CONTRACTOR RECOVERS ITS OUTSTANDING BALANCE OWED UNDER CONSTRUCTION CONTRACT WITH TENANT FROM LANDLORD
By: Leandro E. Lissa, Esq., Stearns, Roberts & Guttentag, LLC
In Florida, a successful claim for unjust enrichment requires proof that: (1) the plaintiff has conferred a benefit on the defendant; (2) the defendant has knowledge of the benefit; (3) the defendant has accepted or retained the benefit conferred; and (4) the circumstances are such that it would be inequitable for the defendant to retain the benefit without paying fair value for it.
In 14 th & Heinberg, LLC V. Terhaar and Cronley General Contractors, Inc., 2010 WL 464416 (Fla. 1 st DCA 2010), a final judgment was entered against 14 th & Heinberg, LLC, the owner/landlord of a retail shopping mall, on the claim for unjust enrichment brought by Terhaar & Cronley General Contractors, Inc. ("Contractor"), alleging that Landlord had been unjustly enriched by leasehold improvements made by Contractor to a retail space that was leased by Montgomery Ward Corporation ("Tenant") from Landlord.
In December 2000, after Contractor had completed the improvements, Tenant sought protection under chapter 11 of the federal bankruptcy code. Landlord terminated its lease with Tenant in June 2001, and the retail space, as improved by Contractor, was leased to another entity at a rental rate substantially greater that the rent paid by Tenant. At the time the lease was terminated, Contractor had not been fully paid for the improvements, and a balance of $183,749.38 remained under the construction contract with Tenant. Contractor was ultimately paid approximately $67,000.00 in the bankruptcy proceeding.
Contractor subsequently filed suit against Landlord seeking to foreclose its construction lien and seeking damages on a claim for unjust enrichment. While the trial court had originally granted summary judgment in the Contractor's favor in the lien claims, the District Court reversed, holding that Landlord's property could not be subject to Contractor's liens for the Tenant improvements because the lease between Landlord and Tenant did not require Tenant "to make the improvements and because the improvements did not constitute the pith of the lease."
However, Contractor prevailed on its unjust enrichment claim against Landlord at trial. The trial court entered judgment in favor of the Contractor and awarded damages in the amount of $116,680.86, plus prejudgment interest in the amount of $98,846.30. The damage award represented the outstanding balance owed to Contractor under the construction contract between Tenant and Contractor. The landlord appealed the final judgment entered against it.
The appellate court agreed with the trial court's decision that the circumstances under which Landlord had retained and accepted the benefit of the work were such that it would be inequitable for the Landlord to retain the benefit of the work without paying the value thereof to Contractor, and that the Landlord would be unjustly enriched if not required to pay the remaining balance of the reasonable value of the work provided to the subject property of the Contractor. The court explained that a claim for unjust enrichment is an equitable claim based in a legal fiction which implies a contract as a matter of law even though the parties to such an implied contract never indicated an agreement existed between them.
This case demonstrates that while, in certain circumstances, a landlord may shield its interest in the property against liens arising out of tenant improvements by not requiring improvements under the lease, or by recording, in the public records, a document prohibiting construction liens from attaching to the landlord's interest, the landlord may still be liable to the tenant's contractor for damages under the remedy of unjust enrichment, where the contractor's work confers a benefit upon the landlord's property such that it would be inequitable for the landlord to retain the benefit without paying the contractor.
About the Author: Leandro E. Lissa is an Associate with Stearns, Roberts & Guttentag, LLC Mr. Lissa's practice concentrates primarily in the area of construction related matters, including litigation, arbitration and mediation of construction disputes, lien claims, and construction defect claims and defense. He can be reached for consultation at email@example.com. For more information visit www.stearnsroberts.com.