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Posted on July 23, 2011July 23, 2011 by Edward Garber

Craigside, LLC v. GDC View, LLC, 36 Fla. L. Weekly d1577e (Fla. 1st DCA 2011) is another case dealing with a buyer of a preconstruction condominium unit trying to recover its deposit from a developer/seller. In this case, the preconstruction contract was entered on September 2, 2004. The buyer tendered an initial deposit and then paid the balance of the purchase price on a later date. The purchase price of the unit was paid prior to the commencement of construction on the unit. The contract required the developer “to complete the condominium unit…within two (2) years of the date of this Agreement but in no event later than May 1, 2007.” The contract allowed for extensions only for “delays caused by events which would support a defense based on impossibility of performance for reasons beyond [the seller’s] control.”

The seller sent the buyer a letter advising that closing was anticipated for May 1, 2007. In response, the buyer sent the seller a letter on April 16, 2007 (notably, more than two years from the date of the contract) notifying the seller that the seller failed to complete the condominium unit per the agreement and further demanding a return of the purchase price. The seller refused to return the initial deposit, although it returned the additional deposit (balance of purchase price).

An issue at trial was the number of days the seller was entitled for delays to the completion date of the unit — these days allowed the seller to extend the completion date of the unit. The trial court granted the seller 253 days of delay, but unfortunately, this case does not discuss the basis for the delays. An understanding of these delays are critical because these delays allowed the seller to complete the unit more than two years from the date of the preconstruction contract.

The First District affirmed the trial court holding that the buyer committed an anticipatory breach of the contract by notifying the seller that it was not going to close on May 1, 2007 and demanding its money back. The First District explained:

“In dealing with anticipatory repudiations the law is clear that a repudiation gives rise to a claim for damages by the nonbreaching party. As stated in Restatement (Second) of Contracts § 253 (1979):

(1) Where an obligor repudiates a duty before he has committed a breach by non-performance and before he has received all of the agreed exchange for it, his repudiation alone gives rise to a claim for damages for total breach.

(2) Where performances are to be exchanged under an exchange of promises, one party’s repudiation of a duty to render performance discharges the other party’s remaining duties to render performance.

Therefore, the nonbreaching party is relieved of its duty to tender performance and has an immediate cause of action against the breaching party.”

In other words, because the buyer notified the seller that it was not going to close on the unit, the buyer committed a breach of the contract. This decision provide crucial because it authorized the seller to keep a substantial initial deposit as liquidated damages associated with the buyer’s refusal to close on the unit. This case reinforces the position that a buyer seeking to avoid closing on a unit takes a certain degree of risk by not closing (i.e, that risk being a loss of its deposit). For this reason, it is important that this business decision is made with the input of an attorney to ensure all arguments are preserved and understood. In this case, the fundamental issue was how many days the seller was given to extend the completion of the unit. While the case did not discuss this issue in any detail, these days put the buyer in the position that when it notified the seller it was not going to close on the unit, the buyer breached the contract allowing the seller to retain the deposit and resell the unit to another buyer.

For more information on preconstruction contracts and recovering deposits, please see: https://floridaconstru.wpengine.com/preconstruction-and-purchase-sale-contracts-arguments-to-revoke-the-contract-and-recover-the-deposit/

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

OWNERS DON’T FORGET ABOUT SERVING A REQUEST FOR SWORN STATEMENT OF ACCOUNT

Posted on July 17, 2011July 17, 2011 by Edward Garber

Owners undertaking a construction project are always concerned about construction liens from subcontractors, sub-subcontractors, and suppliers that preserved their lien rights by serving a notice to owner in accordance with Florida’s Lien Law (Florida Statutes Chapter 713) (“Lienors”). One way an owner alleviates this concern is by requiring the contractor to obtain a payment bond so that its property is exempt from construction liens from Lienors. See Fla. Stat. §713.23. However, payment bonds do not protect the owner’s property from the general contractor’s lien.

Unfortunately, payment bonds are not always feasible or economical. While the contractor procures the payment bond, it is the owner that pays the premium for the bond. Sometimes an owner does not want to or is not in a position to pay this premium, which could be substantial depending on the cost of the project. In these circumstances, the owner’s property is subject to construction liens from Lienors. Anyone involved in construction knows that it is very difficult to construct a project without there being some form of a payment dispute involving Lienors.

When an owner receives a lien, or if it presumes a lien could be forthcoming from a Lienor, the owner should serve a request for a sworn statement of account BEFORE the lienor forecloses on its lien. Florida Statute §713.16 provides in material part:

“(2) The owner may serve in writing a demand of any lienor for a written statement under oath of his or her account showing the nature of the labor or services performed and to be performed, if any, the materials furnished, the materials to be furnished, if known, the amount paid on account to date, the amount due, and the amount to become due, if known, as of the date of the statement by the lienor…The failure or refusal to furnish the statement under oath within 30 days after the demand, or the furnishing of a false or fraudulent statement, deprives the person so failing or refusing to furnish such statement of his or her lien….

(3) A request for sworn statement of account must be in substantially the following form:

REQUEST FOR SWORN STATEMENT OF ACCOUNT

WARNING: YOUR FAILURE TO FURNISH THE REQUESTED STATEMENT, SIGNED UNDER OATH, WITHIN 30 DAYS OR THE FURNISHING OF A FALSE STATEMENT WILL RESULT IN THE LOSS OF YOUR LIEN.

To: (Lienor’s name and address)

The undersigned hereby demands a written statement under oath of his or her account showing the nature of the labor or services performed and to be performed, if any, the materials furnished, the materials to be furnished, if known, the amount paid on account to date, the amount due, and the amount to become due, if known, as of the date of the statement for the improvement of real property identified as (property description) .”

Besides getting verification as to how much the Lienor swears they are owed as of the date of the sworn statement of account, importantly, a Lienor that does not timely provide this sworn statement of account within thirty days could be deprived of its lien. In other words, this tool allows an owner to catch an unsuspecting Lienor (or even the contractor if served on the contractor) off guard that neglects to treat this request for a sworn statement of account seriously. The loss of a construction lien to a Lienor is a huge loss!

The owner is not limited to serving only one request for a sworn statement of account. The law simply provides that if the owner serves more than one request on the same Lienor “and none of the information regarding the account has changed since the lienor’s last response to a demand, the failure or refusal to furnish such statement does not deprive the lienor of his or her lien.” Fla. Stat. 713.23. For this reason, there is nothing wrong with an owner serving a request for a sworn statement to those Lienors that served a notice to owner at some point or points during the course of the construction project, and in most cases, this is very good practice. While the owner could technically serve one upon its receipt of each of the contractor’s applications for payment, this could be an administrative burden and not always practical. (There are other methods an owner can utilize to ensure it is protected from liens from Lienors by requiring the contractor as a condition precedent to payment to provide releases of lien through the date of the application for payment from those entities that served a notice to owner.) With that said, an owner should certaintly take advantage of this tool by serving a request for sworn statement of account upon immediately receiving a lien and before the Lienor forecloses on the lien. Ideally, before the owner tenders final payment, it should serve the sworn statement of account to Lienors to best protect its interests.

PRECONSTRUCTION AND PURCHASE-SALE CONTRACTS- ARGUMENTS TO REVOKE THE CONTRACT AND RECOVER THE DEPOSIT

Posted on July 16, 2011July 16, 2011 by Edward Garber

Upon the economic downturn, buyers of preconstruction condominiums have been looking for arguments to revoke their contracts and recover their deposit. Condominium developers have been trying to force buyers to close on the units they agreed to purchase through the contract or, alternatively, if the buyers are unwilling to close, keep the deposit money as compensation for their damages. In many instances, it is the buyer that initiates a lawsuit in order to recover their deposit and establish that the developer/seller breached the contract.

Two recent Florida appellate decisions involving preconstruction contracts touch upon creative arguments that buyers raise to recover the deposit money and establish that the developer/seller breached the preconstruction contract. In the first case, the buyer prevailed arguing that the seller failed to specifically comply with the terms of the contract. In the second case, the seller prevailed and the buyer lost his argument that the contract violated the Interstate Land Sales Full Disclosure Act, 15 U.S.C. §1701, et seq. (the “ILSFDA”), which is a federal statute designed to prevent fraud in the sale of property by requiring full disclosure of material information.

In the first case, Lowe v. Winter Park Condominium Partnership, 36 Fla. L. Weekly D1522a (5th DCA 2011), the buyer entered into a preconstruction contract on April 17, 2006 to purchase a condominium unit and tendered a substantial initial deposit. The contract required the seller to close on the unit within two years from April 17, 2006 (or April 16, 2008). The contract contained the following pertinent provisions pertaining to the closing date:

“[Paragraph 4.] Seller will notify Buyer at least thirty (30) days prior to the date that the consummation of the sale of the Unit to Buyer shall take place (“Closing Date”). If Buyer fails to close on or before the Closing Date, then Seller may treat such failure as a default subject to the terms of…Addendum No. 1…or Seller may, in its sole discretion, determine to extend the Closing Date upon payment to Seller by Buyer of an extension equal to $350.00 per day, but in no event shall such extension extend beyond the twenty-four (24) month period….
***
[Paragraph II(B) of Addendum No. 1.] If Buyer asserts the existence of any…defect in title which renders title to the Unit unmarketable and which Buyer does not waive (all of which are called “Defects of Title”), Buyer shall give written notice of such Defects of Title to Seller within five (5) days after its receipt of the [title] Commitment or at least five (5) days prior to the Closing Date….If Seller attempts to remove or cure such Defects of Title, Seller shall be entitled to a postponement of the Closing for a period of up to thirty (30) days in which to remove or cure such Defects of Title….If Seller is unable or unwilling to remove or cure all Defects of Title within such period, Buyer may elect to waive such Defects of Title or to terminate this Agreement by written notice to Seller within five (5) days after the earlier of (i) the expiration of such thirty (30) days, or (ii) the date of notice from Seller to Buyer stating that Seller is unable or unwilling to cure any such Defects of Title.”

The facts in Lowe were not in dispute. The seller notified the buyer on November 1, 2007 that closing would take place on December 6, 2007. The buyer realized that the seller never recorded the Declaration of Condominium (the legal instrument that creates the condominium and renders the units marketable) and notified the seller on November 29, 2007 that title was defective. The seller recorded the Declaration of Condominium on December 20, 2007 and notified the buyer that closing would now take place on February 3, 2008. The buyer, however, refused to close arguing that the seller breached Paragraph II(B) of Addendum No. 1 by failing to close within thirty days after receiving notice that there was a defect in title. The seller, conversely, argued that it had the unilateral right to set the closing date pursuant to Paragraph 4 of the Contract and, therefore, Paragraph II(B) of Addendum No. 1 never came into effect.

The Fifth District Court of Appeal held that although the seller had the absolute right to set the closing date through April 16, 2008, once the seller notified the buyer of its intent to close on a set date, Paragraph II(B) of Addendum No. 1 came into effect. Because the buyer notified to seller after the closing date was set that there was a defect in title, the seller was required to comply with the terms of Paragraph II(B). In this case, the seller failed to comply with these terms because it failed to close within thirty days from receiving the buyer’s notice. Accordingly, the Fifth District held that the buyer is entitled to recover his deposit and recoup attorneys’ fees as the prevailing party pursuant to the contract.

In the second case, Boynton Waterways Investment Associates, LLC v. Bezkorovainijs, 2011 WL 2694522 (4th DCA 2011), the buyer sought to revoke the preconstruction contract and recover his deposit by arguing that the seller violated the ILSFDA . Specifically, the buyer argued that because the preconstruction contract failed to include the appropriate legal description of the condominium unit it violated §1703(d) of the ILSFDA, which provides:

“Any contract or agreement which is for the sale or lease of a lot . . . which does not provide

(1) a description of the lot which makes such lot clearly identifiable and which is in a form acceptable for recording by the appropriate public official responsible for maintaining land records in the jurisdiction in which the lot is located…

may be revoked at the option of the purchaser or lessee for two years from the date of the signing of such contract or agreement.”

Regarding the identification of a condominium unit, §718.109 of the Florida Condominium Act provides, “Following the recording of the declaration, a description of a condominium parcel by the number or other designation by which the unit is identified in the declaration, together with the recording data identifying the declaration, shall be a sufficient legal description for all purposes.” Fla. Stat. §718.109.

The buyer argued that because the contract did not contain any recording data for the unit, the contract did not clearly identify the unit in a form acceptable for recording under the ILSFDA.

The seller argued that §718.109 does not apply to a preconstruction contract that predates the recording of the Declaration of Condominium. (In this case, no different than most preconstruction condominium transactions, the buyer did receive an unrecorded copy of the Declaration included in the prospectus.)

The Fourth District Court of Appeal, agreeing with the Middle District in Taplett v. TRG Oasis (Tower Two), Ltd., L.P., 755 F. Supp. 2d 1197 (M.D. Fla. 2009), averred that Florida allows the sale of condominium units prior to the recording of the Declaration; thus, §718.109 does not apply until the recordation of the Declaration. Since the Buyer received an unrecorded copy of the Declaration with the prospectus which just so happened to be incorporated into the preconstruction contract, the condominium unit was clearly identifiable and in a form acceptable for recording.

These cases exemplify some of the arguments that are raised by buyers to revoke preconstruction and purchase-sale contracts. These cases, however, are a snipet of the many cases involving arguments from buyers to revoke their contracts and recover their deposits. Before a buyer makes a decision to revoke the contract to recover their deposit, the buyer should discuss their options and arguments with an attorney. Based on the amount of the deposit (and/or loss of value in the unit from the date of contract), discussing the arguments based on the specific facts of your transaction may be worthwhile. Sellers should also be cognizant of these arguments in order to protect their interests and preserve their right to the deposit.

OWNERS SHOULD BE CONCERNED WITH PREMISES LIABILITY CLAIMS ARISING FROM INJURIES DURING CONSTRUCTION

Posted on July 3, 2011July 3, 2011 by Edward Garber

Injuries are always a concern on construction projects due to the inherent risks associated with performing work on a project. Owners, in particular, should be concerned with injuries on their project because they are sometimes sued for negligence under theories of premises liability when injuries are sustained on their project.

In order to best allocate the risk of injuries, owners should, among other things, contractually (i) specify that the contractor is performing work as an independent contractor, (ii) specify that the contractor is solely responsible for its means and methods of construction, (iii) specify the contractor’s scope of work, especially if the scope is unrelated to new construction, but involves a remediation, renovation, repair, or maintenance scope, and (iv) include other provisions concerning the contractor’s responsibility for safety. This is beside the owner ensuring that the contractor has sufficient liability insurance and workers compensation insurance prior to the contractor performing any work.

The case of Strickland v. Timco Aviation Services, Inc., 36 Fla. L. Weekly D1420a (Fla. 1st DCA 2011), discusses an owner’s potential liability for injuries sustained to its contractor’s employee. In this case, an owner hired a contractor to pressure wash the roof of an airplane hangar and perform maintenance to the skylights on the roof. While the contractor’s employee was pressure washing the roof, he accidentally got chemical in his eyes causing him to step on a skylight and fall five stories to the ground. The employee sued his employer (the contractor) in addition to the owner alleging that the owner was negligent because, among other reasons, the skylights could not withstand 200 pounds of pressure and were indistinguishable from the roof.

The First District Court of Appeal, in examining an owner’s liability for injuries, maintained:

“Generally, a property owner who employs an independent contractor to perform work on his property will not be held liable for injuries sustained by the employee of an independent contractor during the performance of the work. However, there are two exceptions to the general rule. An owner can be held liable for damages sustained by an employee of an independent contractor where (1) the property owner actively participates in or exercises direct control over the work; or (2) the property owner negligently creates or negligently approves a dangerous condition. Moreover, the property owner must maintain the premises in a reasonably safe condition for business invitees, including employees of independent contractors.” See Timco (internal citations omitted).

Under the first exception, an owner can be liable if it imposes “such right of supervision or direction that the contractor is not entirely free to do the work his own way.” See Timco quoting City of Miami v. Perez, 509 So.2d 343, 346 (Fla. 3d DCA 1987).

Under the second exception, an owner can be held liable if the owner negligently creates or negligently approves the dangerous condition causing the injury. See Timco quoting City of Miami, 509 So.2d at 346. However, even under this exception, an owner “will be held liable for negligence only with regard to those dangers that are not known to the independent contractor or could not have been discovered through the exercise of due care.” See Timco citing Florida Power & Light Co. v. Robinson, 68 So.2d 406, 411 (Fla. 1953).

In Timco, the First District affirmed summary judgment in favor of the owner holding the owner not liable for the contractor’s employee’s injuries. The Court held that the danger of falling through the skylights was an obvious risk considering the contractor was hired to perform maintenance and repair work to the skylights. The owner did not have any duty to notify the contractor of the risks posed by performing work on the skylights since this was an integral part of the contractor’s scope of work. Further, the Court held that the owner had no liability due to the employee’s argument that the skylights could not withstand 200 pounds of pressure because there was nothing to suggest the owner knew or should have known of this alleged design defect.

The risk of injuries is one of the many risks that owners consider when hiring a contractor to perform work — any scope of work — on their project. Ensuring that such risks are contemplated and best allocated is vital and a chief reason why attorneys should be utilized in the drafting of construction contracts. If an owner has knowledge of a dangerous condition on their property, they should warn and notify the contractor they are hiring as well as their attorney so that this risk can be addressed in the contract. Notwithstanding, an owner should certainly not engage in any specific act during construction or immediately prior to construction that can cause or increase the risk of injury on their project.