Protecting Commercial Property From Liens Arising Due to Tenant Improvements

toates Business Law, Landlord Tenant

Commercial landlords and property managers should be familiar with Florida Statutes § 713.10, when it comes to protecting a property from the liens arising from work done to the property by a tenant. Recent case law illustrates what other protective measures can be taken by a landlord or property manager when it comes to improvements by tenants, especially if those improvements are required under the lease or if said improvements constitute the “pith of the lease.” 14th & Heinberg, LLC, vs. Henricksen & Co., Inc., 877 So.2d 34 (Fla. 1st DCA 2004)

The issues arise when a tenant contracts for improvements to a leased property, and the contractors, suppliers or materialmen contracted to complete the improvements do not get paid. They file notices to owner and properly perfect their liens on the leased property. The issue for the landlord then becomes, is their property subject to the liens for the improvements and can the contractor properly enforce their lien in foreclosure against the property.

“No lien language,” express provisions of a lease which prohibit liability for liens from tenant improvements, has been the usual protection for most landlords, however in many cases it is not a complete protection. Specifically, where a lease contemplates tenant improvements or even requires improvements to the property, the contractor can then argue that since the improvements were contemplated by the parties under the lease, that the landlord’s interest in the property is then subject to liens for the unpaid improvements.

Section 713.10 provides that “a lien…shall extend to, and only to, the right, title, and interest of the person who contracts for the improvement or is thereafter acquired in the real property.” From a continued reading of 713.10, you can see the legislative interpretations of the cases that come before 14th & Heinberg. Among them, the Section provides for the recording of a short form or memorandum of lease to put the world on notice of the express language in the lease limiting liens by contractors completing tenant improvements.

Even after 14th & Heinberg, the, as of yet, still unresolved question becomes whether any single protective measure is enough to properly protect a landlord’s interest. Perhaps the only appropriate reading may be that landlords must use every protection available in order to keep their properties from being subject to liens for tenant improvements. Of course each situation is factually distinct and there are many factors to consider to properly protecting an owner’s interest in a property from liens arising out of tenant improvements on the property. Therefore, the advice of a knowledgeable attorney in the preparation of a commercial lease agreement is always good practice.