Changes Afoot to The Statute Governing Construction Liens in Tenant Buildouts?
As many of you are aware, section 713.10 of the Florida Statutes governs construction lien rights on jobs where a tenant, rather than a landlord, acts as the “owner” on a construction job. In general, the statute provides lien rights only against the tenant’s leasehold interest unless the lease between the tenant and the landlord absolutely requires, rather than merely contemplates or agrees to, construction in the unit. In that case, a construction lien may actually attach to the fee simple title (absolute ownership) of the property. However, even if this requirement, called “pith of the lease,” is satisfied, a landlord can still avoid liens against its property if the lease contains a provision precluding liens and either the lease or a short form memorandum of lease containing this provision is recorded in the public records. The landlord can either record a separate lease or memo of lease on a unit-by-unit basis or record one blanket lease or memo covering all units.
A recent court case called Everglades Electric caught the attention of the Florida Bar’s Landlord Tenant Committee. In that case, the landlord tried to preclude liens by recording the single blanket memo of lease containing the provision prohibiting liens. However, the exact language of the provision contained in the memo of lease did not identically mirror the exact language of the provision in the specific lease at issue in the case, even though the general intent was the same. Therefore, the court invalidated the memo of lease and permitted the lien against the landlord’s interest. Therefore, the law established by this case is that a blanket memo of lease will only be effective if it contains the exact same language as the clause in the applicable lease prohibiting liens. This is unworkable because each lease is negotiated separately and all leases often have differences in their provisions. Similarly, the option of recording leases in the public records on a unit-by-unit basis is a problem because, once that is done for a particular unit, it creates potential title issues in subsequent sales or refinances of the unit because the world now knows there may be a tenant who may claim an interest in the unit and who could interfere with the sale or refinance.
Therefore, the Landlord Tenant Committee wanted a fix that would allow them to record a blanket form memo of lease without having to list the exact language contained in every lease. Working with the Florida Bar’s Construction Law Committee, a tentative proposed legislative bill has been drafted that would essentially let the landlord record a blanket memo summarily saying that all units in the development have lien prohibitions in their leases except the specific units that don’t and which would be identified specifically in the memo of lease. The contractor and prospective lienors would then have the right to request in writing a sworn statement from the landlord providing the exact language in the lease at issue and the landlord will have to timely respond in order to preserve its exemption from lien exposure. This proposed legislation is in its beginning phases, but looks to be gaining some momentum and after this is presented to a legislator for bill sponsorship, the Landlord Tenant Committee and Construction Law Committee will empanel a task force to discuss whether further revisions to this statute are warranted. If you’re interested in more details about the legislation these Committees are proposing or have suggestions for the task force to consider, then please let me know.