What Construction Professionals Need to Know When Performing Work on Commercial Real Estate
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Construction professionals performing work for tenants in a commercial properties face unique challenges. The construction professional doesn’t want to pass up a good job, but his or her lien rights are limited. As a result, construction professionals want to make sure that they understand how Florida’s already complicated lien law is made even more so when performing work for the lessee of commercial real estate.
The Dilemma of Performing Work for Tenants
Under Florida Statute § 713.10, a construction lien extends only to the right, title and interest of the person who contracts for the improvements to the property. When performing work for a tenant of commercial real estate, that means the lienor only has lien rights as to the tenant’s leasing interest in the property. In that situation, an unpaid construction professional who records a lien for his or her work, files suit to foreclose the lien, obtains a judgment, and forecloses his lien, the lienor just steps into the lessee’s shoes as a tenant of the property, subject to all of the terms of the tenant’s lease, including the obligation to pay rent. Therefore, a lien in such a situation does not provide the lienor with nearly as strong security for payment as when the lienor is performing work directly for the owner of the property.
The Exception to Owners’ Exemption from Claims of Lien…
And the Exception to that Exception
But, under § 713.10, if the tenant hires a construction professional to perform work that is required under the lease with the landlord, the lien will extend to the landlord’s interest in the property. However, the landlord can avoid this situation if it records a specific notice in the public records, exempting it from lien liability, and the lease states that the landlord’s interest is exempt from liens.
Best Practices for Construction Professionals
Performing Work for Tenants of Commercial Real Estate
Since almost all commercial landlords require their leases to contain an anti-lien provision, and also record the proper notice of exemption, the lienor performing construction work for a tenant in a commercial property faces special challenges. Most importantly, the construction professional needs to understand and accept going into the job that he or she will likely not be able to obtain a lien for their work against the real property itself, and should tailor their contracts accordingly or otherwise ensure adequate security for payment.
Even if the landlord appears to have exempted its property from claims of lien, construction professionals should still make sure to properly perfect their lien rights, in case the landlord did not properly perfect its lien exemption. That means the potential lienor needs to follow all requirements under Chapter 713 of the Florida Statutes, including complying with all deadlines. This includes serving a Notice to Owner on the landlord and/or owner of the property, in addition to the tenant who has hired the construction professional. If the potential lienor finds itself with the ability to record a valid claim of lien against the real property and not just the tenant’s interest, the failure to provide the actual owner of the entire premises with a Notice to Owner will be fatal to the lien rights.
Importantly, and pursuant to § 713.10, the potential lienor should also serve the landlord/owner with a written demand from the landlord/owner for a copy of the provision of the tenant’s lease prohibiting the landlord’s liability for improvements to the premises made by the tenant. The potential lienor must make sure that the demand contains the warning language required by § 713. 10, in conspicuous type. After receiving such a demand, if the landlord/owner fails to provide the potential lienor with a verified copy of the lease provision within thirty days of the demand, the owner’s interest will be subject to otherwise properly-perfect claims of lien.
Lastly, a savvy contractor performing work directly for a tenant of a commercial property will ask the landlord to sign the Notice of Commencement. While a smart landlord will know not to sign the Notice, an uninformed or inattentive landlord may sign it. By signing the Notice, the landlord is opening the door for later claims by unpaid lienors who have otherwise perfected their liens to credibly argue that the landlord asked their work to be done and is responsible for paying them, especially if the landlord/owner has not complied with the requirements to exempt its property form claims of lien.
A construction professional will often finds his or her work on commercial real estate exempt from claims of lien. Nonetheless, all potential lienors performing construction work for commercial tenants should understand their rights under Florida’s lien law. And, in addition to tailoring their contracts with tenants to account for this reality, construction professionals should utilize all means at their disposal to try and obtain lien rights against the real property, and not just the tenant’s interest in it.