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.

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.

 

 

PRESERVING YOUR RIGHTS TO SECURE PAYMENT ON CONSTRUCTION PROJECTS (WITH EXAMPLES)

shutterstock_330137966All participants across the construction industry should understand what efforts they should take to maximize and collateralize payment.  No one wants to work for free and, certainly, no one in the construction industry wants to work without ensuring there is some mechanism to recover payment in the event they remain unpaid.   Being proactive and knowledgeable can go a long way when it comes to recovering your money.

 

Your Contract – It starts with the contract.  You should understand those risks that are allocated to you and those that are allocated to another party.  And, you should understand the contractual mechanism to resolve claims and disputes and whether your contract has a prevailing party attorney’s fees provision. In addition to contractual rights, there are tools for you to maximize your collection efforts.

 

Construction Liens – Construction liens apply to private projects, not public projects.  This is a very valuable tool as they allow you to collateralize nonpayment against real property.  It is really important you know what you need to do to preserve your construction lien rights.  Construction liens are a creature of statute and the failure to properly preserve and perfect your construction lien rights can be fatal to your lien claim.  

 

Example 1.   I am a general contractor on a private condominium project.  I am owed $1,000,000 from the developer.    As the general contractor, I can record a construction lien within 90 days from my final furnishing on the project exclusive of punchlist and warranty work.   (This is good for one year from recording unless the developer takes steps to shorten the limitations period to foreclose the lien.)  I serve a copy of the lien on the developer (and others that may be listed in the Notice of Commencement) within 15 days of the recording of the lien.  At least 5 days before filing suit to foreclose on the lien, I need to serve a Contractor’s Final Payment Affidavit on the developer.

***

Example 2.  I am a subcontractor on a private condominium project.  I am owed $1,000,000 from the general contractor.   Since I am not in privity with the owner/developer, I need to serve a Notice to Owner within 45 days of my initial furnishing on the owner and general contractor (and others listed in the Notice of Commencement).  I need to record my construction lien within 90 days from my final furnishing and furnish a copy on the owner within 15 days from the recording of the lien.  Also, since I am not in privity with the owner/developer, I do not need to serve a Contractor’s Final Payment Affidavit.  I need to sue on the lien within 1 year from the recording of the lien (unless efforts are taken to shorten the limitation period).

 

Payment Bonds (Private Projects) – There can be statutory payment bonds on private projects.   The Notice of Commencement will attach a copy of the payment bond, if one exists.  If one is not referenced and attached, then that means the claimant has lien rights.  It is really important you know what you need to do to preserve your payment bond rights on private projects – they are not necessarily the same as preserving payment bond rights on public projects.   Preserving your bond rights allows you to pursue your claim for nonpayment against a surety bond.

 

Example 3.  I am a subcontractor on a private condominium project. I am owed $1,000,000 from the general contractor.  I know from the Notice of Commencement that the general contractor furnished an unconditional payment bond.  Since I am in privity with the general contractor, I do not need to serve a Notice of Intent to look to the Bond on the contractor.   But, within 90 days of final furnishing, I need to serve the general contractor and payment bond surety with a Notice of Non-Payment.  I then need to sue on the payment bond within 1 year from my final furnishing.

  

Payment Bonds (Public Projects)—There are statutory payment bonds on Florida public projects and Federal projects.  There are different procedures to preserve rights depending on the type of public project and it is important to know what steps you need to take to preserve your rights.  Preserving your bond rights allows you to pursue your claim for nonpayment against a surety bond.

  

Example 4.  I am a subcontractor on a Florida school public project. I am owed $1,000,000 from the general contractor.  I know that since I am in privity with the general contractor, I do not need to serve a Notice of Intent to look to the Bond on the contractor.  I also know since I am in privity with the general contractor, I do not need to serve a Notice of Non-Payment on the general contractor and surety.  (Note, this is different than if this were a private project).   I need to sue on the payment bond within 1 year from my final furnishing. 

 ***

Example 5.  I am a supplier to a subcontractor on a Florida school public project.  I am owed $1,000,000 from the subcontractor. Since I am not in privity with the general contractor, I need to serve a Notice of Intent to look to the Bond within 45 days of my initial furnishing.  Also, since I am not in privity with the general contractor, I need to serve a Notice of Non-Payment on the general contractor and surety within 90 days of my final furnishing.  I need to sue on the payment bond within 1 year from my final furnishing.

 ***

Example 6.  I am a sub-subcontractor on an FDOT public transportation project.  I am owed $1,000,000 from the subcontractor.  Since I am not in privity of contract with the general contractor, I need to serve a Notice of Intent to look to the Bond on the general contractor within 90 days of my initial furnishing. (Note, this is different than other public projects.)   Also, since I am not in privity with the general contractor, I need to serve a Notice of Non-Payment within 90 days of my final furnishing on the general contractor and surety. I then need to sue on the payment bond within 365 days of the final acceptance of the contract and work by the FDOT.  (Note, this is different than other public projects.)

 ***

Example 7.  I am a subcontractor to a prime contractor on a federal project.  I am owed $1,000,000 from the prime contractor.   Since this is a federal project, there is no preliminary notice requirement.  (Note, this is different than other public projects.)  Since I am in privity with the general contractor, I do not need to serve a Notice of Non-payment on the prime contractor within 90 days of my final furnishing. I need to sue on the payment bond within 1 year from my final furnishing.

 ***

Example 8.  I am a supplier to a subcontractor on a federal project.  I am owed $1,000,000 from the subcontractor.  Since this is a federal project, there is no preliminary notice requirement.   Also, since I am not in privity with the prime contractor, I need to serve a Notice of Non-Payment only on the prime contractor within 90 days of my final furnishing.  (Note, this is different than other public projects.)  I need to sue on the payment bond within 1 year from my final furnishing.

 

 

As reflected from the examples, preserving and perfecting construction lien and payment bond rights is nuanced and depends on the type of project.   Know your rights.  Be proactive when it comes to preserving and perfecting your rights.  And, make sure to utilize the services of a construction attorney that can help you maximize your collection efforts correctly

 

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: PERFECT PRIVATE PROJECT PAYMENT BOND RIGHTS IF NOT IN PRIVITY WITH GENERAL CONTRACTOR

imagesRemember, if you are not in privity of contract with the general contractor on a private project where the general contractor furnished the owner with a payment bond (e.g., sub-subcontractor or supplier), you NEED to perfect your payment bond rights by initially serving a notice of intent to look to the bond on the general contractor.  (Or, serve a notice to owner but make sure you serve a copy on the general contractor).  Not serving the general contractor with this initial notice can deprive you of payment bond rights.  How do you know if there is a payment bond in place?  Pull up the notice of commencement recorded in the official records where the property is located which should identify if there is a payment bond and will attach a copy of the payment bond.  

 

For more information on payment bond rights, check out this chart.

 

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.

 

CHART SUMMARIZING PRELIMINARY NOTICE REQUIREMENTS FOR LIENS AND PAYMENT BONDS

In previous articles, I discussed preliminary notice requirements to properly preserve construction liens and payment bonds on private projects, payment bonds on public projects, and public payments bonds for Florida Department of Transportation (FDOT) projects.  Now, how about a chart that assists in summarizing this information:

 

[ws_table id=”1″]

 

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 RENTAL EQUIPMENT SUPPLIERS AND THE ENFORCEMENT OF LIEN RIGHTS

imagesConstruction rental equipment suppliers play a large role in the performance of construction projects, whether it is through furnishing a crane, barge, excavator, scissor lift, scaffolding, loader, compressor, generator, shoring, pump, etc. Routinely, the trade subcontractor that needs the equipment to perform its contractual scope of work procures the rental equipment.

 

Well, how do these rental equipment suppliers enforce lien rights on private projects if they remain unpaid?

 

To begin with, they need to serve preliminary notices such as the Notice to Owner within 45 days from initial furnishing, which is the date rental equipment is delivered to the site.  The lien must then be recorded within 90 days from final furnishing, which is the last date the rental equipment is on the job site and available for use.  These dates should (hopefully) be pretty easy to determine as suppliers document the date rental equipment was delivered to the job site and the date the equipment was picked-up from the job site.  If not, these dates should be obtained by the renting party’s records.

 

Before recording the lien, the rental equipment supplier needs to determine the lien amount. The rental equipment supplier will typically lien for the entire amount of the rental equipment it furnished to the renting party / lessee for the project pursuant to the contractual rate(s) in the rental agreement.  This is generally the appropriate strategy because Florida’s Lien Law provides in pertinent part:

 

The delivery of rental equipment to the site of the improvement is prima facie evidence of the period of the actual use of the rental equipment from the delivery through the time the equipment is last available for use at the site, or 2 business days after the lessor of the rental equipment receives a written notice from the owner or the lessee of the rental equipment to pick up the equipment, whichever occurs first.”

Fla. Stat. s. 713.01(13). 

 

This language is important to the rental equipment supplier because if the supplier has the documentation as to when the rental equipment was delivered and picked-up, then this should shift the burden to the owner to prove that the rental equipment was not actually used on the project to diminish the amount of the lien.

 

Notably, the language in Florida’s Lien Law regarding rental equipment used to provide: “to the extent of the reasonable rental value for the period of actual use (not determinable by the contract for rental unless the owner is a party thereto),” meaning that the onus was on the rental equipment supplier not in privity with the owner to determine actual usage of the equipment on the project and the reasonable value for the period the equipment was actually used on the project.  This verbiage has since been removed from Florida’s Lien Law (in 2007), such that burden is really shifted to the owner to prove that the equipment was not actually used on the job site irrespective of when it was delivered and when it was picked-up.  While an owner may still argue that the supplier must also prove the “reasonable value” of the equipment actually used on the job site (with the reasonable value differing from the contract rental rate), this argument is based on the statutory language and case law interpreting the verbiage that has since been removed from Florida’s Lien Law. See, e.g., Rosenholz v. Perrine Development Co., 340 So.2d 1264 (Fla. 4th DCA 1976) (interpreting older version of Fla. Stat. s. 713.01 and finding that contractual rental rate, although unchallenged, did not support the reasonable rental value because the supplier did not introduce evidence of the reasonable, actual use of the equipment required for the lessee’s scope of work).  In other words, to the extent the owner wants to maintain this argument, it really should have the burden challenging (a) the actual use of the equipment, perhaps by resorting to daily reports showing the equipment was not actually used and (b) the reasonable rental value should be different than the contractual rental rate based on evidence supporting this position.

 

Now, even under the older verbiage in Florida’s Lien Law, a rental equipment supplier did not have to jump through hoops in an action against a payment bond for a private project (issued per Florida Statute s. 713.23) to prove both the actual use of the rental equipment and the reasonable rental rate for that equipment.  See, e.g., Insurance Co. of N. America v. Julien P. Benjamin Equipment Co., 481 So.2d 511, 513 (Fla. 1st DCA 1985) (“We distinguish from this [language in the payment bond] the language found in the statute [Fla. Stat. s. 713.01], which, in our view, is substantially more restrictive and clearly requires actual proof of the time of use of rental equipment and the reasonable value thereof unless the owner of the project is shown to have been a party to the rental contract covering such equipment.”).

 

Therefore, it is important for the rental equipment supplier to keep records documenting the delivery date and pick-up date from the specific project in which it plans to lien.  The owner, especially an owner that did not contract for the rental equipment, needs to obtain this information and, to the extent there are daily reports from the lessee (party that rented the equipment), cross-reference the equipment with the daily reports to examine when the equipment was actually used.  While the owner may still choose to argue the “reasonable rental value” for the equipment based on “actual usage,” this burden should fall on the owner with evidence supporting the reasonable rental value the owner believes should apply based on actual usage.  Sometimes, even though these arguments may have teeth, it may be efficient for the owner to negotiate a resolution with respect to equipment it recognizes was utilized on its project in the performance of the work.

 

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.

 

SERVING PRELIMINARY LIEN / PAYMENT BOND NOTICES ON PRIVATE PROJECTS

Subcontractors and suppliers need to know the preliminary notices (such as a Notice to Owner for liens or Notice to Contractor for payment bonds) that need to be served to preserve their lien or payment bond rights on private projects.

 

 A.    Obtaining a Copy of the Notice of Commencement

 

images-1The first thing a potential lienor should do is obtain the Notice of Commencement for the project (or any Amended Notice of Commencement).  The Notice of Commencement will be recorded in the official records where the project is located and will provide a potential lienor with a description of the real property, the owner’s information, the contractor’s information, the construction lender’s information, whether the contractor has a payment bond (which should be recorded with the Notice of Commencement), and persons other than the owner that the Notice to Owner needs to be served on.

 

 B.    Preliminary Notices for Liens- the Notice to Owner

 

If there is no payment bond recorded with the Notice of Commencement, then the potential lienor knows it wants to preserve its lien rights.  Entities not in privity of contract with the owner will need to serve a Notice to Owner. The Notice to Owner must set “forth the lienor’s name and address, a description sufficient for identification of the real property, and the nature of the services or materials furnished or to be furnished.” Fla. Stat. s. 713.06(2).  A statutory form is included in Florida’s Lien Law (Florida States Chapter 713) and set forth at the bottom of this posting.  Importantly, the Notice to Owner must be served by the potential lienor “before commencing, or not later than 45 days after commencing, to furnish his or her labor, services, or materials.”  Fla. Stat. s. 713.06(2).  The key is that the Notice to Owner must be served within 45 days of the entity’s initial furnishing.  For instance, a supplier’s initial furnishing is when the materials arrive on site.  However, a supplier of specially fabricated material’s initial furnishing is when the supplier started fabrication irrespective of when the materials arrived on site.  A company supplying construction rental equipment’s initial furnishing is when the rental equipment arrived on site.  And, a subcontractor’s initial furnishing is when it first starts to furnish labor, services, or materials for the project.  Again, there is no reason to delay serving the Notice to Owner – it should be served immediately as a matter of course.

 

A copy of the Notice to Owner should be served on the contractor if the potential lienor was not hired by the contractor in addition to the potential lienor’s customer’s customer.  In other words: “A sub-subcontractor or a materialman to a subcontractor must serve a copy of the notice on the contractor as a prerequisite to perfecting a lien under this chapter and recording a claim of lien. A materialman to a sub-subcontractor must serve a copy of the notice to owner on the contractor as a prerequisite to perfecting a lien under this chapter and recording a claim of lien. A materialman to a sub-subcontractor shall serve the notice to owner on the subcontractor [potential lienor’s customer’s customer] if the materialman knows the name and address of the subcontractor.” Fla. Stat. 713.06(2). (Lien rights, however, are not automatic in that the further removed an entity is from the owner may impact whether or not that entity has lien rights.  For example, a sub-sub-subcontractor does not have lien rights and a supplier to a supplier is not going to have lien rights.  On the other hand, sub-subcontractors will have lien rights and a supplier to a sub-subcontractor should also have lien rights.)

 

 C.    Preliminary Notices for Payment Bonds-the Notice to Contractor and  the Notice of Nonpayment

 

Now, if there is a payment bond in place, the owner’s property is exempt from liens and the entities should look to the payment bond for payment.  In this case, entities not in privity of contract with the general / prime contractor “before beginning or within 45 days after beginning to furnish labor, materials, or supplies…shall serve the contractor with notice in writing that the lienor will look to the contractor’s bond for protection on the work.” Fla. Stat. s. 713.23(1)(c).  Similar to the Notice to Owner, this Notice to Contractor of the potential lienor’s intent to look to the bond must be served within 45 days of initial furnishing.  A statutory form for this notice is also included in Florida’s Lien Law and further set forth at the bottom of this posting.  Importantly, if a lienor is unsure and/or wants to preserve both lien and payment bond rights the lienor can combine the Notice to Owner form with the Notice to Contractor form by calling the Notice to Owner form “NOTICE TO OWNER/NOTICE TO CONTRACTOR.”  This is actually common as it kills two birds with one stone in the event the lienor is unsure and wants to preserve both lien and bond rights.

 

 

However, unlike perfecting a lien claim, potential lienors looking to recover under a payment bond for a private project must serve a Notice of Nonpayment to the contractor and payment bond surety within 90 days of finial furnishing at the project.  (As it relates primarily to subcontractors, “The failure of a lienor to receive retainage sums not in excess of 10 percent of the value of labor, services, or materials furnished by the lienor is not considered a nonpayment requiring the service of the notice provided under this paragraph. Fla. Stat. s. 713.23(1)(d).)  This Notice of Nonpayment even needs to be served by the subcontractor/supplier in privity of contract with the general contractor (even though the preliminary Notice to Contractor does not need to be served by the subcontractor/supplier in privity of contract with the general contractor).  Final furnishing refers to the last date the lienor furnished labor, services or materials (excluding warranty or punchlist work).  With respect to companies that furnish rental equipment, this final furnishing date is measured from the last date the rental equipment was on the project site and available for use.

 

Understanding the specific preliminary notices that need to be served and the timing of these notices is important to ensure that a subcontractor, supplier, etc. is properly preserving their lien or bond rights.

 

 D.    Preliminary Notice Companies

 

images-2There are numerous companies that cost effectively assist subcontractors and suppliers with serving preliminary notices as a matter of course based on the information provided by the subcontractor and supplier.  This is important to ensure the company preserves lien and bond rights!

 

One such emerging company that can assist with the generation, preparation and service of preliminary notices is FileMyPrelim (www.filemyprelim.com) with its cool, innovative web-based platform called PrelimTracker (www.prelimtracker.com).  FileMyPrelim and PrelimTracker have developed a preliminary notice service and tracking platform that adapts to a construction industry that is evolving with the generation and transmission of electronic documentation.  What is really cool is that by using FileMyPrelim, the lienor’s data is stored and tracked with PrelimTracker.  Because these preliminary notices (whether it is a Notice to Owner, Notice to Contractor, etc.) are linked to PrelimTracker, the general contractor, the owner, and even the owner’s construction lender can universally track those entities that served the preliminary notices jointly on this web-based platform.  By doing this, the general contractor, owner, and lender are all on the same page to ensure that those entities that preserved lien rights are properly transmitting releases of lien in consideration of progress payments (so that their lien rights are released through a specified date) and that a final release of lien is given in consideration of final payment to that lienor.  In fact, PrelimTracker can generate the lienor’s release of lien based on the information provided by the lienor and transmit it electronically with a secure electronic signature.  This allows all of the lienor’s releases to be stored and tracked in a platform accessible to the project team.  Even if a lien could not be recorded against the owner’s project because the general contractor furnished a payment bond, PrelimTracker could track the preliminary notices from lienors served through FileMyPrelim preserving payment bond rights to ensure the general contractor is obtaining releases of lien from those entities.  (Keep in mind, PrelimTracker provides value as it pulls data compiled in FileMyPrelim to report critical lien related documents.)  Check out the website links to learn more about this emerging technology that can serve as a beneficial tool to the entire project team.

 

 E.    Preliminary Notice Forms

 

 

Preliminary Notice for Liens

 

 

WARNING! FLORIDA’S CONSTRUCTION LIEN LAW ALLOWS SOME UNPAID CONTRACTORS, SUBCONTRACTORS, AND MATERIAL SUPPLIERS TO FILE LIENS AGAINST YOUR PROPERTY EVEN IF YOU HAVE MADE PAYMENT IN FULL.

 

UNDER FLORIDA LAW, YOUR FAILURE TO MAKE SURE THAT WE ARE PAID MAY RESULT IN A LIEN AGAINST YOUR PROPERTY AND YOUR PAYING TWICE.

 

TO AVOID A LIEN AND PAYING TWICE, YOU MUST OBTAIN A WRITTEN RELEASE FROM US EVERY TIME YOU PAY YOUR CONTRACTOR.

 

NOTICE TO OWNER

 

To (Owner’s name and address)

 

The undersigned hereby informs you that he or she has furnished or is furnishing services or materials as follows:

 

(General description of services or materials) for the improvement of the real property identified as (property description) under an order given by____________.

 

Florida law prescribes the serving of this notice and restricts your right to make payments under your contract in accordance with Section 713.06, Florida Statutes.

 

IMPORTANT INFORMATION FOR

 

YOUR PROTECTION

 

Under Florida’s laws, those who work on your property or provide materials and are not paid have a right to enforce their claim for payment against your property. This claim is known as a construction lien.

 

If your contractor fails to pay subcontractors or material suppliers or neglects to make other legally required payments, the people who are owed money may look to your property for payment, EVEN IF YOU HAVE PAID YOUR CONTRACTOR IN FULL.

 

PROTECT YOURSELF:

 

–RECOGNIZE that this Notice to Owner may result in a lien against your property unless all those supplying a Notice to Owner have been paid.

 

–LEARN more about the Construction Lien Law, Chapter 713, Part I, Florida Statutes, and the meaning of this notice by contacting an attorney or the Florida Department of Business and Professional Regulation.

 

(Lienor’s Signature)

(Lienor’s Name)

(Lienor’s Address)

 

Copies to: (Those persons listed in Section 713.06(2)(a) and (b), Florida Statutes)

 

 

Preliminary Notices for Payment Bonds

 

 

NOTICE TO CONTRACTOR

 

To (name and address of contractor)

 

The undersigned hereby informs you that he or she has furnished or is furnishing services or materials as follows:

 

(general description of services or materials) for the improvement of the real property identified as (property description) under an order given by (lienor’s customer) .

 

This notice is to inform you that the undersigned intends to look to the contractor’s bond to secure payment for the furnishing of materials or services for the improvement of the real property.

 

(name of lienor)

 

(signature of lienor or lienor’s representative)

 

(date)

 

(lienor’s address)

 

 

NOTICE OF NONPAYMENT

 

To (name of contractor and address)

 

(name of surety and address)

 

The undersigned notifies you that he or she has furnished (describe labor, services, or materials) for the improvement of the real property identified as (property description) The amount now due and unpaid is $___.

 

(signature and address of lienor)

 

 

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.

LIEN RIGHTS FOR SPECIALLY FABRICATED MATERIALS

imagesSpecially fabricated materials are those materials that are specially manufactured, designed, or fabricated for a particular project and are not materials that can be universally used on all projects.  Specially fabricated materials have been described as those materials “not generally suited for nor readily adaptable to use in a like improvement.” Odolite Industries, Inc. v. Millman Const. Co., Inc., 501 So.2d 655, 656 (Fla. 3d DCA 1987) (quotation omitted).   For instance, the Florida Supreme Court in Stunkel v. Gazebo Landscaping Design, Inc., 660 So.2d 623, 625 n.2 (Fla. 1995), noted that trees the owner specifically selected for a project were not specially fabricated because they could be used on other projects; whereas, in Lehigh Structural Steel Co. v. Joseph Langer, Inc., 43 So.2d 335, 338 (Fla. 1949), the Court noted that structural steel fabricated for a specific building was specially fabricated materials. (Notably, furnishing specially fabricated materials does not include “design work, submittals, or the like preliminary to actual fabrication of the materials.” Fla. Stat. s. 713.01(13).)

 

Preserving lien rights under Florida’s Lien Law for specially fabricated materials is different than other materials (or non-specially fabricated materials).

 

Because specially fabricated materials are specifically fabricated for a particular project, these materials do NOT have to be actually incorporated into the project for the supplier / fabricator to have lien rights. Aquatic Management, Inc. v. Paramount Engineering, Inc., 977 So.2d 600 (Fla. 4th DCA 2007).  If the materials are not specially fabricated, the materials do need to be actually incorporated into the project.  Id.   This is a major difference.

 

And, because specially fabricated materials do not have to be actually incorporated for a supplier / fabricator to have lien rights for those materials, a notice to owner / intent to look to the payment bond (if there is a payment bond) needs to be served within 45 days from the start of actual fabrication and NOT from when the materials are actually delivered to the job site (since the materials do not actually have to be delivered and incorporated for lien rights for these materials). See Odolite Industries, 501 So.2d at 656; Fla. Stat. 713.01(13). This means that a supplier of specially fabricated materials not in privity with the contractor needs to absolutely serve its notice to owner immediately and no later than 45 days from when fabrication begins.

 

Also, if the supplier / fabricator is owed money: “Materials specially fabricated at a place other than the site of the improvement for incorporation but not so incorporated and the contract price or value thereof shall be separately stated in the claim of lien.”  Fla. Stat. s. 713.08(1)(c).

 

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.

 

PRESERVING CONSTRUCTION LIEN RIGHTS BY SERVING A NOTICE TO OWNER

UnknownEntities such as subcontractors and suppliers that are not in privity of contract with the owner are required to serve a notice to owner in order to perfect their construction lien rights. See Fla. Stat. 713.06. Not timely serving a notice to owner can be fatal to a lien foreclosure action by an entity that is not in privity of contract with an owner.

 

 
The case of Marble Unlimited, Inc. v. Weston Real Estate Investment Corp., 38 Fla. L. Weekly D686b (4th DCA 2013) discusses notices to owners. In this case, a marble contractor contracted directly with the owner to install granite countertops in condominium units. (Due to the privity of contract, a notice to owner was not required.) The owner, at some point during construction, transferred its ownership of condominium units to a related entity. The issue was whether the marble contractor should have served a notice to owner on the “new” owner of the condominium units. The Fourth District said NO!, i.e., this would simply “allow corporate owners to play a shell game with ownership and frustrate the valid claims of contractors who complete work on real property.” Marble Unlimited.

 
Importantly, the Fourth District discussed cases when there is common ownership between the owner and the contractor. For example, let’s assume an owner and contractor, although maintain separate corporate names, have a common identity. The contractor then hires a subcontractor. In this situation, there is an argument that the subcontractor does not need to serve a notice to owner on the owner because no prejudice would exist to the owner that should be aware of the subcontractor based on its common identify with the entity that hired the subcontractor. See Marble Unlimited discussing Aetna Cas. & Surety Co. v. Buck, 594 So.2d 280 (Fla. 1992) and Boux v. East Hillsborough Apartments, Inc., 218 So.2d 202 (Fla. 2d DCA 1969).

 

 
In an abundance of caution, an entity not in privity with an owner should serve a notice to owner to preserve its lien rights as a matter of course, even when the owner and general contractor share a common identity / ownership. The entity should know prior to performing work whether they will have payment bond or lien rights in the event of nonpayment, and undertake actions to ensure they are preserving their rights from the get-go.

 

 

For more information on Notice to Owner, please see: http://www.floridaconstructionlegalupdates.com/contractors-and-suppliers-do-not-neglect-the-notice-requirements-in-floridas-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 AND SUPPLIERS-DO NOT NEGLECT THE NOTICE REQUIREMENTS IN FLORIDA’S LIEN LAW

imagesOftentimes, subcontractors, suppliers, and sub-subcontractors rely on companies to serve the statutory notices that are prerequisites to preserving a lien or bond claim under Florida’s Lien Law in the event of nonpayment.  However, if these notices are not served in accordance with Florida’s Lien Law, the outcome could be injurious to the subcontractor, supplier, or sub-subcontractor.  Stated differently, the outcome could mean a loss of lien or bond rights which may be the only true leverage the party has to secure payment.

 

The case of Stock Building Supply, Inc. v. Soares Da Costa Construction Services, LLC, 36 Fla. L. Weekly D2200a (Fla. 3d DCA 2011), illustrates the absolute importance of complying with the notice requirements in Florida’s Lien Law.

 

 

In this case, an owner hired a contractor to build a condominium.  The contractor subcontracted with a structural shell subcontractor which, interestingly, held a 40% ownership interest in the contractor.   The subcontractor engaged a supplier to provide rebar to the project.  The contractor also engaged the same supplier to provide certain materials to the project.  To graphically illustrate:

 

 

Contractor –> Shell Subcontractor –> Supplier

and

Contractor –> Supplier

 

 

Originally, there was no payment bond on the project.  Therefore, once the supplier was engaged to provide materials, it served a statutory notice to owner on the contractor and the owner stating that it was supplying materials under an order given by the subcontractor.  It served a second notice to owner on the contractor and owner stating it was supplying materials under an order given by contractor. (Notably, Florida Statute §713.06 requires lienors not in privity of contract with the owner to serve a notice to owner on the owner no later than 45 days after commencing services.  The notice should also be served on anyone up the chain to the owner the lienor is not in privity of contract with, i.e., the sub-subcontractor or supplier to the subcontractor should serve the notice on the contractor too.  This is a mandatory statutory notice if there is not a payment bond in place.)

 

 

Shortly after construction commenced, there was a funding problem that led to a halt in construction.  The supplier recorded 2 claims of lien for nonpayment: one for nonpayment by the subcontractor and the other for nonpayment by the contractor.

 

 

The owner then paid the supplier and had the liens satisfied and recorded a notice of termination of the initial notice of commencement which is a procedure under Florida’s Lien Law that allows an owner to terminate a notice of commencement that accurately states that all lienors were paid in full.  After the notice of commencement was terminated by law, the owner recorded a new notice of commencement that attached a payment bond, meaning the owner’s property was now exempt from all liens except that of the general contractor it hired.  (One of the main reasons an owner would terminate a notice of commencement and record a new notice of commencement is so a construction lender financing construction can record a mortgage and maintain a first priority encumbrance on the property in the event the owner did not repay the loan.)

 

 

Once construction restarted, the supplier continued supplying rebar to the structural shell subcontractor.  The supplier also continued to supply building materials to the contractor.  However, for whatever reason, the company the supplier hired to serve the statutory notices served only one statutory notice to contractor stating that the supplier was supplying building materials under an order given by the contractor.   Unlike the notice to owner mentioned above, when there is a payment bond in place, lienors not in privity of contract with the contractor must serve a notice on the contractor stating that they intend to look to the contractor’s payment bond for payment.  In other words, the supplier was required to serve a notice on the contractor that it was supplying materials under an order given by the subcontractor, but it really wasn’t required to serve the same notice for the supplies it was providing under an order given by the contractor.

 

 

The point or objective of the notices is so the owner, in a situation without a payment bond, and a contractor, in a situation with a payment bond, know specifically who is performing work on the project to ensure these entities get paid.  The reason why a contractor doesn’t need to serve a notice to owner (when there is no bond) or a subcontractor doesn’t need to serve a notice on the contractor (when there is a payment bond) is because the owner or contractor in these situations know the entities it hired to ensure these entities get paid.

 

 

Although the contractor paid the structural shell subcontractor for the rebar, the subcontractor did not pay the supplier.  The supplier then served a notice of nonpayment on the payment bond surety (another prerequisite to suing on a general contractor’s payment bond) and filed suit.

 

 

The main issue in this case was whether the supplier had properly preserved a payment bond claim for the rebar it supplied to the subcontractor that it was not paid for by virtue of its neglect in serving the proper notice on the contractor that it was supplying rebar under an order given by the subcontractor.  The trial court concluded that the supplier could NOT pursue a payment bond claim because it failed to serve this notice.  The Third District affirmed the trial court on this issue essentially holding that because lien and bond claims are creatures of statute, the supplier’s failure to comply with the lien law by serving this initial notice was fatal to its bond claim for rebar materials it supplied to subcontractor.

 

 

Unfortunately for the supplier, this is a hypertechnical argument that killed its claim against the payment bond for materials it supplied under the order given by the structural shell subcontractor. This ruling, however, does not seem to make sense in light of the specific facts of the case.  Again, the whole point of the notice is so the contractor in this situation knows that the supplier is supplying rebar to the subcontractor and that it will look to the payment bond if it is not paid so that the contractor can affirmatively ensure the supplier gets paid.  First, the contractor knew the supplier was supplying rebar because before the owner terminated the notice of commencement, the supplier was supplying the same rebar and the contractor was made aware of same. Second, after the owner recorded a new notice of commencement with a payment bond, the supplier served a notice on the contractor (although it was not legally required to do so) that it was serving materials to the contractor per an order given by the contractor.  Well, at this point in time, the contractor had continued knowledge the supplier was still involved in the project and still supplying materials, even though there may have been oversight in that another notice was not also provided by supplier for the materials it was providing under an order given by the subcontractor.  And, last, the subcontractor owned 40% of the contractor, thus, how could contractor not know that its minority owner was still utilizing and ordering rebar?  The Third District did not get into this, but I believe this fact is important because it would seem to impute some knowledge on the contractor under this fact pattern  that the subcontractor was still utilizing the supplier, which just so happened to an identical supplier that contractor was utilizing and ordering materials from.  Thus, where was the prejudice to the contractor??

 

 

Regardless of the equities of the Third District’s decision, the morale remains that it is absolutely critical to comply with Florida’s Lien Law, as in many circumstances, oversight or neglect will not be tolerated!!  Do not let this happen to you!

 

In this case, the supplier used an outside company to serve the required statutory notices and it was uncertain why the outside company did not serve the required notice on the contractor that supplier would look to the bond for protection if it was not paid for materials supplied to the subcontractor, especially when it served the unnecessary notice for materials being supplied directly to contractor.  The supplier or outside company’s oversight, whatever the case may be, resulted in a loss of its payment bond claim.

 

 

To prevent this from happening, it is always a good idea to utilize an attorney on the front end to ensure the proper notices are being served.  An attorney understanding construction will ask: 1) is it a private project or publicly funded project; 2) do you have a copy of the notice of commencement (to see whether there is or is not a payment bond in place); 3) who hired you; and 4) when did you first start commencing services.  In the event of nonpayment, the attorney will ask the follow-up questions: 5) when was your last day on the job and 6) how much are you owed and how did you arrive at this specific amount (e.g., retainage owed, contractual work owed, change order work owed, does this include delay-related damages or lost profit, etc.) in order to ensure the lien or payment bond claim comports with Florida’s 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.