LIEN ATTACHES TO LANDLORD’S INTEREST WHEN LANDLORD IS PARTY TO TENANT IMPROVEMENT CONSTRUCTION CONTRACT

If you are a landlord / lessor, then you want to maximize the protections afforded to you under Florida’s Lien Law in Florida Statute s. 713.10.  These protections are designed to protect your property from liens for improvements performed by your tenant / lessee.  The intent is that if you comply with s. 713.10, then a tenant improvement contractor’s recourse is against the leasehold interest, and NOT against the interest of the real property (or your interest as the landlord / lessor).  Needless to say, it is imperative that a landlord / lessor make efforts to comply with this section when a tenant is performing tenant improvements, even when the landlord is contributing money to those improvements.

Section 713.10 provides in material part:

(1) Except as provided in s. 713.12, a lien under this part shall extend to, and only to, the right, title, and interest of the person who contracts for the improvement as such right, title, and interest exists at the commencement of the improvement or is thereafter acquired in the real property. When an improvement is made by a lessee in accordance with an agreement between such lessee and her or his lessor, the lien shall extend also to the interest of such lessor.

(2)(a) When the lease expressly provides that the interest of the lessor shall not be subject to liens for improvements made by the lessee, the lessee shall notify the contractor making any such improvements of such provision or provisions in the lease, and the knowing or willful failure of the lessee to provide such notice to the contractor shall render the contract between the lessee and the contractor voidable at the option of the contractor.

(b) The interest of the lessor is not subject to liens for improvements made by the lessee when:

      1. The lease, or a short form or a memorandum of the lease that contains the specific language in the lease prohibiting such liability, is recorded in the official records of the county where the premises are located before the recording of a notice of commencement for improvements to the premises and the terms of the lease expressly prohibit such liability; or
      2. The terms of the lease expressly prohibit such liability, and a notice advising that leases for the rental of premises on a parcel of land prohibit such liability has been recorded in the official records of the county in which the parcel of land is located before the recording of a notice of commencement for improvements to the premises, and the notice includes the following:
      3. The name of the lessor.
      4. The legal description of the parcel of land to which the notice applies.
      5. The specific language contained in the various leases prohibiting such liability.
      6. A statement that all or a majority of the leases entered into for premises on the parcel of land expressly prohibit such liability.

The recent case of K.D. Construction of Florida, Inc. v. MDM Retail, Ltd., 2021 WL 5617447 (Fla. 3d DCA 2021) demonstrates the outcome when a landlord does NOT fully comply with Florida Statute s. 713.10.  In this case, the landlord and its tenant entered into a construction agreement with a contractor to perform tenant improvements to a movie theater.  Both the tenant and the landlord were identified as the owner in the contract.  Both were signatories to the contract.  And the contract specified that the contractor agreed it was performing work on behalf of two separate owners, even though the contractor was performing separate scopes of work on behalf of the tenant and the landlord.

A metal stud and drywall subcontractor was not paid for work it performed and recorded a construction lien.  The lien attached to the landlord’s interest in the real property.  The landlord argued that this was improper – the lien should only attach to the leasehold interest under s. 713.10 (and, while not discussed, it seemed like there was a lease that prohibited such liability against the landlord’s property interest).  The trial court agreed with the landlord ruling the lien did not apply to the landlord’s real property interest.

The Third District Court of Appeal reversed the trial court: “[W]e agree with [the subcontractor] that the exception to lien liability for property owners who record a lease which prohibits such liability does not apply under the circumstances presented here [where the lessor is a party and signatory to the contract].”   K.D. Construction, supra, at *2 (string citing numerous cases relating to a landlord’s liability, or lack thereof, for tenant improvements).

Even though the landlord may have dotted certain i’s and crossed certain t’s, it was a party to a construction contract that included obligations as the owner to pay, and certain scopes were performed on behalf of the landlord.  In reality, the landlord would have been better suited not making itself a party to the contract.   Or, at a minimum, the landlord should have had a separate contract for the separate work that was being performed for it so that liens would attach relative to that work, but not all of the work being performed.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

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