How Contractors Can Protect Their Lien Rights When Working on Leased Property
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When construction contractors in Florida are hired by a tenant to work on leased property, those contractors must understand their construction lien rights. In certain circumstances, those construction lien rights may not be as robust as the contractor thinks. This blog will provide an overview of a contractor’s lien rights when the contractor is not in privity with the owner, as well as the impact of James B. Pirtle on those rights. Part 2 of this series will instruct owners on how they can best protect their property interests when a tenant engages a contractor to make improvements to their property.
James B. Pirtle Construction, Co., Inc., v. Warren Henry Automobiles, Inc.
In James B. Pirtle, Warren Henry Automobiles (“WHA”) challenged a construction lien recorded by James B. Pirtle Construction, Co. (“Pirtle”). WHA, a sub-subtenant, contracted with Pirtle for improvements to WHA’s car dealership. Pirtle recorded a claim of lien against WHA’s leasehold interest.
The trial court found that Pirtle’s construction lien was invalid because the owner of the real property was the City of North Miami, since real property owned by a municipality is exempt from liens under Florida law. However, the appellate court reversed the trial court’s decision, finding that Pirtle’s construction lien was valid, but not to the extent that Pirtle contended. The appellate court found that while Pirtle was not in privity with the owner, Pirtle still had a valid construction lien against the tenant’s leasehold interest.
The court found that section 713.10, Fla. Stat., applies to construction liens where there is no privity between the contractor and the property owner. James B. Pirtle at 2. Section 713.10(1) states that a lien “shall extended to, and only to, the right title, and interest of the person who contracts for the improvement as such right, title, and interest exists at the commencement of the improvement or is thereafter acquired in the real property.” Based upon the foregoing, the court in James B. Pirtle found that contractors doing work for private tenants of states and municipalities “have lien rights not on the property, but on the leasehold interest of that tenant.” Id. at 3.
This decision in James B. Pirtle is significant for contractors because it ensures that a contractor has lien rights when contracting with a tenant (even if the construction work is on public property). In addition, the holding provides guidance for contractors on how they may assert their lien rights against a tenant’s interest.
Contractor’s Construction Lien Rights
Under Florida law, certain persons performing construction work on real property may assert a claim of lien against the property on which they perform work. However, a contractor’s lien rights do not always mean the contractor has a claim of lien against all of the real property or the owner’s interest in it.
Under section 713.10(1), Fla. Stat., a construction lien can extend only to the “right, title, and interest of the persons who contracts for the improvement, as such right, title, and interest exists at the commencement of the improvement.” Meaning, if the person contracting for the improvement is a tenant under a lease, the construction lien can extend only to the party’s leasehold interest. Additionally, contractors should be aware that under section 713.10(2), Fla. Stat., a lease agreement can provide that “the lessor shall not be subject to liens for improvements made by the lessee.”
Though the Florida statutes include specific language designed to protect property owners from lien claims, James B. Pirtle provides that even where the property owner is not subject to a lien for improvements contracted for by a tenant, a contractor still has lien rights. A contractor can assert those lien rights by making a claim of lien against the lessee’s interest in the property. In effect, the contractor has lien rights against the tenant and the tenant’s leasehold interest, not against the property owner.
Notwithstanding the holding in James B. Pirtle, there are scenarios when a contractor can assert lien rights against the lessor. First, when the improvements made by the tenant are the pith of the lease. And, when the terms of the lease require the tenant to make the improvements. Brenner v. Smullian, 84 So.2d 44, 45–46 (Fla. 1955). Improvements are typically determined to be the pith of the lease when the terms of the lease are clear that both parties contemplated the improvements upon the property and, without them, the lease would not have been executed. Anderson v. Sokolik, 88 So.2d 511, 514 (Fla. 1956). For contractors who contract with a tenant, it is important to review the lease agreement to determine whether the parties contemplated the improvements and if the purpose of the lease was for those improvements to be made.
Additionally, when a lessee makes improvements to a property pursuant to an agreement between the lessee and a lessor, a contractor’s lien extends to the interest of the lessor. See Section 713.10(1), Fla. Stat. In practice, this means that a contractor, when contracting with a tenant, must determine whether the lessee is contracting for the work pursuant to an agreement with the property owner or is undertaking the improvements on the tenant’s own accord. A contractor can attempt to make this determination by:
- Inquiring whether the individual or company they are being engaged by is the property owner or a tenant.
- Requesting a copy of the lease agreement to determine whether the lease includes language disclaiming liability under Section 713.10(2), Fla. Stat.; James B. Pirtle at 3.
- Conducting a property records search to determine or verify ownership of the property the contractor is being engaged to improve.
The above questions and inquiries, while not an exhaustive list, can help contractors to determine the viability and extent of their construction lien rights. These inquiries will help contractors determine the property interest of the engaging party and the extent of the property interest to which the contractor’s construction lien may attach.
Construction liens are an important tool for contractors in Florida to secure compensation for their work. When engaged by a tenant or sub-tenant to make improvements to a property, it is important that contractors understand their lien rights against the property they will be improving. When engaged by a tenant, rather than the property owner, a contractor should consult an experienced construction attorney to ensure their interests are adequately protected and their claim of lien is made against the proper interest.
- James O. Birr, III
- Maxwell Salain, JD Candidate