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It's The Law: Landlords Can Get Stuck With Tenant Liens

Question: I own a small shopping center. One of my tenants made some improvements to the inside of his unit and then left town. The builder says he will file a lien against my property. Can he do that?

Answer: Mechanics liens for improvements to real property are known as construction liens in Florida. Chapter 713 of Florida Statutes sets out the rules and procedures for creation and enforcement of these liens. The rules are complex and technical.

The statute specifically addresses the landlord/tenant arrangement. It is made clear that a lienor may only lien the interest of the party that contracted for the improvement. But, an exception is carved out when a tenant makes improvements in accordance with an agreement with his or her landlord. In that case, the lien also extends to the interest of the landlord.

The construction lien law generally requires that subcontractors, material suppliers and others that are not in direct contract with a person contracting for improvements give notice to that person that they are working on the job. The notice is to allow the person paying to make sure that all of the subs and material suppliers get paid as well as the prime contractor. If notice is not given, the subcontractors and material suppliers generally lose their lien rights.

If improvements are not an integral part of the lease, the lien will only be against the tenant's interest. Hence, notice needs only be given to the tenant. Conversely, if the improvements are an integral part of the lease, the landlord's interest in the property can also be liened. You would think that under those circumstances potential lienors would be required to give notice to both landlord and tenant, since the interest of each in the property could be liened. However, case law and statute make it clear that under those circumstances the tenant is the agent of the landlord and notice is only required to the tenant.

The statute requires a safety net for landlords who do not want to expose their property to liens, but want tenants to make improvements or want to authorize improvements. Section 713.10 allows the landlord to be insulated from liability for such liens under two (2) circumstances. First, the landlord can record the lease or a short form of the lease in the pertinent county and the terms of the lease expressly prohibit such liability. Alternatively, if all of the leases entered by the landlord for premises on a parcel of land prohibit such liability, the landlord can record a notice in the public records of the pertinent county instead of all leases or short forms of the leases. The notice must contain the following:

  1. Name of the landlord;
  2. Legal description of the land;
  3. The specific language contained in the various leases prohibiting liability for construction liens related to tenant improvements; and
  4. A statement that all leases entered for premises on the land contain the language identified in the notice.

Recording the lease or the notice limits construction liens to the tenant's leasehold interest only.

Unfortunately for many landlords, the devil in this procedure, as they say, is in the details. In the recent case of Everglades Electric Supply, Inc. v. Paraiso Granite, the landlord did his best to avoid liens for tenant improvements. The landlord recorded a notice with the county clerk which appeared to meet the requirements of the statute and provided that all leases entered with tenants of the property contained the following language:

"LIEN FOR TENANT IMPROVEMENTS: This Lease expressly provides, pursuant to Section 713.10 Florida Statutes, that the interest of the Landlord shall not be subject to liens for improvements made by Tenant. The Tenant shall notify the contractor making any such improvements of such provision in the Lease, and the knowing or willful failure of Tenant to provide such notice to the contractor shall render the contract between the Tenant and the contractor voidable at the option of the contractor."

Everglades Electric argued that the landlord could not rely on his notice instead of recording a lease, because not every lease contained the same language as set forth in the notice. The landlord argued that the differences were so slight as to be inconsequential. Alternatively, the landlord argued that only leases entered after filing of the notice had to have the exact language as the notice.

The Appellate court rejected both arguments, finding the statutory language clear and simple. If all leases did not have exact language with respect to liens for tenant improvements, a landlord cannot rely upon recorded notice and must record the leases or short forms of the leases.

As with many areas of law, construction liens cross a mind field of technical requirements. Property owners, landlords, tenants and even contractors are well advised to make sure they are protected by advice and direction from an experienced attorney. Before proceeding further, you should consult with a good attorney in your locale.

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