Understanding a Contractors’ Lien Rights on a Leased Property

Understanding a Contractors’ Lien Rights on a Leased Property

Construction liens are just one of the many security interests a property can be burdened with.

July 28, 2022

According to Florida construction law, contractors who provide materials or work on a property and are not paid in full by the owner have the right to enforce their claim through a construction lien. But what about work that’s performed on a leased property? Do the same lien rights apply? Does the contractor pursue the building’s owner or the tenant for relief?

Though Florida’s construction law concerning liens is generally considered unwieldy, it’s also acknowledged to be highly effective. Here’s what contractors need to know.

What Are Contractor Lien Rights in Florida?

Construction liens are just one of the many security interests a property can be burdened with. Other examples are voluntary liens like mortgages and involuntary liens like those on raising crops or pest control. Construction liens, though, are among the most common. Unfortunately, they’re also among the most complex. Florida’s lien law contains nearly 50 sections and just under 30,000 words, about the same as the number of words in Steinbeck’s Of Mice and Men.

Formerly known as a mechanic’s lien, a contractor’s lien allows contractors to enforce subcontracts and purchase orders directly against a property owner, even though the owner is not “in privity” or part of the contract between a lessee and the contractor. However, if the landlord or property owner has what’s known as anti-lien provisions in their lease with the tenant, a contractor may discover their lien rights are severely hampered.

The Basics of Landlords’ Lien Liability

Section 713.10 of Florida’s lien statute says that a construction lien extends only to the right, title, and interest of the person who contracts for the improvements to the property. In many cases, that means the property owner, but in a commercial setting, it’s often a tenant who engages a contractor for improvements, refurbishments, and build-outs. In those cases, the landlord would not be subject to a construction lien.

However, there is one exception to this rule. When a tenant improvement is made under an agreement with the landlord, the construction lien can extend to the landlord’s interest in the property. In other words, if the landlord makes specific improvements a condition of the lease, effectively “ordering” the tenant to hire a contractor, they can be held responsible if the tenant fails to compensate the contractor.

Applicable Construction Law Re Contractor Lien Rights

The case law most frequently cited in contractor lien rights is James B. Pirtle Construction, Co., Inc., v. Warren Henry Automobiles, Inc., and it’s a complicated one.

The disagreement arose over the planning and development of a city-owned property in North Miami that had been leased to developer Oleta Partners LLC as a sub-landlord. Oleta and Warren Henry Automobiles later entered into a ground sublease for a share of the property on which a luxury auto dealership would be constructed and operated.

Warren Henry Automobiles then assigned the ground sublease to another company known as CARS-DB4 L.P., which itself conveyed a leasehold interest in the property to Warren Henry. In other words, Warren Henry became a lower-tier sub-sub-tenant to CARS-DB4.

Henry Automobiles eventually entered into a deal with contractor James B. Pirtle Construction Co. to build the dealership. When a payment dispute arose between the two parties, Pirtle filed a $4.8 million lien against Warren Henry’s leasehold interest. Warren Henry Automobile, however, argued the lien was both improper and invalid, as the city of North Miami owned the land and, in Florida, you can’t place a lien on public land.

As the case worked its way through the court system:

  1. The trial court found Pirtle’s construction lien was invalid due to the land being owned by the city.
  2. The appellate court reversed the trial court’s decision and found Pirtle’s lien was valid, but only to a certain extent.

The appellate court noted that section 713.10 of the lien statute applies to construction liens where there’s no privity between the property owner and the contractor. Thus, the contractor (Pirtle) who was doing work for a private tenant of a municipality did have lien rights, not on the property, but “on the leasehold interest of the tenant.” For contractors, this ruling is significant in that it ensures they have lien rights when contracting with a tenant, even if the construction work is on public property.

Your Rights As a Contractor

Despite the court’s decision in Pirtle, there are some instances when contractors are entitled to assert lien rights against a lessor, including:

  • When the improvements made constitute the “pith” or essence of the lease agreement.
  • When the terms of the lease require the tenant to make the improvements.

To protect their interests, contractors who enter into an agreement with a tenant should review the tenant’s lease agreement to determine whether the tenant and the property owner contemplated the improvements and if a goal of the lease was to have those improvements made. A contractor should also ask if the individual or company seeking to engage them is the property owner or a tenant and conduct a property record search to verify property ownership.

As most contractors are not lawyers, it’s essential to have any lease or contractor agreement reviewed by a lawyer well-versed in construction liens and Florida’s construction law. Doing so ensures you understand your lien rights against the property before entering into a contract and protects you if you need to make a claim of lien. Munizzi Law Firm can advise you on construction law in general and your lien rights on a leased property specifically. Contact us today to learn more or schedule a consultation.

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