Can lienors that perform work on a construction project under a contract with a lessee (tenant) foreclose on the Owner’s interest?
Quick Answer: It depends.
The not so quick answer starts with a basic rule and continues with exceptions, all found in Fla. Stat. 713.10.
Basic Rule:
713.10 (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…
Simply put, only the interest of the entity contracting for the improvement is subject to the lien.
The Exception to the Basic Rule, 713.10 (1) continued:
713.10(1)….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.
Case Law has held that a lien will extend to the Lessor’s interest, if the lease contains a provision that the tenant shall make modifications to the property.
Also, Case law has held that a lien will extend to the Lessor’s interest, if the lease contemplates a use for the property that would require improvements be made by the tenant.
See Jenkiins v. Graham, 237 So.2d 330 (Fla. 4th DCA 1970), “The lease between Jenkins and Super Slide clearly contemplated that the latter would operate a place of public amusement. The record which was before the trial court clearly demonstrated that in order to accomplish this purpose it was necessary to install the toilet facility in question; therefore, we are of the view that the construction of the toilet was in accordance with the lease between Jenkins and Super Slide. Under the cited provisions of the Mechanics’ Lien Law the plaintiff was entitled to claim a lien on the lessors’ interest in the property as well as the lessee’s interest.”
The Exception to the Exception 710.03(2):
A lessor can record a copy of the applicable lease provision prohibiting the lien in the public record pursuant to 713.10 (2) to avoid liability for the work performed by a lienor for a tenant.
713.10 (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; or2. 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:
a. The name of the lessor.b. The legal description of the parcel of land to which the notice applies.c. The specific language contained in the various leases prohibiting such liability.d. A statement that all or a majority of the leases entered into for premises on the parcel of land expressly prohibit such liability.3. The lessee is a mobile home owner who is leasing a mobile home lot in a mobile home park from the lessor.A notice that is consistent with subparagraph 2. effectively prohibits liens for improvements made by a lessee even if other leases for premises on the parcel do not expressly prohibit liens or if provisions of each lease restricting the application of liens are not identical.
The Exception to the Exception to the Exception, Fla. Stat. 710.10(3):
A contractor or lienor, may serve written demand on the lessor for a copy of the provision in the lease prohibiting liability for improvements made by the lessee. If the Owner fails to serve a verified copy of the leaser provision within 30 days, or serves a false or fraudulent copy, such interest of that Owner is subject to the lien. However, per the statutory language the lienor must not have had “actual notice that the interest of the lessor was not subject to a lien for improvements made by the lessee.”
Why do you want your lien to attach to the Owner’s interest in the Property?
A leasehold interest could provide a lienor after foreclosure with the rights of the lessee, and also with the lessee’s obligations to pay rent. Therefore, the leasehold interest is generally not a source of security to benefit the lienor.