Construction Liens on Leased Commercial Premises

In general, a contractor or supplier is entitled to file a lien against a commercial property if they have performed work or provided materials pursuant to a written contract with the owner. These lien claims must be filed within 90 days of the last date of providing materials or services for the project.

On the other hand, if a contractor or supplier is providing materials or services for a tenant of a commercial property, the rules are different. The differences as to what the lien may attach to are discussed in detail below.

If the tenant of the property entered into a contract for the improvement of the property and the owner directly authorized the improvement in writing, the lien may attach to the real property. The proper way to ensure that a lien may attach to the real property is to have the owner of the property sign off on and approve any contract for the improvement of the real property.

As a contractor or supplier, it is suggested that you obtain the owner’s authorization which would thereby allow you to assert a lien claim against the property itself in the event of non-payment. This can become a very powerful tool on collecting an unpaid balance, as an action to foreclose upon the lien could be brought. This would place a great deal of pressure on the tenant to pay the outstanding balance.

Conversely, if the owner of the property does not sign off on or agree to the improvement to the real property, a lien claim would only attach to the lease hold interest of the tenant. Under these circumstances, the lien claim would not attach to the real property itself, but instead, solely to the lease hold interest held by the tenant.

The question then becomes what would be the value of the lease hold interest.

Depending upon the use of the property by the tenant, the lease hold interest could be quite valuable, or it may be close to worthless. Obviously, if the tenant is fully invested in the property the lien claim may carry substantial value, as it may force the tenant to satisfy the claim. Then again, if the lease hold interest is solely an office or two within a commercial property the lien claim may not possess significant value.

The above provides a general overview as to a lien claim on a commercial property which is occupied by a tenant. It is suggested, as a contractor or supplier, that you have the owner sign off for improvements. This gives you greater leverage when attempting to collect on a lien claim, and also, could force the sale of the property to satisfy same.

This post was written by Paul W. Norris of STARK & STARK.,COPYRIGHT © 2017
For more Construction & Real Estate legal analysis, go to The National Law Review

Soaring to New Heights With Drones: The Rise of UAVs in Construction Projects

The next time you visit a construction site, look up. You may see a drone in flight. The explosion of interest in the unmanned aircraft systems (UAS) industry is driven by their potential for data collection because of the ability to carry many different onboard sensors. In the construction industry, drones are used for inspections, security and surveillance, material delivery, securing investment, augmented reality, and to identify safety issues.

Drones can also be used to improve day-to-day operations by creating time lapses, job-site monitoring, and thermal imaging. Other examples of ways drones can be used in the construction industry include: design, engineering, planning, marketing, volumetrics, asbuilts, construction progress, and site logistics.

Prior to August 2016, there were many legal prohibitions that limited the use of commercial drones. However, 14 CFR § 107 (Part 107) revolutionized the operation of UAS weighing less than 55 pounds and operating for commercial purposes. This regulation affords commercial operators with the opportunity to fly UAS without prior case-by-case approval from the Federal Aviation Administration (FAA), as long as they comply with certain restrictions. Some of the key operating restrictions include maintaining a visual-line-of-sight, operating only during the daytime or twilight hours, not flying over people not directly participating in the drone mission, and maximum speed and altitude limits. Transport Canada, which is responsible for transportation policies and programs in that country, has also recommended similar guidelines, including keeping the drone in visual line of sight and operating the drone during daylight hours. Additionally, there are extensive requirements for commercial operations under Special Flight Operating Certificate (SFOC), but Transport Canada is in the process of revisiting these rules.

Most of the restrictions under Part 107 are waivable, if granted permission from the FAA through an online application process. The Part 107 waiver process incorporates significant flexibility into the regulations. The waiver process is a tool that the construction industry can utilize to maximize the value and use of UAS. Possible areas to request a waiver include nighttime operations, simultaneous operation of multiple aircraft, operation over people, and operation in restricted airspace.

Use of UAVs in the United States is subject to the enforcement authority of the FAA. The FAA has broad enforcement authority and investigatory powers, which require it to regulate aircraft operations in the National Airspace System (NAS) in order to ensure the safety of persons, property, and manned aircraft. The FAA may take enforcement action against anyone who conducts an unauthorized UAS operation or operates a UAS in a way that endangers the safety of the NAS. The FAA works with local and state law enforcement to explain the legal framework surrounding UAS and to seek help in identifying unlawful UAS operators. Specifically, UAS must comply with safety requirements of Part 107. In addition, those who “endanger the safety of the national airspace system” may face penalties, including warning notices, letters of correction, and civil penalties. With regard to the FAA’s investigatory power, it needs only a “reasonable ground” to show a violation of a statute or regulation to initiate an investigation.

Transport Canada overall has conducted minimal enforcement of drone operations. In 2016, it undertook a large educational effort with regard to the safe operation of drones. It does have an online enforcement tool that provides information about “dos and don’ts” for flying drones, as well as details about regulations.

The increased prevalence of UAVs has prompted the courts to review the unsettled area of airspace law. One issue is the private versus public control of airspace. On one hand is the common law principle of property ownership that states that one controls the airspace above their privately owned land. On the other hand are FAA regulations, which claim jurisdiction over all U.S. airspace. Additionally, increased state legislation aimed at drone regulation has created preemption concerns, particularly when the state laws are in conflict with federal laws.

Another risk is that liability arising from drones is not covered in typical commercial liability insurance policies. However, it can be added to both property and liability coverage, which generally protects the insured against damage done by or to its drone. Some regulators propose requiring certain drone users to purchase liability insurance.

In order to keep up with the growth and changing needs of drone use, rulemaking for drone usage will likely continue and expand over the coming months.

Read more legal analysis here.

This post was written by Kenneth D. Suzan of  Barnes & Thornburg LLP.

Mitigation of Construction Defect Litigation- Top 10 Construction Contract Issues

Construction DefectWhen negotiating a construction contract with a general contractor (GC), the owner/developer should be aware of, and address, a number of issues to attempt to mitigate or limit the risk of construction defect litigation for a residential project, including multi-family and for-rent residential apartment and senior housing projects. The standard forms of construction contract—such as the American Institute of Architects (AIA) or ConsensusDocs—are more beneficial to the contractor than the owner in many respects.  A construction contract will need to be reviewed thoroughly and revised to better protect the owner, and in the case of residential construction, should in particular, address the following top 10 key issues:

1) Scope of Work—The scope of work should be well-defined, accurate, comprehensive and identify the basic components of the project. The scope should not be based solely on the drawings and specifications, which are never 100% complete, and the contractor should agree to reasonably infer the scope of work from the contract documents to produce the intended work.  If there is an inconsistency in the contract documents or between the drawings and specifications and contract documents, the contractor should provide the better quality or quantity of the work or materials. The contractor should be required to report any errors, omissions or inconsistencies in the contract documents to the owner.   Contractor’s work should be subject to inspection by the owner, applicable city, county or governmental entities, and any third-party inspectors retained by owner or construction lender for quality assurance and quality control.  Contractor should give advance notice to owner as to specified key system installations—such as soil, foundation, acoustical, exterior, building wrap, HVAC and structural components to allow review and inspection by such third-party inspectors.

2) Change Orders—Don’t allow material “field changes” from the approved plans and specifications.  If there is a question as to the proper way to construct any aspect of the project, such change must be documented through an RFI process by the contractor.  If there are changes or selections not specified in the plans or specifications, any change should be documented and approved by the architect and third-party inspectors, if appropriate.  Any changes should be documented through a written change order.

3) Indemnification—The contract should include a well-written and thorough indemnification and defense obligation by contractor for all construction defect claims and costs, damages, actions, liabilities, judgments and obligations, including investigative and repair costs, attorneys’ fees and costs and consultant fees and costs.  The indemnity and defense should apply to all negligent or willful acts or omissions of contractor. The indemnification and defense obligations should survive the expiration or termination of the construction contract through the statute of repose and limitations (eight years in Colorado).

4) Warranties—Contractor should warrant that its work is free from defects and will be completed in a good and workmanlike manner.  The warranty should commence upon substantial completion of the work and continue through the period of the statute of repose and limitations.  The warranty should include any specific warranty provided to residential purchasers by the owner.

5) Subcontracts—Contractor should incorporate the terms of the GC contract into the subcontracts and provide a copy to the owner.  In particular, the subcontractors should have the same indemnification, defense, warranty and insurance obligations to the GC that GC has toward the owner. Subcontractors should be required to be joined in the same arbitration or litigation action as the owner and any homeowner or homeowners association.

6) Insurance—The contract should specify the insurance required and be reviewed by an expert in residential construction insurance.  An Owner Controlled Insurance Program (OCIP) or Contractor Controlled Insurance Program (CCIP) are preferred. The OCIP or CCIP should be reviewed to determine if it covers design and construction or only construction. If only construction, the design professionals will need to have proper coverage and limits. The OCIP or CCIP should not contain any exclusions for multifamily, condominium or residential use. Insurance coverage should be maintained through the statute of repose and limitations.

7) Dispute Resolution—The contract should specify binding arbitration by a single arbitrator pursuant to the AAA Construction Industry Arbitration Rules or other arbitrator such as DeMars & Associates.  However, if a homeowner or homeowners association brings a lawsuit against the owner, then the GC and the subcontractors should be obligated to join such proceedings at owner’s request to resolve the dispute.

8) Compliance with Laws/Environmental Matters—The GC and subcontractors should be obligated to comply with all applicable laws, rules, codes and regulations, which may include the Americans with Disabilities Act of 1990, and all applicable environmental laws related to hazardous substances, storage and disposal of hazardous materials.  The contract should require that the work be completed free of mold or fungi or unacceptable moisture levels.

9) Construction Lender—Contractor should be required to satisfy requirements of the construction lender including payment schedule, lien waivers, affidavits and inspections.

10) Damages/Attorneys’ Fees—An owner should not waive its right to consequential damages, even if the waiver is “mutual” in the contract.  Such a waiver is not “mutual” because it harms an owner, who has mainly consequential damages, more than the contractor, who has mainly direct damages.  Don’t be fooled by the “mutual” language in the contract.  In addition, owners should consider whether to add a provision to the contract providing the prevailing party in any action under the contract to its costs and expenses, including attorneys’ fees and consultants’ fees and experts’ fees arising out of any claim or action associated with the contract and be applicable to trial or arbitration and appeals.

This article is not intended to be an all-inclusive list of revisions that should be made to a construction contract for the benefit of an owner/developer.  Owners/developers should consult with an attorney well versed in construction contracts.

Copyright Holland & Hart LLP 1995-2017.

Developer-in-Chief: How the New U.S. President May Affect the Construction Industry

construction industryEven before the start of Donald J. Trump’s presidential campaign, the Trump brand was in lights across the nation. From the original Trump Tower in New York City to the Trump International Hotel in Las Vegas, it is a name, a brand and a font recognized by nearly everyone. Long before his inauguration, the new U.S. president had made himself one of the most visible — if not the most visible — real estate developers in the world.

President Trump may be the new commander-in-chief, but he is unlikely to forget his long history in real estate. While the world prepares to learn how his policies will affect the larger economy, real estate developers and contractors are similarly focused on the impact his policies will have on the construction industry. Is the president’s (likely) pro-development stance cause for excitement in real estate circles, or is caution warranted? In the following, we explore subsets of the construction industry and the potential impacts of the new administration on these sectors and issues.

An additional note: It is no exaggeration to state that Mr. Trump’s presidency and many of his official actions, to date, have been contentious. Our goal is to provide a clear-eyed and nonpartisan review of the new President’s possible initiatives.


The nation’s infrastructure was a major talking point for both candidates during the presidential campaign. There is no doubt it is aging and requires investment. So perhaps it was no surprise that Mr. Trump had something to say about infrastructure investment during his acceptance speech on the Wednesday after the general election:

“We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals. We’re going to rebuild our infrastructure, which will become, by the way, second to none and we will put millions of our people to work as we rebuild it.”1

This is a statement that will likely excite many contractors. It also appears to be a strategy that will build on former President Obama’s policies. It was estimated that the controversial American Recovery and Reinvestment Act of 2009 (a.k.a. the Recovery Act or “stimulus package”) would ultimately cost $831 billion between 2009 and 2019, the bulk of it consisting of investments in infrastructure, education, health and renewable energy.2 Mr. Trump has estimated that projects launched under his direction will inject $1 trillion into infrastructure investment using federal tax credits to generate private-sector involvement.3

Republicans who often opposed Mr. Obama’s infrastructure spending may now be reluctant to support Mr. Trump in similar efforts. Private-sector involvement may be key to overcoming Republicans’ prior reticence to spend government money or increase taxes. However, if the private-sector involvement turns out to be illusory, his plans may be stymied by Congress (regardless of which party is in control).

Single-Family Homes

The Obama administration was effective in reducing risk in lending practices and protecting consumers via the Dodd–Frank Wall Street Reform and Consumer Protection Act.4 It also helped homeowners in difficult financial situations refinance their mortgages through the Home Affordable Refinance Program (HARP).5 As a result of affordable mortgage rates, employment gains and income improvement, the single-family home industry has steadily recovered from the recession.6

Despite this, homeownership — which was 63.5 percent during the third quarter of 2016 — is at its lowest level since the 1960s.7 Constraints do not appear to be on the demand side of the equation; they are on supply, where builders are faced with shortages of lots, labor and lending.

Since demand is high, this may be an area in which the new administration can affect the single-family home industry. Mr. Trump has said, “No one other than the energy industry is regulated more than the home-building industry. Twenty-five percent of the cost of a home is due to regulation. I think we should get that down to about two percent.”9 

Mr. Trump has also made clear his affinity for the residential real estate industry, noting that his father was a home builder: “A home builder taught me everything I know. There is no greater thing you can do. If you can build a home, you can build anything.”10

Taken at face value, Mr. Trump’s statements made on the campaign trail paint a positive picture. Combined with the current state of the industry, it may provide his administration with the opportunity to spur new-home construction. As of this publication, however, no clear blueprint for the industry has been put forward.


Mr. Trump believes the energy industry is the most heavily regulated industry in the nation. And his stated goals for deregulation will likely affect this industry, as well.

The Obama administration invested heavily in renewable energy.11 Mr. Trump, on the other hand, has appointed several cabinet members with strong ties to oil and gas, and he has been abundantly clear in his support for coal. Does this spell dire straits for the renewable energy industry?12

The answer to this question is, as yet, unclear. At a campaign rally in California, Mr. Trump told supporters, “I know a lot about solar — I love solar. Except there’s a problem with it. It’s got a lot of problems with it. One problem is it’s so expensive.”13 Whether he is correct in his assessment is one question. Whether he will invest in solar power to bring its deemed high price down or  scrap the tax credits the industry relies on is a separate — and still outstanding — question altogether.14  If Mr. Trump does cancel the tax credits, some analysts expect that the industry will turn to the U.S. states or even overseas for the subsidies it relies on.15

Mr. Trump’s prior claims that climate change is a hoax perpetrated by the government of China may suggest where he stands on this issue; if taken at face value, it may indicate that he is less likely to promote the renewable energy industry and more likely to defer to advisors with interests in oil and gas. However, some believe that the industry has sufficient momentum to maintain itself. Economics, instead of presidential policy, are now the driving factor behind the industry and, with companies already investing billions of dollars in renewable energy, the momentum may be too great for Mr. Trump to have a meaningful effect.16 He may not promote it, but he may not be able to stop it, either.

In the more traditional energy sectors, oil and natural gas have seen an increase in production over the past decade as a result of better fracking technology, despite efforts by the Obama administration to slow down the extraction of resources via this controversial method.17 The Trump administration is expected to open up federal land, previously identified by the Obama administration as off limits, for oil and gas production.18 If this becomes the case, the result will likely be a boon for the industry and any construction that comes with it.


Environmentalists are preparing for battle against the Trump administration. But how will the president’s perceived negative attitude towards environmental regulations affect the construction industry? Deregulation would no doubt make real estate development less expensive and, therefore, easier and more appealing. And if Mr. Trump opens up federal land for oil and gas production, against environmentalists’ wishes, construction will likely accelerate.

Construction Costs

On the campaign trail, Mr. Trump discussed some of his potential stances on foreign policy, including trade policy and immigration. With respect to trade policy, he has indicated that the United States should withdraw from the Trans-Pacific Partnership (TPP) and renegotiate — or even withdraw from — the North American Free Trade Agreement (NAFTA).19 If these new policies impede trade or place more control on imports, materials prices may increase.20 

Mr. Trump has taken a similarly hard stance on immigration, repeating his plan to erect “an impenetrable physical wall” on the border with Mexico and issuing an executive order limiting entry into the United States of people from certain countries.21 While the latter order is currently less likely to play a role in the construction industry, the former may have a significant impact. Labor is already at a premium and, in an industry that relies heavily on a foreign-born workforce, strict immigration policies may raise wages and increase the cost of construction.22

As with all of the issues listed previously, the construction industry must take a wait-and-see approach to the effects of Mr. Trump’s foreign policy stances. Legal and illegal immigration were strong, regular themes during his campaign and surprises are unlikely in this area, in particular.


It is possible that some of Mr. Trump’s policies and promises will become a boon for the construction industry. Deregulation may reduce project costs and increase the availability of funding for homebuyers and contractors alike.23 Tax cuts for the wealthy may mean that there will be more money to build projects.24 And his promises to spend large amounts of money on infrastructure could result in a flood of projects for contractors.25 

But if Mr. Trump follows through on his immigration policy, the current labor shortage will likely get worse and the costs of available labor will increase.26 Similarly, strained relationships abroad may increase the cost of materials.27

There is certainly reason for hope that Mr. Trump’s real estate experience will spur growth in the construction industry. Although he  has an opportunity to effect significant change,  we may have to wait for several years to see how his policies ultimately reshape the construction industry.

1 Donald Trump’s Presidential Acceptance Speech
2 Recovery and Reinvestment Act of 2009
3 Donald Trump Infrastructure Spending
4 Dodd-Frank Wall Street Reform and Consumer Protection Act
5 Home Affordable Refinance Program
6 Home Sales Estimates Historically Soft
7 Ibid.
8 Key Takeaways From the Latest Housing Market Reports
9 Trump Vows to Cut Burdensome Regulations in Address to Home Builders
10 Ibid.
11 Obama Has Done More for Clean Energy Than You Think
12 Renewable Energy Sector Remains Optimistic Amid Trump Policy Outlook
13 Ibid.
14 Ibid.
15 Ibid.
16 Economics Will Keep Wind And Solar Energy Thriving Under Trump
17 Trumps Energy Policy 10 Big Changes
18 Ibid.
19 Donald Trump Trade Policy
20 How Will Trump Affect the Construction Industry
21 Donald Trump Immigration Policy
22 How Will Trump Affect the Construction Industry
23 Ibid.
24 Ibid.
25 Ibid.
26 Ibid.
27 Ibid.

Letters of Intent in Construction Project Negotiations–Pt 2

McBrayer NEW logo 1-10-13

In our last post, we began speaking about letters of intent and their use in negotiating the terms of construction projects. As we noted, letters of intent are not contracts, but courts do sometimes enforce them as binding, depending on what the parties intended by the document. In cases where it is evident that both parties intended to be bound, they may be enforced by a court. In cases where parties did not intend to be bound, they may not be enforced. It depends on the circumstances, though.

In some cases, a court may enforce some parts of a letter of intent, but not others. This can happen in cases where parties did not intend to be bound by specific provisions of the letter, but agreed to deal exclusively with the other party, not to disclose the negotiations, or to deal with the other party in good faith. Certain types of agreements such as these can spur parties to take steps in reliance on the letter of intent, including investing money or passing on other opportunities, and courts may choose to enforce them.

Courts may choose to enforce such agreements even in cases where the letter of intent is clear about its non-enforceability, particularly where the party objecting to enforcement led the other party into taking actions in reliance on the letter. In yet other cases, letters of intent may be unenforceable, but may still be used by a court to help interpret ambiguous terms of a later contract. Any of these outcomes are possible, depending on the case.

As can be seen, it is difficult to point to general rules regarding the enforceability of a letter of intent. In the context of negotiating construction projects and other transactions, then, it is beneficial for parties to work with an experienced attorney to ensure they understand state law on the issue and what exactly they may be getting themselves into. Knowing this information can help a party to limit the possibility of a later dispute over a letter of intent. Working with our firm, clients can be sure that we will provide solid legal advice and practical guidance on business negotiations with their rights and interests in mind.

Business and Corporate Law Practice Group.

McBrayer, McGinnis, Leslie and Kirkland, PLLC

Letters of Intent in Construction Project Negotiations–Pt 1

McBrayer NEW logo 1-10-13

Anyone who works in the construction industry knows how important it is for everybody to have the same understanding about the terms of a project, including the materials needed, deadlines to be met, and the procedure for resolving disputes. Without a reasonable degree of certainty about these things, there is always the risk that something will go wrong and that money will be lost.

Before all of the details for a construction project are hammered out in a contract, though, there is the negotiation process. Oftentimes, parties begin to take action and invest in a project before a formal contract has been reached. One tool that is sometimes used to prevent financial loss before a contract has been reached is a letter of intent.

A letter of intent is a document that provides a general statement of an agreement that has yet to be finalized. Letters of intent are not contracts, though they may still be enforced in court, at least as to some provisions. Exactly how a letter of intent is treated by a court when disputes arise is not an easy question to answer, partly because the law differs from state to state and partly because it depends on the intention of the parties with respect to the letter of intent, whether they intended to be bound by the letter.

In determining whether parties intended to be bound by a letter of intent, courts don’t simply take parties’€™ word for it. Rather, they consider the specific language of the agreement and other signs that speak to each party’s intent. This can sometimes include actions taken by the parties after the letter of intent is signed.

In our next post, we wi€™ll continue this discussion on letters of intent and how they should be approached in the negotiation process.


Business and Corporate Law Practice Group


McBrayer, McGinnis, Leslie and Kirkland, PLLC

What You Need To Know: Boston and Cambridge Energy Use Disclosure Ordinances


On July 28, 2014, Cambridge, Massachusetts enacted an energy use disclosure ordinance, joining Boston and several other cities.  The Cambridge ordinance is similar to its Boston counterpart, but contains several differences.  Property owners in each municipality should be familiar with these ordinances.

1.  Properties Covered By Each Ordinance


  • Municipal buildings of 10,000 square feet or larger;
  • Non-residential buildings of 25,000 square feet or larger; and
  • Multi-family residential buildings with 50 or more units.


  • City buildings (those the City owns or for which the City regularly pays energy bills);
  • Non-residential buildings (those located on a parcel of land with one or more buildings of at least 35,000 square feet and of which 50% or more is used for non-residential purposes, and which are not City buildings); and
  • Residential buildings (i) (a parcel with one or more buildings with 35 or more dwelling units that comprise more than 50% of the building, excluding parking, or (ii) any parcel with one or more buildings of at least 35,000 square feet and that is not a City building or a non-residential building, or (iii) any grouping of residential buildings designated by the Commission as an appropriate reporting unit).

2.  Obligations of Owners and Tenants of Covered Properties

Both ordinances broadly defined “Owner” to include owners of record or a designated agent, and net lessees for a term of at least forty-nine years.


No later than May 1st of each year, all covered properties must disclose energy consumed by such property during the prior year, together with other information required by an EPA Benchmarking Tool:  (i) address; (ii) primary use type; (iii) gross floor area; (iv) energy use intensity; (v) weather normalized source energy use intensity; (vi) annual greenhouse gas emissions; (vii) water use; (viii) energy performance score; and (ix) compliance or noncompliance with ordinance.

Tenants (those who lease, occupy, or hold possession) of a covered property must comply with an owner’s request for information within thirty days or risk a fine.


No later than May 15th of each year, owner of each covered non-city building shall accurately report previous calendar year’s energy, water use, and any other building characteristics necessary to evaluate absolute and relative energy use intensity of each building through Energy Star Portfolio Manager.

Owners must request information from tenants separately metered by utility companies in January for the previous year, and tenant must report information to owner no later than end of February, though a tenant’s failure to respond does not relieve an owner’s duty to report.

Enforcement and Penalties


Failure to comply with the ordinance or misrepresentation of any material fact may result in a written warning on the first violation, and a fine of up to $300 per day for any subsequent violation.


The Air Pollution Control Commission may issue written notice of violation, including specific delinquencies, to those failing to comply, giving thirty days within which an owner may cure the violation or request a hearing.  The Commission also may seek injunctive relief requiring an owner or non-residential tenant to comply with the ordinance.

Boston provides a sliding scale fine schedule for failure to comply with a notice of violation, depending on the type of property, which ranges from $35 per violation up to $200 per violation.  Each day of noncompliance is a separate violation, but owners or non-residential tenants may not be liable for a fine of more than $3,000 per calendar year per building or tenancy.

Both cities are actively developing programs to address climate change and adaptation.  Property owners should monitor these efforts as well as similar initiatives by federal and state agencies.