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.

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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).

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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. 

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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.

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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.)

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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.

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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:

 

QUESTION?CONSTRUCTION LIENPRIVATE PAYMENT BOND (FLA. STAT. 713.23)PUBLIC PAYMENT BOND (FLA. STAT. 255.05)FDOT PAYMENT BOND (FLA. STAT. 337.18)
QUESTION?CONSTRUCTION LIENPRIVATE PAYMENT BOND (FLA. STAT. 713.23)PUBLIC PAYMENT BOND (FLA. STAT. 255.05)FDOT PAYMENT BOND (FLA. STAT. 337.18)
Who needs to serve a preliminary notice?If not in privity of contract with the ownerIf not in privity of contract with the general contractorIf not in privity of contract with the general contractorIf not in privity of contract with the general contractor
What type of preliminary notice do I need to serve?Notice to OwnerNotice of Intent to Look to BondNotice of Intent to Look to BondNotice of Intent to Look to Bond
What is the time frame to serve the preliminary notice?Within 45 days of initial furnishingWithin 45 days of initial furnishingWithin 45 days of initial furnishingWithin 90 days of initial furnishing
Who should I serve the preliminary notice on?Owner, general contractor, lienor's customer's customer, and persons identified in the Notice of CommencementGeneral contractorGeneral ContractorGeneral Contractor

 

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.