There’s a popular misconception that doing work on a leased property for a tenant means you can’t protect yourself when it comes to getting paid. Not true! But doing work for a tenant does mean you need to take specific steps to have rights and recourse.
Generally, you can lien a leased property. The first step is determining who is contracting with whom on the project. If you are the general contractor, are you signing a construction contract with the landlord or with the tenant? If you are the subcontractor or a supplier, with whom is your general contractor’s contract?
Here’s why it matters. Florida Statutes allow you to lien the interest of the party contracting with the general contractor. If the landlord is the one contracting with the general contractor for the work, and that contract is not paid, your lien rights would be on the contractor’s interest – the actual property as a whole.
But say your contract, or your GC’s contract, is with a tenant, perhaps the owner of the restaurant that’s being built out. If you have lien rights, those rights would only attach to the restaurant owner’s lease. You wouldn’t be able to sell the property as a whole if you needed to get paid.
So how do you learn what the contract signer’s interest is? Search public records to determine the owner of the property. Go to the property appraiser’s website for the county where the property is being worked on. (Google “property appraiser [Your County] County.”) On the site, enter the property address, the folio number, or the name you have. The taxpayer on the property is what will come up, and most of the time, that’s the owner. If you are a general contractor, you’ll want to compare that to who signed the contract with you. If it’s not the owner, it’s likely the lessee or tenant.
Don’t make the mistake of relying on the notice of commencement for this information. Just because a corporation is listed in the notice of commencement doesn’t mean you will have lien rights on the property. Stick to the taxpayer records.
Once you determine whether you have lien rights on the property or the lease, there’s another crucial and important question to answer. Does the lease between landlord and tenant prohibit liens from being placed on the property? Most sophisticated owners have gone through a process that allows them to do just that. If your job is in a significant commercial building, chances are the owner has been counseled to include such a no-lien provision in its leases. The language would read something like this: “under no circumstances can the tenant do anything to encumber the property.” This would of course frustrate your goal of being able to sell the property at a public auction if you haven’t been paid.
Florida Statute 713.10 addresses recording a lien on a leased property. The landlord’s property is exempt from liens if: the lease expressly prohibits liens; notice of this prohibition was recorded in the official record of the county in which the parcel of land is located and before the recording of a notice of commencement for the work; and the notice includes the lessor’s name, a legal description of the parcel, the specific no-lien language contained in the lease, and a statement that all or a majority of the leases on the property prohibit such liability.
Sound confusing? You’re not alone. Most folks seek out legal representation when confronted with these scenarios so as to better protect their interests.
If you aren’t paid and have a lien on the leaseholder’s interest, you still have a shot at recouping payment. Your lien would permit you to take over the lease, which you could then sell. Of course, someone would have to be interested in buying what could be a partially completed restaurant. It’s not an attractive proposition, though not an impossibility.
You could also foreclose your lien on the leaseholder’s interest. If you succeed, you get to move in, pay rent, and run a restaurant. Again, not a very attractive proposition. Quite often when the tenant isn’t paying for construction, they aren’t paying rent either. You may have a lien on a lease that’s in the process of being terminated, with the tenant being evicted.
So, in light of savvy property owners and tenants with uncertain lease equity, can you protect yourself and your work? Take these steps each time you consider work and you’ll be on the right track:
- Before you sign a contract, know what party hired the contractor, and who the owner is, by searching public records.
- Determine whether there’s a no-lien provision. Google the public records of the appropriate county, and then search by corporate name of the landlord or the tenant. See if they have properly recorded no-lien documentation. Know that most owners have taken steps to keep their property free and clear of liens.
- Avoid pay-when-paid or pay-if-paid clauses generally but especially when doing work on leased improvements. When your lien attaches to the lease and not the property, these clauses increase your credit risk if something goes wrong. If you are owed money, but the party paying you hasn’t been paid, a pay-when-paid clause means he doesn’t have to pay you.
- If you decide to go ahead with this type of work, send your notice-to-owner and record your lien in a timely manner. Make sure you can record your lien on something, even if there is not a lot of value in the lease. A tenant, especially a national or regional chain, will likely pay the bill rather than be evicted from the space due to a contractor dispute.
- When you sign a contract, send a demand for a copy of the lease which includes the language prohibiting liens. This is to be sent separate and apart from your notice to owner. Send by certified mail to the landlord, reference the lessee by name and address with the legal address and description of property, and include this warning: Refusal to serve the requested verified copy within 30 days, or service of a false copy, may result in your property being subject to the claim of lien by the person requesting the information. Check TheLienZone.com/Forms for assistance with this step.
Securing your work for a tenant does present some potential challenges. However, being thorough and timely with your paperwork and doing the appropriate research can go a long way toward ensuring you get paid.