Landlords can be liable if tenant doesn’t pay

If a tenant hires a contractor to make improvements to a property, but the tenant doesn’t pay the contractor in full, can the contractor sue the landlord for the difference?

It sounds unlikely, but it happened in one case recently.

Former Boston Celtics player Dana Barros leased a warehouse and hired a contractor to make improvements so he could turn it into a sports complex. Later, the contractor believed it hadn’t been paid in full, so it went to court against Barros and against the owner of the warehouse.

The warehouse owner argued that it couldn’t be sued because it was merely the landlord; it never signed an agreement with the contractor.

Most states have what are called “mechanic’s liens, such that if a contractor isn’t paid in full by someone for work on a property, it can place a lien on the person’s interest in the property.

In Massachusetts, the law applies to anyone who hires a contractor, as well as anyone acting on that person’s behalf or with that person’s “consent.”

And in this case, the Massachusetts Supreme Court ruled that Barros had hired the contractor with the “consent” of the landlord.

Although the lease didn’t require Barros to hire a contractor and make improvements, the court noted that the need for the improvements was obvious, the lease had been structured specifically to entice Barros to make the improvements, and the lease specified that the improvements would belong to the landlord after the lease was up.

Therefore, the court said, the contractor could place a lien not only on Barros’s rental interest in the property, but on the landlord’s ownership interest as well.

Landlords who are contemplating having tenants make substantial improvements might want to protect themselves against this possibility by requiring the tenant to obtain a bond or place the construction funds in an escrow account.