Construction Liens on Tenant Leases

A construction lien is a strong tool to ensure payment for contractors.  Many contractors do not know the difference between liens on an entire property (fee simple, in legal terms) and a lien on a tenant’s lease.  If you perform work for tenants, this is an important newsletter for you.

In a recent case, our client-contractor was involved in a payment dispute with the tenant who hired it to perform the work.  The contractor had its “notice to owner” company record a construction lien on the owner’s property, but not against the tenant (a leasehold lien, in legal terms).  The owner, however, had recorded a “memorandum of lease prohibiting liens” alerting all contractors that the lease prohibited liens on the owner’s property, and a lien was only available on the tenant’s lease.  The contractor discovered this prohibition after the 90-day deadline to record liens expired.  The contractor’s lien against the owner had to be discharged, and the contractor was left with a simple breach of contract claim against the tenant with no leverage, no security to be paid and no reimbursement of attorneys’ fees.

If a lien against the lease is valid, it places the tenant under a great deal of pressure.  It often places the tenant in breach of the lease, and assuming tenant needs to stay at the premises, it becomes a powerful bargaining chip for the contractor.

With this in mind, it is important for any contractor contracting with a tenant to review the public records in the county where the property is located to confirm that the property owner has not prohibited liens on its property for tenant improvements.

Contractors must also make sure they are following Florida’s strict deadlines for construction liens.  Most contractors know about the deadlines for serving a notice to owner and claim of lien, but there are other obligations on the contractor.  For example, if an owner serves a contractor with a “request for sworn statement of account,” the contractor must appropriately complete the sworn statement and respond within 30 days after the demand; otherwise, the lien is no longer valid.  Also, if an owner serves the contractor with notice that it is contesting the contractor’s claim of lien, the statute of limitations for a lien foreclosure action is shorted from one year to 60 days. 

If required to serve a document on the owner (or any other party) under Chapter 713, the contractor should serve it at every address the contractor can find.  It should also make sure that all claims of lien capture the value of the work it actually provided under the contract.  Claiming a lien for work not done or work outside of the contract may subject the contractor to a fraudulent lien claim and/or defense, which not only jeopardizes the lien but also exposes the contractor to potentially paying the owner’s attorneys’ fees.

Construction lien rights can be incredibly valuable, but they are also susceptible to pitfalls.  It is important to speak to an attorney if you have any questions about your lien rights, the value of your claim, or the mechanics of Chapter 713.