QUICK NOTE: “EFFECTIVE” NOTICE OF COMMENCEMENT

As a contractor (or subcontractor or supplier if an unconditional payment bond is not furnished by the contractor) you always want to make sure (1) there is a notice of commencement that was recorded for the job and (2) you are working under an EFFECTIVE notice of commencement or amended notice of commencement.  An effective notice of commencement is a notice of commencement (or amended notice of commencement that amends an original notice of commencement prior to its expiration) that has not expired and allows your lien to relate back to the date the notice of commencement was originally recorded.

 

In the event you are not paid, you will want to record a construction lien to secure your nonpayment against the property and you will want your lien to relate back in time to the original notice of commencement.   When it comes to liens, a lien is typically only as good as the equity in the property oftentimes dictated by the priority of the lien.  (For example, if the property is worth $1 Million, but there is a $1.1 Million mortgage on the property, there is no equity in the property because the mortgage would have priority over the construction lien.)

 

As an owner, there may be times you want to terminate an EFFECTIVE notice of commencement.  Maybe the job is completed and the notice of commencement is still in effect and you want to cut off lien priority rights.  Maybe you want to convert your construction loan into a permanent loan.  Maybe you want to re-finance.  Maybe you want to secure a construction loan after construction commenced.  Any one of these factors will support recording a notice of termination of the notice of commencement.  When you borrow money from a lender, a lender will typically want their mortgage to be first priority.  This means the mortgage cannot be recorded after an effective notice of commencement otherwise potential liens can take priority over the mortgage.  No lender will want this to occur.

 

It is always advisable to work with counsel when it comes to notices commencement, amended notices of commencement, notices of termination of a notice of commencement, and, of course, construction liens.

 

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.

QUICK NOTE: TIMELY RECORDING CONSTRUCTION LIEN

A construction lien needs to be recorded within 90 days from a lienor’s final furnishing date.  This date is exclusive of punchlist or warranty-type work (i.e., repairs to lienor’s own work).   A lienor’s final furnishing date will be included in the construction lien as the lienor’s last date on the job.

 

A lienor’s final furnishing date is a question of fact to be decided by the trier of fact.  In other words, if an owner (or party challenging the enforcement of the lien) argues that the lien was untimely recorded, the party will be arguing that the lienor failed to timely record its lien within 90 days of its final furnishing date.  The application of this fact-driven issue, as further discussed in this article, is: whether the work was: 1) performed in good faith; 2) performed within a reasonable time; 3) performed in pursuance of the lienor’s contract; and 4) necessary for a completed project.  Just remember, a final furnishing date will not include punchlist or warranty work a lienor is performing on the project.   If a lien is recorded outside of this 90-day window, the lien will be deemed unenforceable.  It is always a good practice to ensure a lien is recorded, at a minimum, weeks before the 90-day period expires to avoid any issue or argument with the lien being untimely recorded.

 

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.

QUICK NOTE: A CONSTRUCTION LIEN IS NOT INTENDED TO LAST INDEFINITELY

A construction lien is not intended to last forever.  A construction lien must be recorded within one year from its recording date because a construction lien only lasts for one year by operation of law.   You will not be able to foreclose a construction lien after this one-year period expires.  This is why it is always good practice to calendar the expiration of this one-year period when a construction lien is recorded.   There is never a good reason to engage in a last minute scramble to file a foreclosure lawsuit on the expiration date (or shortly before).      While I always believe a lienor should work with counsel to record a construction lien, regardless, I would certainly recommend a lienor to work with counsel to ensure lien rights are properly perfected so that when it becomes necessary to foreclose the lien, the strategy is in place to file the foreclosure lawsuit.

 

Importantly, an owner can shorten the one-year period for a lienor to foreclose its construction lien by properly recording a Notice of Contest of Lien.  A Notice of Contest of Lien will shorten the period for a lienor to foreclose its construction lien to sixty days.   It is always beneficial to record the Notice of Contest of Lien sooner than later because it puts the onus on the lienor to either foreclose the construction lien or lose its lien and ability to foreclose its lien by operation of law.  That’s right – if the lienor does not foreclose its lien within the sixty-day window, it will have lost its lien rights.   There are times where an owner of real property records a Notice of Contest of Lien without the use of counsel.  I do not suggest this for a couple of reasons.  First, you want to ensure this is done right and, second, there may be other strategic decisions that may be better implemented based on the circumstances of the dispute.

 

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.

 

QUICK NOTE: NOT IN CONTRACT WITH THE OWNER? SERVE A NOTICE TO OWNER.

A subcontractor or supplier not in direct contract with an owner must serve a Notice to Owner within 45 days of initial furnishing to preserve construction lien rights.  Of course, the notice of commencement should be reviewed to determine whether the subcontractor or supplier has construction lien or payment bond rights so that it knows how to best proceed in the event of nonpayment.   Serving a Notice to Owner should be done as a matter of course — a standard business operation; no exceptions.  

 

However, if a supplier specially manufactures or fabricates material for purposes of a construction project, it must serve the Notice to Owner within 45 days from the actual start of fabrication, and not from when the materials are delivered to the site.  A reason for this is that a supplier of specially fabricated material can lien for the unpaid material even if the material is NOT incorporated into the construction project.  This is different than a supplier liening for other material which does require the material to be incorporated into the project.

 

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.

QUICK NOTE: DON’T FORGET TO SERVE THE CONTRACTOR FINAL PAYMENT AFFIDAVIT

If you are a contractor in DIRECT CONTRACT with an owner, serve a contractor final payment affidavit on the owner, as a matter of course, and without any undue delay, particularly if you are owed money and have recorded a construction lien.  In numerous circumstances, I like to serve the contractor final payment affidavit with the construction lien.

 

The contractor final payment affidavit is not a meaningless form.  It is a statutory form (set forth in Florida Statute s. 713.06) required to be filled out by a lienor in direct privity of contract with an owner and served on the owner at least 5 days prior to the lienor foreclosing its construction lien.  The contractor final payment affidavit serves as a condition precedent to foreclosing a construction lien.  Failure to timely serve a contractor final payment affidavit should result in a dismissal of the lien foreclosure lawsuit, presumably by the owner moving for a motion for summary judgment.  This should not occur.  

 

I always suggest working with a lawyer to finalize a contractor final payment affidavit (as well as the lien in order to utilize the advice of counsel defense) for two reasons.  First, you will ideally want the amount in the affidavit to be the same as the lien amount.  Second, you may want to include certain clarifications or exceptions in the final payment affidavit for amounts not included in the lien (e.g., delay-type damages or certain disputed change orders that you do not feel comfortable including in the lien).  

 

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.

QUICK NOTE: REMEMBER TO TIMELY FORECLOSE LIEN AGAINST LIEN TRANSFER BOND

When a construction lien is transferred to a lien transfer bond pursuant to Florida Statute s. 713.24, instead of foreclosing the lien against the real property, you are foreclosing the lien against the lien transfer bond.  This is not a bad deal and, oftentimes, is probably ideal.   Remember, however, just because a construction lien was transferred to a lien transfer bond (pre-lawsuit) does not mean you get more time to file your lien foreclosure lawsuit.  A lawsuit must still be filed within one year (short of that period being specifically shortened under operation of the law).  The only exception is that if the lawsuit is filed and the lien transfer bond is then recorded (post-lawsuit), the lienor has one year to amend its lawsuit to sue the lien transfer bond.

 

 

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.

 

 

PAROL EVIDENCE CAN BE USED TO DEFEAT FRAUDULENT LIEN

shutterstock_162610553Parol or extrinsic evidence can be used to defeat an argument that a lien is a fraudulent lien.  And, just because a lien amount exceeds the total contract amount does not presumptively mean the lien is willfully exaggerated or recorded in bad faith.  Finally, a ruling invalidating a construction lien can create the irreparable harm required to support a petition for writ of certiorari.  All of these issues are important when dealing with and defending against a fraudulent lien and are explained in a recent case involving a dispute between an electrical subcontractor and its supplier.

 

In Farrey’s Wholesale Hardware Co., Inc. v. Coltin Electrical Services, LLC, 44 Fla.L.Weekly D130a (Fla. 2d DCA 2019), there were various revisions to the supplier’s  initial purchase order, both from a qualitative and quantitative perspective, and a ninth-revised purchaser order was issued and accepted.  The electrical subcontractor claimed that deliveries were late, unassembled, and did not include the required marking (likely the UL marking), to pass building inspections.  As a result, the subcontractor withheld money from the supplier and the supplier recorded a lien in the amount of $853,773.16 and filed a foreclosure lawsuit.

 

The subcontractor moved for a motion for partial summary judgment that the lien should be deemed a fraudulent lien and invalid because it was overstated by approximately $32,000.  The subcontractor argued that taking the amount of the ninth-revised purchase order and deducting the undisputed amount paid to the supplier would result in a lien amount of $825,417.06, approximately $32,000 less than the supplier’s lien amount.  The supplier, through an affidavit, argued this delta is nothing more than a good faith dispute and can be explained because the total cost of materials furnished to the job site was based on its initial purchase order and its revised purchase order.  The subcontractor countered that the affidavit is  parol evidence and should be disregarded because the parties agreed on the total amount of the supplies through the ninth-revised purchase order and the supplier was trying to create a new contract through the affidavit.  The trial court agreed and found the lien fraudulent, and issued a partial summary judgment invalidating the supplier’s lien.  The subcontractor moved for a petition of writ of certiorari.

 

Parol Evidence Rule

 

“[T]he parol evidence rule prevents the terms of a valid written contract or instrument from being varied ‘by a verbal agreement or other extrinsic evidence where such agreement was made before or at the time of the instrument in question.’” Farrey’s Wholesale, supra(citation omitted). The parol evidence rule, however, is not applied to exclude evidence of subsequent agreements modifying the original agreement, or of fraud, accident, or mistake.  Id.  

 

The appellate court, reversing the trial court, found that the parol evidence rule “does not bar extrinsic evidence offered for the purpose of showing whether the filing of a construction lien was made in good or bath faith.  This is a separate and distinct inquiry that does not trigger the parol evidence rule.”   Hence, the appellate court maintained there were disputed issues of material fact as to whether the lien was fraudulent.

 

The appellate court further found that the trial court erred in finding the lien fraudulent in that just because the lien amount exceeded the ninth-revised purchase order does not mean it was willfully exaggerated.  In other words, even if the ninth-revised purchase order was the complete agreement, the lien, in of itself, is not willfully exaggerated just because the lien exceeded the total amount of the contract. 

 

Appeal of Lien

 

On another important point in this case, because the appeal was based on a writ of certiorari (versus a final appeal of a final dispositive judgment), there had to be irreparable harm to justify the basis of the appeal.  The appellate court held there would be irreparable harm if the supplier had to wait until the end of the litigation to appeal because its judgment would then be unsecured (it would be without a remedy to pursue its lien which had been transferred to a lien transfer bond).  See Farrey’s Construction Wholesale, supra  (“This means that on remand [back to the trial court], all matters pertaining to Farrey’s construction lien, which includes the status of the lien transfer bond, will be returned to their prejudgment postures.”). 

 

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.

TERMINATING NOTICE OF COMMENCEMENT WITHOUT CONTRACTOR’S FINAL PAYMENT AFFIDAVIT

shutterstock_399902515Prior to construction work being performed on your property, a Notice of Commencement should be recorded.  Among other things, construction liens will relate back in time to an effective Notice of Commencement (meaning it has not expired).  For this reason, lenders or others will want the Notice of Commencement to be terminated when the job is complete by recording in the official records a Notice of Termination of the Notice of Commencement.  There is a statutory procedure to terminate a Notice of Commencement pursuant to Florida Statute 713.132.  

 

Frequently, a clerk will want the Notice of Termination of the Notice of Commencement to be accompanied with a Contractor’s Final Payment Affidavit because 713.132 says, in material part:

 

(2) An owner has the right to rely on a contractor’s affidavit given under s. 713.06(3)(d), except with respect to lienors who have already given notice, in connection with the execution, swearing to, and recording of a notice of termination. However, the notice of termination must be accompanied by the contractor’s affidavit.

 

Notwithstanding, the Fifth District in Lasalle Bank National Ass’n v. Blackton, Inc., 59 So.3d 329, 331 (Fla. 5th DCA 2011) in interpreting this subsection stated:

 

We interpret this subsection to grant an owner the right to rely on the a contractor’s affidavit as an alternative to giving a sworn statement in its notice of termination that “all tenors have been paid in full.”  Here, the contractor’s affidavit attached to the notice of termination was superfluous because Independence, as owner, had already averred in the notice of termination that all tenors had been fully paid. 

 

 

It is always beneficial for an owner to obtain and rely on the Contractor’s Final Payment Affidavit since the contractor would be the one to hire the subcontractors  and know whether all lienors (including itself) have been fully paid and, if not, those that are still owed money.  However, there are times an owner may not be able to get that affidavit for a host of reasons (for example, if the job never actually commenced or the contractor is uncooperative in this regard).   In these circumstances, the owner should be able to record the Notice of Termination of the Notice of Commencement absent the Contractor’s Final Payment Affidavit by averring in the Notice of Termination that all lienors have been paid.

 

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.

PRE-SUIT SETTLEMENT OFFERS AND CONSTRUCTION LIEN ACTIONS

shutterstock_127849640It is unfortunate, but in certain matters, a construction lien foreclosure action is not actually driven by the principal amount in dispute.  Oh no.  Rather, it is driven by attorney’s fees.  That’s right.  Attorney’s fees. This is true even though Florida applies the significant issues test to determine the prevailing party for purposes of attorney’s fees.  However, oftentimes  the prospect of attorney’s fees is enough for parties to fear that exposure. 

 

There is a 1985 Florida Supreme Court case that I like to cite if applicable, C.U. Associates, Inc. v. R.B. Grove, Inc., 472 So.2d 1177, 1179 (Fla. 1985), that finds, “in order to be a prevailing party entitled to the award of attorney’s fees pursuant to section 713.29 [a construction lien claim], a litigant must have recovered an amount exceeding that which was earlier offered in settlement of the claim.”  Accord Sullivan v. Galske, 917 So.2d 412 (Fla. 2d DCA 2006) (explaining that although contractor is receiving a judgment in his favor, he may not be the prevailing party if the homeowner offered to settle prior to the lawsuit for an amount equal to or greater  than the award in the judgment).

 

If there is a pre-suit settlement offer on the table, and it is a good faith offer (which presumably it is), than that offer can very well come into play to determine whether the party that will the action should be deemed the prevailing party for purposes of attorney’s fees.  This is still good law.  Therefore, before readily dismissing a pre-suit offer, consider the potential ramifications if you are unable to beat this offer at trial. Banking on attorney’s fees may not be prudent if there is a pre-suit offer that is within striking distance from where you need to be or can very well be a likely outcome based on a reasonable argument raised by the opposing party.

 

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.

 

CONSTRUCTION LIEN NEEDS TO BE RECORDED WITHIN 90 DAYS FROM LIENOR’S FINAL FURNISHING

shutterstock_239963452A lienor needs to record its construction lien within 90 days of its final furnishing dateThis final furnishing date excludes punchlist, warranty, or the lienor’s own corrective work.   A lien recorded outside of ths 90-day window will be deemed invalid.

 

The opinion in In re: Jennerwein, 309 B.R. 385 (M.D. Fla. 2004) provides a good discussion of this 90-day window.  This matter dealt with a debtor / owner’s bankruptcy where the owner was contesting the validity of a construction lien by its pool contractor.  The owner contended that the lienor’s lien was recorded outside of this 90-day window thus rendering the lien invalid.  The bankruptcy court was determining the validity of the lien.

 

In this matter, the owner hired a swimming pool contractor to construct a pool.  On October 25, 2002, the pool contractor installed pavers around the pool.  After this was performed, the pool contractor realized the owner was unable to obtain the financing to pay for the pool.  As a result, the pool contractor ceased doing any more improvements.  But, neither the pool contractor nor the owner terminated the contract.  Then, on November 27, 2002, the pool contractor sent a supervisor to the property to inspect the pool (work-in-place), the pool equipment, the installed pavers, made a list of the unfinished work, and remove any debris.  On January 27, 2003, the pool contractor recorded its lien.

  

The issue is that if the last day the pool contractor did work was on October 25, 2002 which is when it installed the pavers (the final furnishing date), then the lien it recorded on January 27, 2003 was not timely.  The lien was recorded more than 90 days from October 25, 2002.  However, if the last day the pool contractor did work was on November 27, 2002 when it sent a supervisor to inspect the work and remove debris, then the lien was timely as it was recorded within the 90-day window.

 

In Florida, the test to determine whether labor, services, or materials were furnished is whether the work was: (i) performed in good faith; (ii) within a reasonable time; (iii) in pursuance of the terms of the contract; and, (iv) whether the work was necessary to a “finished job.”… The application of this fairly straight- forward four step test is fact driven, and the facts of each construction project vary widely.

In re: Jennerwein, 309 B.R. at 388.

 

The Bankruptcy Court applied this four step test to determine whether the pool contractor’s inspection / visit on November 27, 2002 constituted its final furnishing date.  Based on the facts, the Court held that November 27, 2002 did constitute a final furnishing date meaning the lien was valid.   Although the pool contractor’s visit on this day was limited, the contract was still in effect (i.e., it was not terminated).  The pool contractor was operating in good faith and the supervisor was conducting his normal job duties by checking on the status of the work. This visit was also deemed to occur within a reasonable time after the pavers were installed. Although the project remained idle after the pavers were installed, this was because the owner was trying to find financing to pay for the work.  Further, the supervisor’s inspection was performed in pursuance of its work and the contract.  Without a list as to the work that remained to be completed, the contractor would not have a schedule of work and materials needed to finish its job.

 

This factual-based finding is favorable to a lienor.  Between the October 25, 2002 date the pavers were installed and the November 27, 2002 date the supervisor visited the property, there was no work.  The pool contractor stopped work because it was not getting paid and it obviously did not want to perform more work knowing that work was not going to get paid for.  However, neither party formally terminated the contract.  The supervisor’s visit was nothing more than confirming the work it performed versus the work it did not perform and remove any debris, etc., that remained on the job.  In other words, the pool contractor was leaving based on the non-payment.  However, the Court deemed the visit to be in good faith and pursuant to the contract allowing this date to be deemed a final furnishing date.  That is a favorable finding when, in reality, the last date the lienor physically improved the property was a month earlier when the pavers were installed.

 

The final furnishing date, as you can tell, will be a fact-based determination.  And, the four step test will be applied to determine the merits of the final furnishing date.  However, I always try to operate conservatively; it is always safer to record the lien sooner than later to take away any close-call argument that the lien should be invalid because it was recorded outside of the 90-day window.

 

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.