Does Landlord’s Filing of Notice of Commencement Give Contractor Hired by Tenant the Right to Lien Landlord’s Property?
Construction Law / Real Estate Law on January 12, 2012
Under Florida law, a landlord can take certain steps to protect its property interests against liens filed by contractors making improvements to the property pursuant to a contract with a tenant. Likewise, there are acts and omissions of which landlords should be aware that could create potential exposure to liens, even where the landlord itself has not contracted for the work.
The Fourth District Court of Appeals was recently faced with the question of whether the filing of a notice of commencement by a landlord allows a contractor to assert a mechanics’ lien against the landlord’s fee simple property interest for improvements made on behalf of a tenant. The answer, according to the Fourth DCA, is no, assuming the landlord has taken other necessary steps to protect its rights under the lien law.
In MHB Construction Services, LLC v. RM-NA HB Waterway Shoppes, LLC, 74 So. 3d 587 (Fla. 4th DCA 2011), decided in November 2011, a contractor contracted with a tenant at a shopping center to make improvements to leased property. Prior to construction, the landlord executed and recorded a Notice of Commencement pursuant to section 713.13, Florida Statutes. When the tenant failed to pay for the improvements, the contractor attempted to assert a lien against the landlord’s fee simple interest in the shopping center. However, prior to execution of the lease with its tenant, the landlord had recorded a “Notice of Lien Prohibition” in the public records of Broward County in accordance with section 713.10, Florida Statutes. The landlord argued that the Notice barred the contractor from asserting a claim of lien against its property. The trial court agreed, dismissing the contractor’s foreclosure action against the landlord, and the contractor appealed.
On appeal, the contractor argued that by executing and recording a Notice of Commencement, the landlord identified its “control and financial stake in the construction,” exposing it to the lien. The Fourth DCA disagreed, holding that section 713.13 does not suggest that a landlord’s execution of a notice of commencement has the effect of giving a contractor a right to lien the landlord’s property, when the landlord is not a party to the contract for improvements. In this case, both the commercial lease and the Notice of Lien Prohibition recorded by the landlord pursuant to section 713.10 expressly prohibited a claim of lien for improvements made by a tenant from attaching to the landlord’s property. With such protections in place, the Fourth DCA held that section 713.13 does not abrogate the rights of a landlord under section 713.10.
The contractor also argued that the landlord’s property should be subject to a lien because it reimbursed its tenant $10,000 towards the tenant’s improvements. Generally, improvements made by a tenant in accordance with an agreement between the tenant and the landlord will allow for a lien to extend to the landlord’s property interest. However, the Fourth DCA held that notwithstanding any agreement regarding improvements, the landlord’s interest will not be subject to a mechanics’ lien when the landlord records the necessary disclaimer. Further supporting its decision, the Fourth DCA noted that the lease did not require the improvements be made, and the landlord’s $10,000 contribution was contingent upon the tenant receiving a final release from the contractor.
If you are a commercial landlord and your tenant is considering making improvements to your property, consult with an attorney to make sure you are in compliance with the statutory protections available under Florida’s lien law. If you have not yet rented your property, have an attorney review your lease prior to executing it to make sure these issues are properly addressed at the outset.
Christopher M. Harne is a partner at Killgore, Pearlman, Stamp, Ornstein & Squires, P.A. He concentrates his practice in the areas of Commercial and Civil Litigation.