When undertaking construction, alteration, or repair work on leased property in Nevada, tenants (lessees), property owners, and contractors must adhere to specific statutory requirements outlined in NRS 108.2403. This statute establishes the procedures for posting security before initiating any work of improvement, aiming to protect material and labor suppliers in the course of various construction projects. However, there are important exemptions to be aware of that could affect the applicability of these requirements.

Key Requirements Under NRS 108.2403

1. Record a Notice of Posted Security:
   • Lessees must record a notice of posted security with the county recorder where the property is located. This notice should include:
     • The lessee’s name and address.
     • The location and description of the property where the work will be performed.
     • Details about the lessee’s interest in the property and the improvement.
2. Record a Surety Bond or Establish a Construction Disbursement Account:
   • Surety Bond
     • Record a surety bond that meets specific requirements.
     • Notify lien claimants about the bond recording.
   • Construction Disbursement Account
     • Fund the account with an amount equal to the total cost of the work or the prime contract amount.
     • Appoint a construction control to manage the account.
     • Notify lien claimants about the account setup.

Many lessees opt to utilize a surety bond in-lieu of a construction disbursement account. A construction disbursement account, also known as an escrow account or funds control, requires the entire contract balance to be placed into escrow before the start of the project. This is capitally intensive, and generally unappealing to lessees. Furthermore, inspections need to be made throughout the project in order for the escrow company to authorize a disbursement.

Content of the Notice of Posted Security

The notice must include:

• Identification details of the lessee and the property.
• Information about the construction disbursement account or surety bond.
• Proof of service to lien claimants within 10 days.

Consequences of Non-Compliance

If a lessee fails to meet these requirements:

• The prime contractor may halt work.
• If compliance occurs within 25 days, work resumes, and costs incurred due to delays may be recovered.
• If compliance does not occur within 25 days, the prime contractor may terminate the contract and seek compensation for all incurred costs, potential profits, and other related expenses.

Exemptions to NRS 108.2403

Certain situations exempt parties from the requirements of NRS 108.2403 and NRS 108.2407:

1. Ground Lease in Certain Counties:
   • The provisions of NRS 108.2403 and 108.2407 do not apply in counties with a population of 700,000 or more concerning a ground lease for real property designated for commercial development compatible with an international airport. This exemption is relevant in large urban areas where specific commercial activities are planned.
2. Waiver of Owners’ Rights:
   • If all property owners record a written notice of waiver of the owners’ rights set forth in NRS 108.234 with the county recorder before construction begins, the requirements of NRS 108.2403 and 108.2407 do not apply. This waiver can pertain to one or more works of improvement and must be served to any prime contractor and lien claimants by certified mail within 10 days.

Rights and Remedies

The statute provides additional rights and remedies beyond those in other laws, offering protection and recourse for contractors and subcontractors if the lessee fails to comply.

How Lexington National Insurance Corporation Can Help

Lexington National Insurance Corporation offers surety bonds that help lessees meet statutory requirements under NRS 108.2403. Our bonds ensure compliance and provide security for contractors and suppliers involved in construction projects. Contact us to find out how we can assist with your surety bond needs.

Conclusion

Navigating the requirements of NRS 108.2403 is crucial for anyone involved in construction on leased property in Nevada. Understanding these requirements, including applicable exemptions, helps prevent work stoppages and disputes. For assistance with securing a surety bond or understanding your compliance obligations, Lexington National Insurance Corporation is here to support you.