New Challenges to Protecting a Landlord’s Interest from its Tenants’ Creditors – March 2010

Mar 10, 2010

March 10, 2010
Mark F. Grant, Esq. and Elizabeth L. Somerstein Adler, Esq.

A bright-line test guided the recent decision, Everglades Electric Supply, Inc., v. Paraiso Granite, LLC, wherein the Fourth District Court of Appeals gave an extremely strict and narrow interpretation of the anti-lien provision of Florida’s Construction Lien Law. Fla. Stat. § 713.10 (2009).

Section 713.10, Florida Statutes (2009), concerns the extent of a construction lien filed under the law, and in relevant part reads:

[A] lien under this part shall extend 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…[w]hen an improvement is made by a lessee in accordance with an agreement between such lessee and her or his lessor, the lien shall extend also to the interest of such lessor.

Section 713.10 further details three ways in which a lessor can protect its fee interest from the attachment of liens based on improvements made by the lessee. The Statute reads that the lessor must do one of the following:

(1) The lease or a short form [lease] is recorded in the clerk’s office and the terms of the lease expressly prohibit such liability; or

(2) All of the leases entered into by a lessor for the rental of premises on a parcel of land prohibit such liability and a notice which sets forth the following is recorded by the lessor in the public records of the county in which the parcel of land is located:

(a) The name of the lessor.
(b) The legal description of the parcel of land to which the notice applies.
(c) The specific language contained in the various leases prohibiting such liability.
(d) A statement that all leases entered into for premises on the parcel of land contain the language identified in paragraph (c).

(3) The lessee is a mobile home owner who is leasing a mobile home lot in a mobile home park from the lessor. Fla.Stat. § 713.10 (2009) (emphasis added).

The subject of discussion in Everglades centered around the above noted protective provisions (1) and (2) of § 713.10: a memo of lease with the exoneration provision contained in the lease or a blanket notice with an exoneration provision and the statement that the provision appears in all leases.

In Everglades, a shopping center Landlord entered into a lease containing an exoneration clause for one of its units. The Landlord then exercised § 713.10(2) Fla. Stat. and recorded a blanket notice with an exoneration provision, indicating that all of the leases in the shopping plaza contained the recorded exoneration provision. According to the express terms of the Statute, the exoneration provision of the blanket notice must conform to the specific terms of the exoneration provisions of the various leases covered by the notice. The Lienor (a sub-subcontractor of the Tenant) made its point clear: the Landlord failed to comply with § 713.10(2) because not every lease signed by the Landlord contained the same specific exoneration language contained in the recorded notice. The Court agreed. Rejecting the notion of substantial compliance, the Court found the blanket notice void, thus subjecting the Landlord’s fee interest in the shopping center to the lien claim for Tenant’s work filed by the sub-subcontractor. The Court further expounded on the scope of the blanket notice; notably, the Court strictly construed the blanket notice to be effective both prospectively and retroactively, thus applying to those leases entered into after and before the recording of the blanket notice.

Lessons to learn:

Be aware of the scope of a blanket notice – the Court determined that the blanket notice would apply not only to prospective leases, but would also retroactively apply to those leases entered into prior to filing the blanket notice. As per the Court’s suggestion, consider taking advantage of § 713.10(1): recording short-form leases until any non-conforming leases are no longer in effect. At that point, a recorded blanket notice has the ability to be consistent with all leases. Alternatively, the blanket notice should contain all forms of the provision which restricts liens by tenants’ contractors; in that case consider specifically identifying which lease spaces contain which provision.

Consistency in language matters – even a slight variation in the language could nullify the ability to opt out of the protections afforded under the Statute. Many landlords file § 713.10(2) blanket notices without undertaking to determine if all leases contain the exact exoneration clause set forth in the notice. Conduct an audit of your leases and form of memorandum(s) that you have recorded to confirm whether or not they strictly comply with § 713.10.

If you have any questions regarding your property and the potential benefit by an exemption pursuant to Fla. Stat. § 713.10(1)-(3), contact Mark Grant, Esq., [email protected], or Elizabeth Somerstein, Esq., [email protected], 954-491-1120.

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New Challenges to Protecting a Landlord’s Interest from its Tenants’ Creditors – March 2010

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