When doing work for a tenant, what rights do you have regarding placing a lien on tenant improvements? Not many, especially if the landlord/owner has incorporated lien prohibitions within the lease document.
As any construction expert will tell you, a lien is a legal claim of one person upon the property of another to secure the payment of a debt. If you’re doing work for a tenant, you are aware the tenant doesn’t own the property, and therefore your lien doesn’t attach to the real property.
Let’s make it concrete. Say you are building out a restaurant in a strip mall or an office in a high-rise building. If the tenant contracts for the work, then whether you are a supplier to the electrician or the electrician, your lien most likely attaches only to the tenant’s interest. That interest isn’t ownership – just the right to possess that space in exchange for rent. And that can do little to satisfy your need to get paid.
So how should you handle safeguarding yourself when doing work or providing materials to a tenant? First off, follow the following 5 rules precisely to secure your lien rights.
- Send any notice no later than 45 days from your first work or delivery to the project.
- Record your claim of lien no later than 90 days from your last work or delivery to the project.
- Ensure all interested parties are served within 15 days of the recording of the lien.
- Serve a contractor’s final affidavit no later than five days before you foreclose on the lien.
- File a civil action to foreclose on the lien no later than a year from the recording date of the lien.
Calculating these dates correctly can be less of a burden with Calc-U-Lien. It’s an app downloadable on your IOS or Android device that does the counting and remembering for you.
If your work in a project would be such that you have to secure lien rights in the landlord’s ownership interest in the property, the same five points listed above apply. But there’s more to do as well.
The terms of the tenant’s lease impact you as a contractor, subcontractor or supplier. Your lien will only attach to a landlord’s interest in the property if the work being performed is at “the pith of the lease.” Here’s what that means. Often when a landlord contracts with a tenant, it’s basically “You pay me rent, and in exchange you can use this space.”
If a tenant decides to build out space, and doesn’t pay contractors, liens won’t attach because there was no lease provision that required the tenant to build out the space. That wasn’t at the heart of the lease.
However, sometimes a lease spells out that, in addition to paying rent, the tenant is required to, say, build out a Class A office space. Maybe the owner gives improvement allowances to the tenant, maybe not. But if this is in a lease governing your project, your lien is attached to tenant’s interest, and the landlord’s.
Don’t take anyone’s word for what’s in the lease; ask for a copy. A landlord can keep his property free of liens, but that provision – a lien prohibition – must be attached to the lease and be in the public records. Safeguard your hard work by knowing what you are getting into if it comes down to lien recovery!
You can have your construction lawyer search public records for a lease under the legal name of the property owner. Once you have that name, which can be found on the appropriate county’s property appraiser website, search for the memorandum of lease in the county where property is located. If there is a provision preventing liens, it should be attached. If a build out is at the pith of the lease agreement, it will be there.
Remember, if you aren’t getting paid by a tenant, there’s a good chance the landlord isn’t either. If the tenant gets evicted, that would make your contract with the tenant void. Time is precious in your line of work. Taking the time to secure this information before you begin a project is far better than finding out the hard way that you have no lien to stand on beyond the tenant’s interest.
In one real-life example, a tenant built out his restaurant space. There was a dispute with a contractor, and he didn’t pay. The restaurant continued operation, but then failed a year later. The tenant defaulted on the lease, and because the landlord had included lien prohibitions, the contractor has nothing to pursue.
You can file suit against that tenant, but if they own nothing now and have disappeared; it’s an uphill battle at best. So get that lease.
Under Florida Statutes you have a right to demand a copy of the lease. The lienzone.com provides this form you can copy or download to request that lease and know for sure whether it contains a no-lien provision.
Via Certified Mail
To: Lessor (name and address)
Re: Name and Address of Lessee (“Lessee”)
Project/Property Address and Legal Description (“Property”)
YOUR FAILURE TO SERVE THE REQUESTED VERIFIED COPY WITHIN 30 DAYS OR THE SERVICE OF A FALSE COPY MAY RESULT IN YOUR PROPERTY BEING SUBJECT TO THE CLAIM OF LIEN OF THE PERSON REQUESTING THE VERIFIED COPY
This demand is served upon you pursuant to Fla. Stat. § 713.10(3). The undersigned is under contract to furnish labor, services, or materials for improvements being made by the above referenced Lessee regarding the Property referenced above. The undersigned hereby demands a copy of the provision in the lease between you and Lessee prohibiting liability for improvements made by the Lessee to the Property, which copy shall be verified under Florida Statute, § 92.525. Reimbursement for reasonable copy costs is recognized.
(Contractors signature and address)
If you send this request and don’t receive a verified copy within 30 days, you can terminate your contract. Be aware of other red flags as well. Avoid pay-when-paid and pay-if-paid provisions. If a contractor isn’t paid by the tenant, and tenant defaults on the lease, you have no one to go after. You can’t sue the contractor, as they aren’t in breach. You can’t sue the tenant, because the lease is now void.
As a supplier, if you have no other security than the tenant’s lease, this may a create risk you can’t afford to take. One other option is to obtain a project-specific personal guarantee, if you can get the tenant to sign off.
Whatever decision you make on taking a job with a tenant, make it with your eyes wide open, understanding your rights and potential pitfalls after discussing your options with your construction lawyer. Your work is worth it.