Leases between lessor [landlord] and lessee [tenant] often contemplate tenant improvements to the leased property. One question that often arises in that situation is whether the contractor performing those improvements can file a mechanic’s lien that attaches to the landlord’s property if they don’t get paid.
For the contractor, it’s beneficial to extend lien rights as far as possible and consider legal limitations on those rights ahead of time; for the landlord, it’s beneficial to keep the property free from construction liens to the fullest extent possible; for the tenant, it’s important to understand what obligations may exist in regards to contracted for improvements. The intersection of these issues is addressed by Fla. Stat. § 713.10. So what’s provided for?
First, the statute provides: “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.” This is not a blanket authority though, as “[i]t has long been established in Florida that in order for a lessor’s interest to be subject to mechanics’ liens arising from improvements made on its property pursuant to section 713.10 or its predecessor, section 84.032(2), Florida Statutes, the lease agreement must require the lessee to make certain improvements or the improvements must constitute the pith of the lease.” See 14th & Heinberg, LLC v. Henricksen & Co., Inc., 877 So. 2d 34 (Fla. 1st DCA 2004). The improvements constitute the pith (or essence) of the lease where they are “vital to the Lease’s perpetuality.” Id.
Fla. Stat. § 713.10(2)(b) also adds “The interest of the lessor is not be 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.” Accordingly, the landlord can limit the ability of a contractor to lien the landlord’s property for tenant improvements when (a) the Lease prohibits that liability and (b) the Lease is either recorded, or an appropriate short form, memorandum, or notice is recorded, in the county records where the property is located. The statute also provides for specific information that needs to be included in the notice permitted under § 713.10(2)(b)(2).
Fla. Stat. § 713.10(2)(a) requires the tenant notify the contractor “of such provision or provisions in the lease” that “expressly provides that the interest of the lessor shall not be subject to liens for improvements made by the lessee,” further indicating that “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.”
From the landlord’s perspective, the starting point in protecting property from liens arising out of tenant improvements is in careful drafting of the Lease. The landlord should also consider recording the lease, or if landlord does not want to do that as is often the case, then preparing and recording an appropriate short form, memorandum, or notice in the county records where the property is located.
From the contractor’s perspective, the starting point is understanding early on what property may be subject to a lien, so as to allow for proper planning and the taking of whatever steps are appropriate to protect their payment interests, while not making the mistake of overreaching or assuming a greater level of protection than may actually exist.
From the tenant’s perspective, it’s important to understand what limitations may be in play so the tenant can properly notify the contractor and not run the risk of negatively impacting their own contractual or legal rights moving forward.
Regardless of your perspective (landlord, tenant, or contractor) we’re here to help.