Examining notices of non-responsibility under Oregon law

Commercial tenants frequently hire contractors to perform work in their leased space. If the tenant does not pay the contractor, can the contractor record a lien against the leased premises? In Oregon, it will likely depend on whether the building owner/landlord properly posted a notice of non-responsibility.[1]

The Law in Oregon

Generally speaking, a contractor can record a lien for any unpaid work that was performed "at the instance of the owner of the improvement."[2] When the owner hires the contractor directly, it will generally be clear that the work was at the owner's request. But what happens when a tenant hires the contractor? The default rule is that all improvements constructed "with the knowledge of the owner" are "deemed constructed at the instance of the owner," and thus can give rise to a construction lien.[3]

But the owner can avoid application of the default rule, and prevent the contractor from recording a lien, by posting what is known as a "notice of non-responsibility."[4] A notice of non-responsibility states that the owner will not be responsible for the construction of the improvements.[5] The notice must be posted "in some conspicuous place upon the land or improvement" at issue, and the posting must occur within three days of the owner obtaining knowledge of the construction.[6]

What Landlords and Contractors Should Do to Protect Themselves

Commercial landlords and property managers should promptly post a notice of non-responsibility once they learn that their tenant is having work performed at the premises. They should document that the notice was posted with a time-stamped photo.

Contractors should understand that if they show up to a job and see a notice of non-responsibility, then they likely will be unable to rely on a construction lien to get paid and should plan accordingly. Contractors should not assume though that the absence of a notice of non-responsibility means that the contractor can record a lien against the property. As noted, the key triggering event is the owner obtaining knowledge of the construction. If the owner never obtained knowledge of the construction, the contractor does not have a right to record a lien against the property even if no notice of non-responsibility was posted. The contractor can always provide notice itself to the owner if it wants to trigger a right to lien, but if the owner posts a notice of non-responsibility in response, the right to lien will extinguish.

What If?

What happens if the owner does not obtain knowledge of the construction until the work is already complete? In that situation, the contractor cannot record a lien, regardless whether the owner posted a notice of non-responsibility.[7]

On the other side of the spectrum, what happens if the owner learns that the tenant is planning on having construction work done in the future? Arguably the owner has not obtained knowledge of the construction within the meaning of the statute, as the work is not ongoing at that point. Moreover, if the construction work is not scheduled to start for several weeks, posting a notice of non-responsibility weeks before the contractor comes on site would not appear to serve the purpose of the statute (as the notice could be removed well before the contractor has an opportunity to see it). Ideally, the tenant will notify the owner when the work is scheduled to start so that the owner can make sure the notice is posted on the contractor's first day of work.

The owner would also be wise to make sure that its lease with the tenant makes clear that the tenant is responsible for resolving any lien issues that arise from work performed by the tenant's contractors.

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