THE MYSTERY SURROUNDING THE NOTICE OF NON-RESPONSIBILITY STATUTE HAS BEEN SOLVED

By William A. Levy, Esq.

In 2005, the Nevada Legislature finally cleared up the mystery surrounding a Nevada property owner's ability to effectively use the recordation of the Notice of Non-Responsibility to avoid liability for tenant improvements. Prior to 2005, NRS 108.234 did not set clear guidelines. Accordingly, property owners were often left in the dark as to what they were required to do to avoid having their property liened. To be effective, property owners must record a Notice of Non-Responsibility within three (3) days after (i) executing a lease agreement, or (ii) receiving knowledge of the intended alterations, construction or repair of the property, whichever occurs first. Further, the property owner must serve the Notice in the correct form and by personal delivery or by certified mail on the lessee, within ten (10) days after the date the Notice is recorded and, on the prime contractor, within ten (10) days after the date on which the lessee contracts with the prime contractor for the work of improvements.

If the Notice of Non-Responsibility meets the requirements of NRS 108.234, then the mechanics lien attaches only to the lessee's leasehold interest not to the property. In order to meet the requirements of NRS 108.234, however, property owners must make sure that when their lessees enter into tenant improvement contracts that the lessees record a Notice of Posted Security. In order to properly record a Notice of Posted Security, the lessee must either: (a) fund a construction disbursement account in an amount equal to the total cost of the tenant improvement and obtain the services of a construction control company to administer the account or (b) record a surety bond in the amount of one and a half (1 ½) times the tenant improvement contract.

If the lessee fails to satisfy the requirements of the Notice of Posted Security, the prime contractor may stop work. The lessee then has 25 days to meet the requirements, at which time the prime contractor must resume work. More importantly, if the lessee fails to satisfy the requirements of the Posted Security, the contractor may lien the owner's property.

The mystery surrounding NRS 108.234 has now been solved. Lessees must comply with the Notice of the Posted Security requirements in order for property owners to escape liability for tenant improvement contracts. Property owners are encouraged to contact Marquis & Aurbach to obtain additional information on how they can protect their property from being liened.