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.

ARE YOU A CONSTRUCTION LIENOR?

shutterstock_98314763When it comes to construction lien rights, not everyone that touches the project is a proper lienor.  Forget about timely serving a Notice to Owner or recording a claim of lien, if you are not a proper lienor, it does not matter if you properly perfected your lien rights.  If you are not a proper lienor, you have NO lien rights under the law!

 

 

 

 

 

 

 

Florida Statue s. 713.01(18) defines a lienor as follows:

 

(18) “Lienor” means a person who is:

(a) A contractor;

(b) A subcontractor;

(c) A sub-subcontractor;

(d) A laborer;

(e) A materialman who contracts with the owner, a contractor, a subcontractor, or a sub-subcontractor; or

(f) A professional lienor under s. 713.03;

and who has a lien or prospective lien upon real property under this part, and includes his or her successor in interest. No other person may have a lien under this part.

 

Let’s break this down.

 

A contractor is one other than a materialman (supplier) or laborer that enters into a contract with the owner to improve the owner’s property.  A contractor can be a design-builder.   Fla. Stat. s. 713.01(8).

 

A subcontractor is one other than a materialman (supplier) or laborer who is hired by the contractor.   This definition would include a labor company that furnishes skilled or unskilled labor.  Fla. Stat. s. 713.01(28).

 

A sub-subcontractor is one other than a materialman (supplier) or laborer who is hired by the subcontractor. Fla. Stat. s. 713.01(29). This definition would also include a labor company.  

 

A laborer is a person (excluding a professional) that enters into a contract to personally perform improvements to the property.   Fla. Stat. s. 713.01(16).  This definition would not include a labor company.  See V L Orlando Bldg. Corp. v. Skilled Services Corp., 769 So.2d 526 (Fla. 5th DCA 2000). 

 

A materialman (supplier) furnishes materials to an owner, contractor, subcontractor, or sub-subcontractor but does not perform labor.  Fla. Stat. s. 713.01(20).  This includes a supplier of rental equipment.  Fla. Stat. s. 713.01(13). 

 

A professional lienor is an architect, landscape architect, engineer, interior designer, or surveyor and mapper who has a direct contract with the owner or performs professional services that improves the real property.  Fla. Stat. s. 713.03.

 

You can also check out this chart for guidance.  Make sure to consult with counsel if you have questions regarding your lien rights. There is no reason not to.

 

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.

 

RECOMMENCING CONSTRUCTION ON A PROJECT DUE TO A CESSATION OR ABANDONMENT

shutterstock_733809610There are instances where the owner of a construction project terminates its general contractor prior to the completion of the project.  There are instances where the owner suspends the work prior to the completion of the project, meaning there is a cessation in the construction.  And, there are instances where the project is simply abandoned.  I have been involved in all instances, and the owner’s reasons vary…from an owner claiming a termination for default, termination for convenience, or a suspension or abandonment due to the market or financial factors. Regardless of the owner’s reasoning, at some point—hopefully—the owner will want to resume or, more properly stated, recommence construction and complete the project. 

 

Based on the length of the cessation, when the owner finally recommences construction, oftentimes the right approach is for the owner to strictly comply with the recommencement procedure set forth in Florida Statute s. 713.07(4):

 

 

If construction ceases or the direct contract is terminated before completion and the owner desires to recommence construction, he or she [1] may pay all lienors in full or pro rata in accordance with s. 713.06(4) prior to recommencement in which event all liens for the recommenced construction shall take priority from such recommencement; or [2] the owner may record an affidavit in the clerk’s office stating his or her intention to recommence construction and that all lienors giving notice have been paid in full except those listed therein as not having been so paid in which event 30 days after such recording, the rights of any person acquiring any interest, lien, or encumbrance on said property or of any lienor on the recommenced construction shall be paramount to any lien on the prior construction unless such prior lienor records a claim of lien within said 30-day period. A copy of said affidavit shall be served on each lienor named therein. Before recommencing, the owner shall record and post a notice of commencement for the recommenced construction, as provided in s. 713.13.  [Per Florida Statute s. 713.13(5)(a), if an owner changes contractors, the owner must record either a new notice of commencement or notice of recommencement.]

 

Under this statute, when the owner wants to recommence construction, the owner has two options. 

 

First, the owner can pay all lienors in full or pro rata pursuant to Florida Statute s. 713.06(4), which lists the priority of payments to lienors.  I like the idea of getting final releases or a release through the date of payment with no carve-out (for retainage or otherwise).

 

Second, the owner can record an affidavit stating his/her intention to recommence construction and that all lienors giving notice (the contractor and those that served a notice to owner) have been paid in full except those specifically listed.   Thirty days after the affidavit is recorded, the rights of any person that acquires an interest in the property or liens the property is superior to any lien on the prior construction (before construction ceased) unless such lienor records a claim of lien within the 30-day window.   If the lienor already recorded a lien, the lienor would need to re-record the lien within this 30-day window to preserve its lien priority (although, importantly, the re-filing does not extend the one year period for the lienor to foreclose on its lien).   See Foy v. Mangum, 528 So.2d 1331 (Fla. 5th DCA 1988) (re-filing the lien ensures the lienor has priority over lienors performing recommenced work, but it does not delay the lienor’s requirement to timely foreclose the original recorded lien).  Any lienor identified in the affidavit would get served with a copy of the affidavit.

 

The owner also records a new notice of commencement / notice of recommencement for the recommenced work where any liens relating to the recommenced work would relate back, from a lien priority standpoint, to this notice of commencement.

 

A value to the owner complying with this procedure is that it can apply the remaining contract balance to the recommenced work and if the funds are expended the total amount the owner will be liable for liens recorded before the cessation could be reduced or eliminated (i.e., the proper payments defense). See Alton Towers, Inc. v. Coplan Pipe & Supply Co., 262 So.2d 671 (Fla. 1972) (if owner complies with the recommencement procedure, the owner’s liability is limited to original direct contract price, thus where completion costs exceeded defaulting contractor’s direct contract amount, supplier was not entitled to recover from owner).

 

If you are an owner or contractor involved in a ceased project, or a project where construction will be recommencing, it is in your interests to engage legal counsel familiar with the recommencement procedure.  It is important that you understand construction lien priority, how the recommencement can impact lien priority, and the owner’s potential liability if it properly complies with the recommencement procedure.

 

 

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.