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:

 

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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.