January 30, 2012

Changes to Lien Laws Create Opportunities for Contractors and Pitfalls for Owners

Holland & Knight Alert
Michael R. Candes | Christopher C. Brockman

For almost 50 years, lessors have had the ability to limit their liability for liens that arose from improvements to the leasehold made by a lessee.1 This limitation of liability was accomplished by the recording of the actual lease, a short form of the lease, or a filing stating that all leases entered into by a lessor contain a clause stating that the interest of the lessor shall not be subject to liens for improvements made by the lessee (“blanket filings”). However, in the most recent legislative session, the Florida Legislature enacted revisions to Florida Statute § 713.10 that provide a potential pitfall for lessors by inserting a provision that may allow a contractor to lien the lessor’s interest even where there is a recorded document advising of the limitation of liens.

The previous version of § 713.10 only required that the appropriate filings be made to limit the liability of the lessor. Now, however, the lessee’s contractor or subcontractors can serve a proper2 written demand on the lessor for a copy of the provision in the lease prohibiting liability for improvements made by the lessee. The lessor must deliver a verified3 copy of the lease provision which prohibits lien liability within 30 days after the demand. If the lessor does not respond within the 30 days, or the lessor serves a fraudulent copy of the provision, then the lessor’s interest in the property could be subject to a lien despite the recorded limiting provision. The contractor or lienor otherwise must have complied with the lien laws, including providing the requisite notice to owner to the lessor within 45 days from the commencement of work,4 and must not have had actual notice that the interest of the lessor was not subject to a lien for the improvements made by the lessee. Thus, an otherwise protected lessor may unwittingly subject their property to a lien, and potential foreclosure, simply by failing to respond to this written demand.

Additionally, the Legislature amended the blanket filings provision of § 713.10. Previously § 713.10(2) allowed a lessor that includes the same limitation provisions in all leases to provide notice to all contractors and lienors on all properties by filing a notice that only required:

  1. the name of the lessor
  2. the legal description of the parcels of land to which the notice applies
  3. the specific language contained in the leases prohibiting liability
  4. a statement that all leases entered into for the premises contain the language identified in paragraph (c)

The statute still allows for blanket filings to cover all properties, but the statute now requires “a notice advising that leases for the rental of premises on a parcel of land prohibit such liability” and “d. a statement that all or a majority of the leases entered into for premises on the parcel of land expressly prohibit such liability.” These are somewhat subtle changes that otherwise may go undetected and if not included in the recorded notice could result in the same being declared void.

Finally, the Legislature clarified that any filing must be made prior to the filing of a notice of commencement in order to be effective. This new requirement forces a lessor to be ahead of the issuance of the construction permit and reinforces the best practice of filing the lease, memorandum of lease, or blanket filings as soon as the lease is executed.

Recommendations for Lessors

  • Immediately record the lease, the memorandum of lease, or blanket provision covering all leases as soon as any lease is executed and be sure that the lease contains a prohibition against liability.
  • File new blanket filings for all new leases going forward that comply with the new statutory provisions.
  • Provide a verified response to any written demand for a copy of the provision in the lease prohibiting liability for improvements within 30 days.
  • Include a clause in all leases: “Lessee shall notify in writing any contractor or lienor making any improvements or engaging in any maintenance that this Lease contains this provision prohibiting liability of the Lessor for any lien, claim of lien, or notice of non-payment pursuant to Florida Statute § 713.10(1). Lessor shall provide a copy of such notice to Lessor.” If the lessee actually complies with this provision, then this written notice should supply the “actual notice” needed to defeat any claims that arise under § 713.10(3).
  • Be sure the indemnification provision covers any damages incurred due to the lessee’s failure to give the above notice or any resulting liens and requires the lessee to satisfy and remove all liens placed on the property.
  • Whenever a lessor is asked to execute a notice of commencement or sign a permit application, immediately record the lease, a memorandum of lease, or a blanket filing before signing the notice of commencement or signing the permit application.
  • Include a notation in any notice of commencement executed for the lessee’s improvements stating: “This property is leased and the lease prohibits any liability by the Owner for any liens, claims of liens, or claims of non-payment which may arise from the work under this Notice of Commencement.” Such a provision may supply the “actual notice” needed to defeat any claims that arise under § 713.10(3) for any contractor that relies upon the notice of commencement to gather the information necessary to serve the required notice to owner.
  • Require the lessee to post a statutory payment and performance bond.
  • Require the lessee to furnish copies of all releases of liens.

Recommendations for Contractors

  • Do not assume that these changes to § 713.10 will protect your interests. There are many opportunities for a lessor to defeat your claim. Understand your lien rights and which property interests can be subjected to liens prior to contracting.
  • Make a demand for a copy of the provision in the lease prohibiting liability for improvements made by the lessee on every project.


 

1 Lessors were always, and are still today, liable for liens when the improvements were made in accordance with an agreement between the lessee and the lessor or if the improvements were the "pith" of the lease.

2 The written demand must include the requisite "Warning" as provided for in § 713.10(3).

3 The verified response must be made under oath before a notary public or must include a written declaration stating: "Under penalties of perjury, I declare that I have read the foregoing [document] and that the facts stated in it are true," followed by the signature of the person making the declaration, except when a verification on information or belief is permitted by law, in which case the words "to the best of my knowledge and belief" may be added. The written declaration shall be printed or typed at the end of or immediately below the document being verified and above the signature of the person making the declaration.

4 § 713.06(2).

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