Shielding Landlords From Contractor Liens: Florida Statutes Section 713.10’s Underutilized Protective Mechanisms
Submitted by the Transactional PAC
By: Roland Sanchez-Medina, Esq., SMGQ Law; Coral Gables, Florida
In many instances, a new tenant in a building will want to make certain improvements to its newly leased premises and spend hundreds of thousands of dollars, if not more, to ensure the space is efficient, aesthetically pleasing and/or conforms to its physical requirements (the “Improvements”). Undoubtedly, a contractor will be engaged by the tenant to complete the Improvements. Chapter 713 of the Florida Statutes authorizes those that furnish labor and material for Improvements to real property, as well as those that provide ancillary services, to file a lien on the real property as security for payment. However, a landlord who makes proper use of the provisions contained within Section 713.10 of the Florida Statutes obtains a powerful shield for the protection of its property interests from the potential attacks of unsatisfied contractors.
A contractor lien “extend[s] to, and only to, the right, title, and interest of the person who contracts for the improvement.”[1] Thus, if a tenant signs an agreement with a contractor, and the contractor later places a lien upon the property, the lien generally only extends to the tenant’s interests. A lien can, however, extend to the landlord’s property interest under two circumstances:
First, if a tenant contracts for an Improvement because the Improvement was required by the lease agreement with the landlord, then the lien may extend to the landlord’s property interest. If, however, the landlord’s lease with the tenant merely states that the Improvement is optional, then the lien will not attach to the landlord’s interests.
Second, if a tenant contracts for an Improvement because the Improvement constitutes “the pith” of the lease agreement with the landlord, any contractor liens arising from the Improvement will also extend to the landlord’s property interest. Improvements are considered to be the “pith of the lease” if they constitute the “essence” of the lease, they are “essential to the purpose of the lease,” or they are otherwise vital to the perpetuity of the lease.[2] If the lease would not have been executed but for the agreements regarding the Improvements, then any such improvements will be considered to be the pith of the lease.[3]
Even if an Improvement is required or constitutes the pith of the lease, a landlord may still protect itself from future contractor liens arising from the Improvements. First, the landlord must include specific language in the lease with the tenant that “expressly provides that the interest of the [landlord] shall not be subject to liens for improvements made by the [tenant].”[4]
Then, and more importantly, the landlord must record one of a variety of documents with the county where the premises are located before the tenant records a notice of commencement signaling the beginning of the tenant’s work. The landlord may record the lease, a short form of the lease, or a memorandum of the lease. [5] The document that is recorded must contain the specific language from the lease regarding landlord lien prohibitions. This ensures that the contractor is on notice of the disclaimer of the landlord’s liability. It’s been the author’s experience that many leases contain the necessary statutory language prohibiting the liens, but few landlords (or their attorneys) take the time to file the notice of the Section 713.10 prohibition in the county where the premises are located.
Alternatively, and in consideration for landlords who have several leases for a singular parcel of property, the landlord may record a blanket notice for the property which includes the following information: (1) the name of the landlord, (2) the legal description of the land to which the notice applies, (3) the specific language contained in the various leases prohibiting the landlord’s liability, and (4) a statement that all or a majority of the leases entered into for that parcel of land expressly prohibit this type of landlord liability.[6] This blanket notice may be used even if lien prohibition provisions are not included in other leases for the property and even if the prohibitions that do exist do not use identical language, so long as the lease under which work is being done contains some kind of lien prohibition language.
In addition to those protections which the landlord must initiate and record, the statute also requires a tenant to protect its landlords by notifying their contractors of any landlord lien prohibition language contained in its lease with the landlord. If the tenant knowingly or willfully fails to provide notice, the contract between the tenant and contractor will be deemed voidable at the contractor’s option.[7]
Florida courts have carefully striven to maintain landlord protections. One Florida court held that, although the landlord recorded the notice of commencement and provided the tenant with some contributions toward the construction, the landlord was not subject to contractor liens because it had recorded the landlord lien prohibition years before, it was not a party to the contract for improvements, the improvement was not required by the lease, and the contribution was contingent on the tenant acquiring a final release from the contractor. [8]
Contractors, however, have not been left entirely powerless. Pursuant to Section 713.10(3) of the Florida Statutes, a contractor may serve a written demand on the landlord for a copy of the specific provision in the lease which prohibits landlord liens. The demand must identify the tenant and premises at issue. The landlord must then provide a verified copy of the lease provision within 30 days of the request. Failure to do so will subject the landlord to the contractor lien provided the contractor is otherwise entitled to a lien and the contractor did not have actual notice of the landlord’s lien prohibition.
Landlords will also need to keep in mind a number of other considerations when utilizing the Florida Statute’s protections. First, to pass clear title in the future, the landlord will need to eliminate all recorded leases and memoranda that are no longer in effect.[9] Second, some have taken the erroneous position that the landlord must sign the notice of commencement for any work a tenant has begun. If the landlord does sign as the “owner,” the landlord’s protection may be compromised as contractors may argue that they were misled into believing the landlord was organizing the improvement. Where tenants or contractors desire the signature of the landlord, the notice of commencement should clearly note the identity of the tenant, against whom the contractor may claim a lien, and the identity of the landlord, against whom the contractor may not claim a lien if the Florida Statute’s procedures have been properly followed.[10] Additionally, landlords should require tenants to send all notices of commencement to the landlord for approval before they are recorded to ensure that the landlord is not inappropriately named in the notice.
Landlords should also make use of a number of other protective measures to ensure their lien prohibitions stand, including: (1) requiring the tenant to include language in all its contracts for improvements about the landlord lien prohibition, (2) requiring all contracts the tenant enters into for Improvements to be approved by the landlord in writing, (3) requiring the tenant to obtain lien waivers from the contractors it works with, and (4) requiring the tenant to send all notices of commencement to the landlord for written approval.
In January of 2016, the Florida Senate attempted to amend Section 713.10 to exempt landlords from liens imposed by a county or city for penalties imposed because the individual failed to obtain government authorization for the construction on a commercial property. The bill, however, was ultimately withdrawn from further consideration.
Although the law has remained relatively unchanged in recent years, it is considerably underutilized. With some careful planning and proper recordation, landlords can fight off future claims of contractor liens for Improvements with a powerful statutory protection of their interests.
Author Roland Sanchez-Medina is a partner with SMGQ Law where he focuses his practice in the areas of corporate, real estate and tax law. In addition, to his law practice, Roland served on the Board of Governors of The Florida Bar.