TERMINATING THE NOTICE OF COMMENCEMENT (WITH A NOTICE OF TERMINATION)

shutterstock_259385300The notice of commencement is important for purposes of construction lien priority.   Stock Bldg. Supply of Florida, Inc. v. Soares Da Costa Const. Services, LLC, 76 So.3d 313, 317 (Fla. 3d DCA 2011) (“[A] notice of commencement serves to determine the priority of liens under the Construction Lien Law.”).   A lien relates back in time to the date the notice of commencement was recorded assuming the notice of commencement is still in effect when the lien is recorded (or an amended noticed of commencement is recorded).  Lien priority is very important and the reason why a contractor should always want to ensure there is an effective notice of commencement in place rather than an expired notice of commencement.

 

For the same reasons why a contractor wants to ensure there is an effective notice of commencement, there are times an owner wants to terminate a notice of commencement.  An owner may want to terminate the potential priority of a construction lien.  For instance, say the owner is refinancing or obtaining a construction loan in the midst of construction.  A lender will want to ensure its mortgage maintains first priority and certainly priority over a potential construction lien.  Otherwise, why would a lender finance the construction if it does not maintain first priority. It generally will not.  Thus, an owner needs to terminate the notice of commencement so that the closing occurs on the loan and the mortgage recorded before a new notice of commencement is recorded and construction continues.

 

Florida Statute s. 713.132 allows an owner to statutorily terminate the effectiveness of a notice of commencement by recording a notice of termination.  It is a statutory procedure that must be followed and it is important that an owner and contractor seek the assistance of counsel in following this procedure.  The statute contains in relevant part:

 

(3) An owner may not record a notice of termination except after completion of construction, or after construction ceases before completion and all lienors have been paid in full or pro rata in accordance with s. 713.06(4). If an owner or a contractor, by fraud or collusion, knowingly makes any fraudulent statement or affidavit in a notice of termination or any accompanying affidavit, the owner and the contractor, or either of them, as the case may be, is liable to any lienor who suffers damages as a result of the filing of the fraudulent notice of termination; and any such lienor has a right of action for damages occasioned thereby.

 

(4) A notice of termination is effective to terminate the notice of commencement at the later of 30 days after recording of the notice of termination or the date stated in the notice of termination as the date on which the notice of commencement is terminated, if the notice of termination has been served pursuant to paragraph (1)(f) on the contractor and on each lienor who has a direct contract with the owner or who has served a notice to owner.

 

If a notice of termination of a notice of commencement is recorded as a result of the cessation of construction, a new notice of commencement must be recorded before completion of the improvement may be recommenced.”  Stock Bldg. Supply of Florida, 76 So.3d at 317-18.    

 

From a lienor’s perspective, it is important that they understand that when a new notice of commencement is recorded, the lienor must re-serve any required notices to preserve lien or bond rights (such as a notice to owner or notice of intent to look to the contractor’s bond).  Stock Bldg. Supply of Florida, 76 So.3d at 318 (when owner recorded new notice of commencement, the project began anew and lienor was required to re-serve notices under Florida’s Construction Lien Law).

 

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.

 

CONTRACTORS SHOULD NOT FORGET TO DELIVER CONTRACTOR’S FINAL PAYMENT AFFIDAVIT

shutterstock_46898038If you are a contractor and entered into a contract with an owner, then you need to serve the owner with a Contractor’s Final Payment Affidavit at least 5 days before filing a lien foreclosure lawsuit.  Fla. Stat. s. 713.06(3)(d).    Many times, when I am preparing a lien for a contractor, I like to work with the contractor on the Contractor’s Final Payment Affidavit at the same time as the lien to (for lack of a better phrase) kill two birds with one stone.  This way, both the lien and Contractors’ Final Payment Affidavit can be served on the owner at the same time and the contractor has perfected its right to foreclose on the lien when it is ready to do so.

 

As Florida Statute s. 713.06(3)(d) states:

 

The contractor shall have no lien or right of action against the owner for labor, services, or materials furnished under the direct contract while in default for not giving the owner the affidavit; however, the negligent inclusion or omission of any information in the affidavit which has not prejudiced the owner does not constitute a default that operates to defeat an otherwise valid lien. The contractor shall execute the affidavit and deliver it to the owner at least 5 days before instituting an action as a prerequisite to the institution of any action to enforce his or her lien under this chapter, even if the final payment has not become due because the contract is terminated for a reason other than completion and regardless of whether the contractor has any lienors working under him or her or not.

Failing to serve the Contractor’s Final Payment Affidavit can be hugely detrimental to an otherwise valid lien.  Without serving the Contractor’s Final Payment Affidavit, the lien foreclosure lawsuit is not proper and should be dismissed.

 

For example, in Puya v. Superior Pools, Spas & Waterfalls, Inc., 902 So.2d 973 (Fla. 4th DCA 2005), a swimming pool contractor hired by a homeowner filed a lien foreclosure lawsuit and received a foreclosure judgment in its favor.  There was one huge problem.  The contractor never served a Contractor’s Final Payment Affidavit 5 days before filing the lawsuit.   The Fourth District reversed the foreclosure judgment because the contractor’s failure to serve the Contractor’s Final Payment Affidavit deprived the contractor of the right to foreclose on the lien:  “Where a contractor fails to timely furnish a final payment affidavit, the owner is generally entitled to dismissal of the contractor’s foreclosure lawsuit.”  Puya, 902 So.2d at 974.  See also Nichols v. Michael D. Eicholtz, Enterprise, 750 So.2d 719 (Fla. 5th DCA 2000) (affirming trial court’s dismissal of lien foreclosure action where contractor failed to properly provide contractor’s final payment affidavit).

 

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.

 

FLORIDA’S LIEN LAW AND SUBSTANTIAL COMPLIANCE VS. STRICT COMPLIANCE

comp photoThere are literally some (or, perhaps, many!) disputes that will make you say “hmm!”   The “hmm” is a euphemism for “what is a party thinking?!?”  The case of Trump Endeavor 12 LLC v. Fernich, Inc., 42 Fla. L.Weekly D830a (Fla. 3d DCA 2017) is one of these cases because a party (the owner) is banking its defense on a technical “all-or-nothing” argument pertaining to whether a lienor (a supplier) substantially complied with Florida’s Lien Law because a supplier’s Notice to Owner identified the wrong general contractor.    This is a challenging argument because the owner has to prove how they were adversely affected / prejudiced by the lack of substantial compliance, which is not an easy burden.

 

This case concerns the Trump National Doral Miami project.  The project consisted of a lodge project and a separate clubhouse project, both of which had different general contractors.  On the lodge project, the general contractor hired a painter which, in turn, procured paint from a supplier (the lienor).  The supplier visited the project and obtained the Notice of Commencement from the owner so that it could perfect its lien rights.  The owner furnished the supplier the Notice of Commencement for the clubhouse project that had a different general contractor.  Relying on this Notice of Commencement, the supplier served a Notice to Owner. The Notice to Owner was timely serviced however it identified the wrong contractor – it identified the general contractor for the clubhouse project instead of the lodge project. Although the supplier later learned there was a different general contractor on the lodge project, it did not remedy the issue by serving a Notice to Owner on the correct contractor.  Indeed, the contractor for the lodge project learned of the Notice to Owner furnished by the supplier and that the supplier was furnishing paint to the painting subcontractor for purposes of that project.

 

The supplier was owed approximately $32,000 and recorded a lien against the lodge project.  The owner countered that the supplier did not have lien rights because its Notice to Owner incorrectly identified the wrong contractor.  The supplier argued that it substantially complied with the Notice to Owner requirements and there was no prejudice to the owner as the result of it identifying the wrong contractor.  The court sided with the contractor.

 

The court held that if the supplier substantially complied with the Notice to Owner requirements then such errors do not prevent its enforcement against a person who has not been adversely affected (prejudiced) by the error.  Based on the facts, the supplier substantially complied with the Notice to Owner requirements and the owner could not establish how it was remotely prejudiced by the error.

 

Banking on certain technical arguments is literally banking on an “all-or-nothing” argument because if you lose that argument, then you lose the dispute and are likely liable for the prevailing party’s attorney’s fees.  Here, the owner relied on a technical argument regarding the fact that the supplier failed to identify the correct general contractor on the Notice to Owner even though it knew the supplier was furnishing paint on the project.  Why did the owner bank its entire case on such a technical position for an approximate $32,000 lien, especially when the owner could not prove how it was prejudiced by the supplier’s omission of the correct contractor?  While there is strict compliance with the time requirements under Florida’s Lien Law, a party needs to substantial comply with other requirements. Substantial compliance will then shift the burden to the other party to prove how it was prejudiced by the substantial compliance versus strict compliance.  This can be a heavy burden.  Probably not worth banking an entire defense on this technical argument, particularly for a $32,000 lien.

 

Obviously, strict compliance is always best to avoid dealing with these technical arguments.  For this reason, there is always value consulting with an attorney regarding perfecting and preserving your lien rights.

 

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.