The general rule of thumb when it comes to mechanics liens is: If the property is publicly owned, a lien cannot attach. This is the reason that most public works projects require a payment bond to be posted. However, there has been a legal gray area when it comes to tenant improvements on public property.
No longer! A recent Florida Court of Appeals case clarified that contractors can lien for private tenant improvements when the land is public property.
Leasehold interest liens generally
A mechanics lien is a security interest that attaches to the real property being improved. However, if the person who contracted for the improvements is a tenant as opposed to the property owner themselves, the dynamic changes a bit.
Instead of the lien attaching to the property, the lien will attach to the tenant’s leasehold interest — which, under most circumstances, may be much less valuable than a lien on the actual property. And, in other cases, it could be quite valuable — like when the lease is held by a successful business.
Dive deeper: Construction Lien Rights When a Project is a Tenant Improvement
But, as mentioned above, placing liens on tenant improvements can get particularly tricky when public property is thrown into the mix.
Thankfully, a recent decision issued by a Florida Court of Appeals helped clarify that a lien can be placed on a leasehold interest, even if the underlying property is publicly owned.
Liening tenant improvements on public property in Florida
The case in question is James B. Pirtle Construction Co., Inc. v. Warren Henry Automobiles, Inc.
- Owner: City of North Miami
- Lessor: Warren Henry Automobiles, Inc. (WHA)
- Represented by: Oscar Soto & Andrew Cobbe of Soto Law Group, P.A.
- Contractor: James B. Pirtle Construction Co. (Pirtle)
- Represented by: Adam Handfinger & Stephanie Salomon of Peckar & Abramson, P.C.
A piece of property owned by the City of North Miami was leased to Oleta Partners, LLC (a developer) who subsequently leased the property to WHA. In May of 2017, WHA entered into an agreement with Pirtle for the construction of a luxury dealership on the property in question.
Trial court dismisses lien because the property was publicly owned
Eventually, a payment dispute arose, and in January 2020, Pirtle filed a Florida mechanics lien against WHA’s leasehold interest in the amount of $4,818,455.63. WHA bonded off the lien and filed a petition to discharge the claim. At trial the court analyzed the meaning of the following provisions:
- Fla. Stat. §713.02(3): “Persons in privity with an owner and who perform labor or services or furnish materials constituting an improvement… shall have rights to a lien on real property as provided in §713.05”
- Fla. Stat. §713.05: “A contractor who complies with the provisions of this part shall… have a lien on the real property improved.”
Reading these statutes together, the trial court concluded that lien rights can only extend to “real property” which is defined to exclude “property owned by the state or any county, municipality, school board, or governmental agency, commission, or political subdivision.”
And since the claim encumbered the property itself and the City’s fee simple ownership rather than the leasehold interest, the claim was discharged. Pirtle appealed.
Appeals court reinstates lien as against the private leasehold, not the public property
The appeals court disagreed with the trial court’s interpretation of the lien statutes. First and foremost, §713.02(3) only applies when the lienor is in privity with the owner. In this case, Pirtle did don’t contract with the owner (City of North Miami), but rather a tenant. And, pursuant to §713.10, “a lien under this part shall extend to, and only to, the right, title, and interest of the person who contracts for the improvement” [emphasis added].
Thus, Pirtle’s claim can only be against the leasehold interest, not the physical property itself. The court reiterated that public entities commonly lease property to private tenants to operate their facilities, and contractors doing work for those tenants have lien rights not on the property, but on the leasehold interest of that tenant.
Leasehold liens are covered under Fla Lien Law. §713.11: “Liens for improving land in which the contracting party in which the contracting for improving real property has no interest as owner in the land, no lien shall attach to the land.”
Given this distinction, the appeals court held that the lien attached to the WHA’s leasehold interest, and not the underlying property owned by the City. WHA’s lien claim was reinstated.
This is some welcome clarification to Florida’s lien laws for both contractors on such projects and developers alike! As the court pointed out, such public property being leased to private tenants is commonplace — an obvious example being airports. When projects fall in this gray area, lien rights can be called into question, and there may be no payment bond on the project.
One last note: Liens on leasehold interests are not nearly as valuable compared to liens against the real property itself. Interestingly enough, WHA did Pirtle a favor by bonding off the claim. With the surety bond taking the place of the leasehold interest, Pirtle will likely recover the full amount secured by the claim!