Does a notice of non-responsibility protect a landlord? The answer is a resounding "it depends."
When a landlord does not intend to be responsible for any improvements undertaken by a tenant, it is possible for the landlord to post and record a notice of non-responsibility.
This notice may insulate the landlord from liability under a mechanics' lien if the technical requirements of the notice are satisfied and the landlord is truly not responsible for the improvement.
A landlord is permitted to give a notice of non-responsibility by complying with the technical requirements of California Civil Code Section 3094. Without going into the specific procedure, the notice is given by posting a notice on the property and by recording the notice with the recorder in the county where the property is located.
The notice is effective if it is given within 10 days from the time the landlord first becomes aware or has reason to be aware that actual work is being undertaken.
However, even if the technical requirements of the notice of non-responsibility are completed, the bare fact of having given the notice will not necessarily insulate the landlord from mechanics' liens arising from tenant improvements.
The guiding principle that controls whether a landlord's property is exposed to mechanics' liens, irrespective of who actually signed the contract ordering the improvement, is whether or not the landlord was a motivating force in procuring the work. When the landlord requires the tenant to make improvements, retains the right to approve plans, gives the tenant an allowance for improvements, or gives the tenant other incentives to induce the making of improvements, and there is an expectation that the improvement will remain as a part of the landlord's property after the end of the lease term, the landlord may be considered a "participating owner."
Participating owners are treated as though they are principals using their tenant as an agent to obtain the work.
Whether to require improvements, control improvements or give incentives for improvements is ultimately a business risk decision.
Often, the benefit of exercising control over improvements outweighs the risks of liens for a particular landlord.
However, if a landlord determines that he or she desires to reduce risk of a mechanics' lien foreclosure action, it will be necessary to give a notice of non-responsibility and take steps to avoid being characterized as a participating owner.
Additionally, the landlord may consider drafting the lease to include terms to provide additional protections. Though each situation will be unique, and should be evaluated independently, examples of a few of these terms include the following:
¥ Upon written notice to the landlord and with the landlord's consent, improvements are permitted but not required.
¥ Alterations or improvements, to the extent they are permitted at all, may not impair structural support or reduce the efficiency of operating systems.
¥ Tenants are prohibited from allowing any mechanics' lien to persist and must agree to indemnify, defend and hold the landlord harmless from all such claims.
¥ Tenants must, when negotiating contracts with improvement contractors and suppliers, require that the improvers or suppliers will grant lien releases each time payment is made for a completed portion of the work.
¥ Tenants must give written notice of the making of any improvement contract to the landlord within a specified number of days after the tenant signs the contract.
¥ Tenants must, as a term and condition of any improvement contract they make, provide a payment bond on the contract.
With proper planning and careful drafting of your lease agreement, landlords can better protect themselves from mechanic's lien actions by properly utilizing a notice of non-responsibility.
Brown is an associate with Kimball, Tirey & St. John LLP.