Avoiding Construction Liens Caused by Your Tenant

Florida landlords are often alarmed to learn their interest in their properties can be encumbered by liens arising from a tenant’s construction activities, even if the landlord was not involved in, or aware of, the work.

Upon a sale of the property, the risk of tenant-initiated construction liens can become a real problem for a potential buyer’s title underwriter, adding unexpected complexity and delays to the transaction.

Informed landlords can attempt to limit the impact of tenant-initiated construction by taking the following steps:

1. Ensure all leases contain a prohibition on construction liens
The lease should contain more than a mere covenant by the tenant to satisfy any construction liens. It should expressly state that liens filed by a tenant’s contractor do not attach to the landlord’s interest in the property.

2. Record a Notice of Limitation on Construction Liens in the Official Records
In addition, a memorandum containing the lease’s construction-lien language, or a single notice applying to all of the leases in a building, must be recorded in the official records prior to the tenant’s notice of commencement.

3. Deliver the lease’s construction-lien language to the general contractor
Pursuant to F.S. 713.10(3), if a tenant’s contractor serves a written demand upon the landlord for a copy of the construction lien provisions in the lease, and the landlord fails to comply in a timely manner, the landlord’s interest becomes subject to the contractor’s construction liens.

To counteract this risk, the landlord should preemptively deliver a copy of the lease’s construction lien provisions to the general contractor and, thereafter, to any party who furnishes a notice to owner to the landlord. Ideally, the lease provisions would be verified by an affidavit signed by the landlord. The delivery should be appropriately documented (e.g., certified mail, return receipt requested).

4. Require contractors to waive the right to demand a verified copy of the lease
As an alternative to Step #3, require all general contractors (and other parties who provide a notice to owner) to waive any right to serve a written demand on the landlord pursuant to F.S. 713.10(3). This requirement should be included in the lease.

By following this process carefully, property owners can put themselves in the best position to defend any claims filed by a tenant’s contractor and satisfy a buyer’s title underwriter without any further work at closing.

Kyle D. Elliott can be reached at (941) 329-6618 or [email protected].