliance repairs and replacement onto their tenants. Even in those situations, a judge will hesitate to enforce the deal unless its terms were crystal clear and there's no hint of the landlord taking advantage of the tenant.

Your proposed course, however -- to withhold rent -- may not be an available remedy in this situation, even if your state provides for it generally (about one-quarter do not). Rent withholding is designed only for serious problems that threaten your health or safety.

For example, the landlord's refusal to repair a stove that had a leaky pilot light, which exposed you to escaping gas, would justify withholding rent because the likely consequence of not fixing the leak (an explosion or breathing the gas) is unquestionably a serious health matter.

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