Lessors Ability to Exempt Property From Liens Requires Strict Compliance With Recording Provisions

LESSORS' ABILITY TO EXEMPT PROPERTY FROM LIENS REQUIRES STRICT COMPLIANCE WITH RECORDING PROVISIONS

By: Larry Leiby, Esq. and Ian T. Kravitz, Esq.

About the Author: Larry Leiby, Esq. was the founder and first chairman of the Florida Bar Construction Law Committee in 1976. He is the author of the Florida Construction Law Manual. He is Board Certified in Construction Law and was on the Construction Law Certification Committee that creates and grades the tests for construction law board certification. He was awarded the lifetime achievement award by the Florida Bar Construction Law Committee and teaches construction law at the Florida International University College of Law. He can be reached at leiby@mkpalaw.com. For more information, please visit www.mkpalaw.com.

Recording a construction lien against leased real property entails special considerations. section 713.10 Florida Statutes establishes that a construction lien extends only to the right, title, and interest of the person who contracts for the improvements. This poses an obvious problem for a lienor contracting with a tenant. When seeking to enforce a construction lien to recover for the value of work furnished under contract with the tenant, the lienor would be entitled only to enforce the lien against that leasehold interest, and not the underlying landlord's interest. A lienor can find itself entitled to little more than a money judgment against the tenant and the possible right to assume the rights and obligations of the lease. This is typically not as valuable as a lien against property without a lease

Section 713.10 Florida Statutes establishes that if the contract for improvements is with a tenant in accordance with the lessee's agreement with the landlord, then the lien also extends to the lessor's interest in the property. One procedure for a landlord to avoid being subject to liens against the landlord's interest in the property for work done through those selling to the tenant, is for the landlord to include in the lease that the tenant is prohibited from creating liens that would attach to the landlord's interest. Should the lease contain such a provision, (and assuming no fraud) a construction lien will not attach to the landlord's interest if (1) the lessor records in the public records the lease, or (2) if all of the leases entered into for the property prohibit construction liens and the lessor records a notice that provides (a) his name, (b) a legal description of the property that is a subject of the notice, (c) "the specific language contained in the various leases prohibiting" construction liens, and (d) a statement that all leases entered into for the property contain that specific language recited pursuant to (c). While this may seem easy, strict compliance is required.

In Everglades Electric Supply, Inc. v. Paraiso Granite, LLC, 2010 WL 711763 (Fla. 4 th DCA March 3, 2010) GKK-Pembroke, Ltd. ("Landlord") owned a shopping center in which it leased spaces. In May 2005, GKK leased one of the spaces pursuant to a lease that contained specific language providing that the lease did not confer onto any person a right to record a lien and, further, that the lease did not confer onto any person a right to perform any labor or furnish any material on account of the landlord due to improvement or repairs ordered by a tenant. Thereafter, in an attempt to comply with subsection (2) of 713.10, Florida Statutes, described above, Landlord filed a notice citing to section 713.10 Florida Statutes and stating that all its leases for spaces in the shopping center included specific language prohibiting liens on Landlord's interest in the property that arose from improvements contracted for by the tenants.

Thereafter Landlord entered into a lease with a tenant who contracted for improvements Everglades Electric Supply, Inc. ("Everglades") was a subcontractor on the job. Landlord then sold the shopping center and assigned all leases to Paraiso Granite, LLC ("New Landlord"). Subsequently, Everglades recorded a claim of lien against the space leased by the tenant who ordered the work. New Landlord filed suit seeking discharge of the lien, arguing that notice of prohibition against liens was properly recorded so as to prohibit liens from attaching to New Landlord's property interest. Everglades argued that the recorded notice was defective because not all leases in effect contained the specific language recited in the notice. The trial court agreed with New Landlord and discharged Everglades' lien. Everglades appealed.

On appeal, Everglades advanced the same argument. New Landlord acknowledged that the prohibition language contained in the May 2005 lease, while similar, was not identical to the prohibition language contained in the recorded notice. New Landlord argued however that since each lease in effect for the shopping center contained provisions prohibiting liens, although not identical from lease to lease or with the recorded notice, and, therefore, New Landlord's property interest was exempt from liens.

The appellate court found that the lien prohibition language in the May 2005 lease "was significantly different, and more conditional . . ." than the language in New Landlord's recorded notice. As a result, the court found that the recorded notice failed to comply with 713.10(2)(c), discussed above. The Court therefore held that the notice was defective and did not work as a prohibition on Everglades' lien. The appellate court did go on to explain to lessors that if their leases contain non-identical prohibition language, the proper procedure would be to proceed under subsection (1) of the statute by recording all leases currently in effect. Once all leases in effect contain identical lien prohibition language, the lessor would then be in a position to record the blanket notice of prohibition covering