QUICK NOTE: OCTOBER 1, 2023 CHANGES TO FLORIDA’S CONSTRUCTION STATUTES

Effective October 1, 2023, there were changes to Florida’s statutory scheme dealing with construction projects. This includes Florida’s Lien Law. A copy of these changes can be found below which identify additions in blue and deletions with strikethroughs.  No different than before, if you have questions or concerns as to your statutory rights on a construction project, do the prudent thing, consult a construction lawyer.  A construction lawyer can help you understand changes to the applicable statutory scheme or how the statutory scheme pertains to your rights. This is important because you want to make sure you understand statutory changes that apply to your work and rights.

A noteworthy change, bolded in blue below, is that there is now a basis to lien for a contractor performing construction management services “which include scheduling and coordinating construction and preconstruction phases for the construction project, or who provides program management services”:

Fla. Stat. s. 713.01 (8)   “Contractor” means a person other than a materialman or laborer who enters into a contract with the owner of real property for improving it,  or who takes over from a contractor as so defined the entire remaining work under such contract. The term “contractor” includes an architect, landscape architect, or engineer who improves real property pursuant to a design- build contract authorized by s. 489.103(16). The term also includes a licensed general contractor or building contractor, as those terms are defined in s. 489.105(3)(a) and (b), respectively, who provides construction management services, which include scheduling and coordinating preconstruction and construction phases for the construction project, or who provides program management services, which include schedule control, cost control, and coordinating the provision or procurement of planning, design, and construction for the construction project.

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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.

FILING MOTION TO INCREASE LIEN TRANSFER BOND (BEFORE TRIAL COURT LOSES JURISDICTION OVER FINAL JUDGMENT)

If a construction lien is recorded against real property, the lien can be transferred to a lien transfer bond.  This transfers the security or collateral of the construction lien from the real property to the lien transfer bond. The lien transfer bond can be a bond posted by a surety company or it can be cash.  This is governed by Florida Statute s. 713.24.  The amount of the lien does not dictate the amount of the lien transfer bond.  Rather, the lien transfer bond needs to be in the amount of the lien, plus interest on that amount for three years, plus $1,000 or 25% of the amount of the lien (whichever is greater so factor in the 25%) to cover attorney’s fees. Fla. Stat. 713.24(1).

If you are looking to transfer a construction lien to a lien transfer bond, make sure to consult with counsel.

Keep in mind there is a statutory mechanism for a lienor to increase the lien transfer bond to cover attorney’s fees and costs and notice the word “must” in the statute below. Pursuant to Florida Statute s. 713.24(3):

Any party having an interest in such security or the property from which the lien was transferred may at any time, and any number of times, file a complaint in chancery in the circuit court of the county where such security is deposited, or file a motion in a pending action to enforce a lien, for an order to require additional security, reduction of security, change or substitution of sureties, payment of discharge thereof, or any other matter affecting said security. If the court finds that the amount of the deposit or bond in excess of the amount claimed in the claim of lien is insufficient to pay the lienor’s attorney’s fees and court costs incurred in the action to enforce the lien, the court must increase the amount of the cash deposit or lien transfer bond. Nothing in this section shall be construed to vest exclusive jurisdiction in the circuit courts over transfer bond claims for nonpayment of an amount within the monetary jurisdiction of the county courts.

In a recent case, Edmondson v. Tri-County Electrical Services, Inc., 2023 WL 2995420 (Fla. 4th DCA 2023), a lien was transferred to a cash bond by the real property owner.  The contractor-lienor moved to have the court increase the amount of the cash security to better cover attorney’s fees and costs accrued in the litigation. The court deferred ruling on the motion. Subsequently, the court had a bench trial and the contractor prevailed. The court entered final judgment in favor of the contractor and reserved ruling on attorney’s fees, interest, and court costs. The court thereafter entered an amended final judgment that included attorney’s fees, interest, and court costs.  The court then conducted a hearing to increase the cash bond and granted the contractor’s motion for the cash bond to be increased.  The issue was that the court no longer had jurisdiction to require the owner to increase the cash bond:

The action here was not ‘pending’ under section 713.24(3). The general rule is that an action remains pending in the trial court until after a final judgment and such time as an appeal is taken or time for an appeal expires. By the time the trial court had ruled on the motion to increase the bond, the time for an appeal had passed. Therefore, because the matter was no longer pending, the trial court lacked authority to consider the motion.

The trial court was without jurisdiction to grant Contractor’s motion to increase the bond.

Edmondson, supra, at *2 (internal citations omitted).

Here, the contractor should have requested the trial court rule on the deferred motion to increase the cash bond BEFORE the amended final judgment was entered. Or, at a minimum, the contractor should have timely filed a motion for rehearing as to the amended final judgment to address this deferred motion to increase the cash bond. Once the rehearing period expired, “the trial court no longer has jurisdiction over a final judgment.” Edmondson, supra, at *1 (“Contractor did not file a timely motion for rehearing, which would have been the time to raise the bond increase issue.”). Id.

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.

HUH? ACTION ON CONSTRUCTION LIEN “RELATES BACK” DESPITE NOTICE OF CONTEST OF LIEN

Not every case law you read makes sense. This sentiment goes to the uncertainty and grey area of certain legal issues.  It is, what you call, “the nature of the beast.”  You will read cases that make you say “HUH?!?” This is why you want to work with construction counsel to discuss procedures and pros / cons relative to construction liens.

An example of a case that makes you say “HUH” can be found in Woolems, Inc. v. Catalina Capstone Creations, Inc., 2023 WL 2777506 (Fla. 3d DCA 2023) dealing with a construction lien foreclosure dispute.

Here, a contractor filed a lawsuit against a subcontractor with a summons to show cause why the subcontractor’s construction lien should not be discharged.  This is a specific complaint filed under Florida Statute s. 713.21(4). This statute requires the lienor to essentially foreclose on its construction lien within 20 days after it was served with a “show cause” summons.  The subcontractor filed its answer and counterclaim but did NOT assert a claim to foreclose its construction lien.

Around the time of subcontractor’s answer and counterclaim, the contractor transferred the subcontractor’s lien to an all-cash lien transfer bond in accordance with Florida Statute s. 713.24. Once the lien transfer bond was recorded, the owner recorded a notice of contest of lien under Florida Statute s. 713.22. The notice of contest of lien shortens the limitations period to foreclose on a lien to 60 days.

The subcontractor did NOT timely foreclose its lien against the lien transfer bond and the general contractor moved to have its all-cash lien transfer bond returned, as it should do. The subcontractor filed its lien foreclosure against the lien transfer bond AFTER the 60-day window expired. The trial court, and affirmed by the appellate court, denied the general contractor’s request to have the lien transfer bond returned and allowed the subcontractor to assert its (dilatory) claim against the lien transfer bond claiming it related back in time to the subcontractor’s initial counterclaim.  HUH?!?

ISSUES GIVING RISE TO THE HUH

Here are the issues with this ruling:

  1. The subcontractor should have foreclosed its construction lien with the 20-day time period from receiving the summons to show cause. The case reflected the subcontractor asserted claims, but not the lien foreclosure claim subject to the summons to show cause. (The appeal did not discuss this point for reasons currently unknown.)
  2. Regardless of (1), the lien was transferred to a bond and a notice of contest of lien was recorded shortening the time period to foreclose the lien (as to the bond) to 60 days. There is case law referencing this procedure. Yet, the subcontractor still did not timely assert its claim against the lien transfer bond.
  3. The trial court applied the relation back doctrine which does nothing but completely water down the statutory purpose of a notice of contest of lien (not to mention the summons to show cause complaint).

RECOMMENDATIONS IN LIGHT OF RULING

In light of this ruling, here are my recommendations:

  1. If you are going to transfer a lien to a lien transfer bond, do it from the get-go. Then, record the notice of contest or pursue the summons to show cause complaint.
  2. If filing the summons to show cause complaint, wait for the 20-day time period to expire. If the time period expires, move to have the lien discharged before making the decision to transfer the lien to a lien transfer bond.
  3. If recording a notice of contest of lien, wait for the 60-day time period to expire before taking action.

The reality is that the procedure implemented in this case should have been fine but for the application of the relation back doctrine that makes you say HUH?!?

As mentioned, if dealing with a lien, please make sure to discuss strategic considerations with a construction counsel that can help navigate the process and advise on the pros and cons.

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.

UNPREDICTABLE OPINION REGARDING CONSTRUCTION LIEN (REINSTATEMENT??)

Here comes the discussion of an appeal I was intimately involved in dealing with a construction lien. See Suntech Plumbing and Mechanical Corp. v. Bella Isla, LLC, 2022 WL 14672765 (Fla. 3d DCA 2022).  Unfortunately, it was a losing result on my end but not a losing result to the issue at-hand.  You should ask what in the world does this mean.  I will tell you.

Here is the fact pattern.  A subcontractor files a construction lien foreclosure lawsuit against an owner for unpaid contract balance.  In the same lawsuit, the subcontractor sues the general contractor for breach of contract and unjust enrichment associated with an approximate three-year delay on a construction project.  The project was scheduled to be completed in 2019.  It was not.  The project was pushed into COVID and into 2022.  (The subcontractor did not sue the general contractor for amounts subject to the lien foreclosure claim.) The general contractor, assuming the defense of the owner, moved to stay the lawsuit pending the outcome of arbitration based on an arbitration provision in the subcontract.  The subcontractor did not dispute the arbitration provision, but argued that arbitration provision should not extend to the owner that was (a) not bound by the subcontract, (b) would not be a party to the arbitration, and (c) the amounts pled against the general contractor did not include the amounts subject of the lien foreclosure lawsuit.  At a minimum, the lawsuit should be stayed, not dismissed. Nevertheless, the trial court dismissed the entire lawsuit in an order that states that it is a final order with language that the lien may be “reinstated” after the outcome of the arbitration (that the owner is not a party to).

This is a big deal.  Construction liens are creatures of statute. And, a construction lien, no different than a mortgage, is only as good as its lien priority.  (The priority of a lien is critical!). Well, there is NO statutory procedure to reinstate a construction lien. None. There is also no authority that even contemplates such a procedure.  Thus, what happens to the priority of the lien and what happens to the corresponding lis pendens?  I have no clue other than the best recourse was to immediately appeal on two fronts: (1) appeal the trial court’s ruling as a final order based on language in the order stating it is a final order, and (2) in an abundance of caution, move for a petition of writ of certiorari due to the irreparable harm posed by the dismissal of a lien foreclosure lawsuit (regardless of the unheard-of reinstatement language).  This is the recourse pursued with the appeals consolidated.  The sentiment was that, at worst case, the appellate court would remand for the lawsuit to be stayed, not dismissed, so as not to impact the integrity (priority) of the lien and lis pendens.  The worst thought was that if the appeal was lost, there was not really a loss in this case because a loss would ultimately mean the lien and lis pendens are still in play where an argument cannot be made otherwise.  Although, honestly, a loss was not really considered here because there is no such thing as reinstating a lien.

Welcome to the unpredictability of the law.

First, the appellate court ruled that the trial court’s order, despite saying it was a final order, was not really a final order subject to an automatic appeal. “Because the trial court’s order of dismissal, however, is neither a final order nor an appealable nonfinal order we lack jurisdiction to consider [subcontractor’s] appeal of the dismissal order.”  See Suntech, supra, at *1.

Second, the appellate court ruled that the reinstatement language did not constitute irreparable harm to support the basis of certiorari relief.

[Subcontractor] alternatively seeks certiorari review of the trial court’s order of dismissal; however, the trial court’s order expressly retained jurisdiction to enforce any arbitration award and to reinstate [subcontractor’s] lien foreclosure claim against [owner] should arbitration not resolve the matter. [Subcontractor] has therefore failed to establish irreparable harm necessitating exercise of our certiorari jurisdiction.

Suntech, supra, at *1.

Ok.  So, the lien (and lis pendens) should remain in effect.  But what about their priority?  How do you reinstate a dismissed construction lien (and how does this effect lien priority)? Why is the lien even dismissed when the owner is not a party to the arbitration and not bound by any arbitration award?  How is a dismissed lien not irreparable harm when the lien serves as the collateral for nonpayment? What happens to the lis pendens? Does this mean that a general contractor can always move to dismiss a lien foreclosure claim from a subcontractor based on an arbitration provision that the owner is not bound to or an arbitration the owner is not a party to?

I don’t know the answers to any of these questions. Do you?  The continued lack of answers prompted a motion for rehearing seeking clarity because the ruling, frankly, benefits no one in the construction industry and extends to buyers, sellers, title companies, etc. You can’t ignore the lien and lis pendens based on the appellate court’s ruling. But how do you treat the lien from a priority standpoint (including the lis pendens) and how the lien gets reinstated is another thing.

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.

 

And, again, welcome to the law! In my view, this is a bad opinion for the construction industry as a whole.  It will be used in the wrong fashion to create a situation where the lien and lis pendens are in some unknown legal purgatory with an undefined outcome.

 

FILING LIEN FORECLOSURE LAWSUIT AFTER SERVING CONTRACTOR’S FINAL PAYMENT AFFIDAVIT

If you are an unpaid contractor in direct contract with the owner of real property, you should be serving a Contractor’s Final Payment Affidavit prior to foreclosing on your construction lien.  This should extend to any trade contractor hired directly by the owner.  As a matter of course, I recommend any lienor hired directly by the owner that wants to foreclose its lien to serve a Contractor’s Final Payment Affidavit.  For example, if you are a plumbing contractor hired by the owner and want to foreclose your lien, serve the Affidavit.  If you are a swimming pool contractor hired by the owner and want to foreclose your lien, serve the Affidavit.  You get the point.  (If you are not in direct contract with the owner, you do not need to serve the Affidavit, but you need to make sure you timely served your Notice to Owner; when you are in direct contract with the owner, you do not need to serve the Notice to Owner because the owner already knows you exist.)

The Contractor’s Final Payment Affidavit is a statutory form.   I suggest working with counsel to help execute to avoid any doubts with the information to include.  The unpaid amount listed should correspond with the amount in your lien and you want to identify all unpaid lienors (your subcontractors and suppliers) and amounts you believe they are owed.

If you are in direct contract with the owner, serving the Contractor’s Final Payment Affidavit is a condition precedent to foreclosing your lien.  To this point, Florida Statute s. 713.06(3)(d)(4) provides:

The contractor shall have no lien or right of action against the owner for labor, services, or materials furnished under the direct contract while in default for not giving the owner the affidavit; however, the negligent inclusion or omission of any information in the affidavit which has not prejudiced the owner does not constitute a default that operates to defeat an otherwise valid lien. The contractor shall execute the affidavit and deliver it to the owner at least 5 days before instituting an action as a prerequisite to the institution of any action to enforce his or her lien under this chapter, even if the final payment has not become due because the contract is terminated for a reason other than completion and regardless of whether the contractor has any lienors working under him or her or not.

In a recent case, A. Alexis Varela, Inc. d/b/a Varela Construction Group v. Pagio, 47 Fla. L. Weekly D1112b (Fla. 5th DCA 2022), the appeal was based on whether the contractor filed suit one day before it should have filed suit after serving the Contractor’s Final Payment Affidavit.  The Affidavit was served on 5/5/21.  The contractor then filed its lien foreclosure lawsuit on 5/10/21.  The trial could dismissed the lien action claiming the contractor did not properly comply with the 5-day condition precedent because the earliest it could have foreclosed its lien was 5/11/21.  The appellate court reversed.  The plain reading of the statue provides it should be delivered to the owner “at least 5 days before instituting an action.”  The statute does not require the lien foreclosure lawsuit to be filed no earlier than the 6th day and does not specifically preclude the lawsuit from being filed on that 5th day.

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

 

 

LIEN ATTACHES TO LANDLORD’S INTEREST WHEN LANDLORD IS PARTY TO TENANT IMPROVEMENT CONSTRUCTION CONTRACT

If you are a landlord / lessor, then you want to maximize the protections afforded to you under Florida’s Lien Law in Florida Statute s. 713.10.  These protections are designed to protect your property from liens for improvements performed by your tenant / lessee.  The intent is that if you comply with s. 713.10, then a tenant improvement contractor’s recourse is against the leasehold interest, and NOT against the interest of the real property (or your interest as the landlord / lessor).  Needless to say, it is imperative that a landlord / lessor make efforts to comply with this section when a tenant is performing tenant improvements, even when the landlord is contributing money to those improvements.

Section 713.10 provides in material part:

(1) Except as provided in s. 713.12, a lien under this part shall extend to, and only to, the right, title, and interest of the person who contracts for the improvement as such right, title, and interest exists at the commencement of the improvement or is thereafter acquired in the real property. When an improvement is made by a lessee in accordance with an agreement between such lessee and her or his lessor, the lien shall extend also to the interest of such lessor.

(2)(a) When the lease expressly provides that the interest of the lessor shall not be subject to liens for improvements made by the lessee, the lessee shall notify the contractor making any such improvements of such provision or provisions in the lease, and the knowing or willful failure of the lessee to provide such notice to the contractor shall render the contract between the lessee and the contractor voidable at the option of the contractor.

(b) The interest of the lessor is not subject to liens for improvements made by the lessee when:

      1. The lease, or a short form or a memorandum of the lease that contains the specific language in the lease prohibiting such liability, is recorded in the official records of the county where the premises are located before the recording of a notice of commencement for improvements to the premises and the terms of the lease expressly prohibit such liability; or
      2. The terms of the lease expressly prohibit such liability, and a notice advising that leases for the rental of premises on a parcel of land prohibit such liability has been recorded in the official records of the county in which the parcel of land is located before the recording of a notice of commencement for improvements to the premises, and the notice includes the following:
      3. The name of the lessor.
      4. The legal description of the parcel of land to which the notice applies.
      5. The specific language contained in the various leases prohibiting such liability.
      6. A statement that all or a majority of the leases entered into for premises on the parcel of land expressly prohibit such liability.

The recent case of K.D. Construction of Florida, Inc. v. MDM Retail, Ltd., 2021 WL 5617447 (Fla. 3d DCA 2021) demonstrates the outcome when a landlord does NOT fully comply with Florida Statute s. 713.10.  In this case, the landlord and its tenant entered into a construction agreement with a contractor to perform tenant improvements to a movie theater.  Both the tenant and the landlord were identified as the owner in the contract.  Both were signatories to the contract.  And the contract specified that the contractor agreed it was performing work on behalf of two separate owners, even though the contractor was performing separate scopes of work on behalf of the tenant and the landlord.

A metal stud and drywall subcontractor was not paid for work it performed and recorded a construction lien.  The lien attached to the landlord’s interest in the real property.  The landlord argued that this was improper – the lien should only attach to the leasehold interest under s. 713.10 (and, while not discussed, it seemed like there was a lease that prohibited such liability against the landlord’s property interest).  The trial court agreed with the landlord ruling the lien did not apply to the landlord’s real property interest.

The Third District Court of Appeal reversed the trial court: “[W]e agree with [the subcontractor] that the exception to lien liability for property owners who record a lease which prohibits such liability does not apply under the circumstances presented here [where the lessor is a party and signatory to the contract].”   K.D. Construction, supra, at *2 (string citing numerous cases relating to a landlord’s liability, or lack thereof, for tenant improvements).

Even though the landlord may have dotted certain i’s and crossed certain t’s, it was a party to a construction contract that included obligations as the owner to pay, and certain scopes were performed on behalf of the landlord.  In reality, the landlord would have been better suited not making itself a party to the contract.   Or, at a minimum, the landlord should have had a separate contract for the separate work that was being performed for it so that liens would attach relative to that work, but not all of the work being performed.

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.

 

MOVING FOR CERTIORARI RELIEF IF THE TRIAL COURT IMPROPERLY DISMISSES / DISCHARGES YOUR LIEN

Your construction lien oftentimes is your leverage to secure payment because the lien collateralizes the amount you are owed against real property, a leasehold interest, or alternative security if the lien is transferred to alternate security.  Having a court dismiss or discharge your construction lien claim is no good.  This is true even if a court dismisses or discharges a construction lien transferred to alternative security such as a lien transfer bond.  Without the lien, there is nothing securing the nonpayment—not the real property, not the leasehold interest (as discussed below), and not the alternative security if the lien is transferred.   But there is valuable recourse–moving for a petition for a writ of certiorari in the appellate court.  “Losing the benefit of a recovery under a bond on a claim to enforce a lien constitutes the type of irreparable harm necessary to entitle a party to certiorari relief.”  James B. Pirtle Construction, Co., Inc. v. Warren Henry Automobiles, Inc., 46 Fla.L.Weekly D2290a (Fla. 3d DCA 2021).

In James B. Pirtle, a contractor recorded a construction lien against a leasehold interest.   The property was owned by the City of Miami (public property) and the City leased the property to an entity, which in turn, entered into a ground lease with the defendant to construct and operate a car dealership. A dispute arose between the contractor and the defendant-tenant regarding the construction of the car dealership and the contractor recorded a construction lien against the leasehold interest.  The defendant transferred the contractor’s lien to a lien transfer bond and the contractor moved to foreclose its lien against the bond.

The defendant-tenant came up with an argument that the contractor could not even foreclose its lien against the leasehold interest because the real property was public property which is NOT lienable.  The trial court bought this argument (not sure why because the reasoning does not seem all that logical!) and the contractor’s lien was discharged.  This was reversed on appeal without a lengthy discussion because the contractor’s lien was NOT against the real property owned by the public body, but against the defendant-tenant’s leasehold interest.

The appellate court explained:

At common law, a leasehold interest was considered a type of personal property, not realty. This concept is incorporated into section 713.11, Florida Statutes, titled, ‘Liens for improving land in which the contracting party has no interest.’ In this section, Florida’s construction lien law explicitly states that ‘[w]hen the person contracting for improving real property has no interest as owner in the land, no lien shall attach to the land….

***

States and municipalities lease public property to private tenants in order to operate their facilities (e.g., parks, airports), and contractors doing work for those tenants have lien rights not on the property, but on the leasehold interest of that tenant.

James B. Pirtle, Inc., supra (internal citations omitted).

The trial court’s ruling would have ultimately meant that contractors performing work for tenants of publicly owned real property have no lien rights or ability to collateralize their nonpayment.  This naturally does not make much sense as it would simply dilute the fundamental purpose of being able to lien the tenant’s leasehold interest.  Recognizing this huge loss, the tenant moved for certiorari relief and the appellate court reversed the discharge of the lien keeping this important right alive — the lien against the defendant-tenant’s leasehold interest!

 

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.

 

RESIDENTIAL INTERIOR DECORATOR WAS ENTITLED TO LIEN AND WAS NOT ENGAGING IN UNLICENSED CONTRACTING

Residential construction disputes can sometimes take nasty turns.  This is not attributed to one specific reason, but a variety of factors.  Sometimes, there are not sophisticated contracts (or contracts at all).  Sometimes, relationships and roles get blurred.  Sometimes, parties try to skirt licensure requirements.  Sometimes, a party is just unreasonable as to their expectations.  And, sometimes, a party tries to leverage a construction lien to get what they want.  In all disputes, a party would certainly be best suited to work with construction counsel that has experience navigating construction disputes.

An example of a construction dispute that took a nasty turn involving an interior decorator is SG 2901, LLC v. Complimenti, Inc., 2021 WL 2672295 (Fla. 3d DCA 2021).  In this case, a condominium unit owner wanted to renovate his apartment. He hired an interior decorator to assist. As his renovation plans became more expansive, the interior decorator told him he would need to hire a licensed contractor and architect.  The interior decorator arranged a meeting with those professionals and, at that meeting, they were hired by the owner and told to deal directly with the interior decorator, almost in an owner’s representative capacity since the owner traveled a lot.  The interior decorator e-mailed the owner about status and requested certain authorizations, as one would expect an owner’s representative to do.  At the completion of the renovation job, the owner did not pay the interior decorator because he was unhappy with certain renovations. The interior decorator recorded a construction lien and sued the owner which included a lien foreclosure claim.  There was no discussion of the contracts in this case because, presumably, contracts were based on proposals, were bare-boned, or were oral.

The owner argued that the interior decorator should not be entitled to any monies because she was illegally acting as a general contractor, i.e., engaging in unlicensed contracting.  (The owner was arguing under Florida Statute s. 489.128 that states contracts entered into by unlicensed contractors are unenforceable as a matter of public policy.)   But there were problems with this argument, as found by the Court.  First, the evidence showed the owner did hire a general contractor who had met with the owner and was responsible for the work.  Second, the evidence showed that any person who performed a service in connection with the project was approved by and hired by the owner or the general contractor.  Third, the Court found the evidence showed the interior decorator’s scope was “specifically limited to providing design/decorating services and acting as the point of contact in a representative or agency capacity on [owner’s] behalf.” SG 2901, LLC, supra.  In other words, the evidence showed the interior decorator did not do anything wrong but acted like many interior decorators on renovation jobs by providing a service and assisting the owner with licensed professionals an owner would need to engage.

The owner also argued that the interior decorator was not entitled to a construction lien.  The trial Court disagreed because under Florida Statute s. 713.03(1), any person performing services as an interior designer are entitled to a lien for their services used in connection with improving the property or in supervising the work of improving the property.   The Court importantly noted that because the interior design services were for a residential property, an interior decorating license was NOT required.  See Florida Statute s. 481.229(6)(a) (discussing exemption for interior decorating for residential application).

The scenario discussed in this case is not an uncommon scenario on residential construction projects.  Had contracts been formalized or included certain sophistication, perhaps this dispute could have been avoided.  Possibly not. But importantly, despite the owner’s arguments to the contrary, the residential interior decorator did nothing improper.  She wasn’t required to obtain a license for residential interior decorating.  She was not acting as the general contractor.  And, she was entitled to a construction lien for unpaid services.

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.

 

MAKE SURE TO PROPERLY PERFECT AND PRESERVE CONSTRUCTION LIEN RIGHTS

If you recording a construction lien (referred to as a claim of lien) and looking to perfect your construction lien foreclosure rights, it is imperative that you work with counsel to ensure your rights are properly preserved.  This is good practice!

A claim of lien must be served on an owner within 15 days after recording.   Florida Statute s. 713.08(4)(c) says: “The claim of lien shall be served on the owner. Failure to serve any claim of lien in the manner provided in s. 713.18 before recording or within 15 days after recording shall render the claim of lien voidable to the extent that the failure or delay is shown to have been prejudicial to any person entitled to rely on the service.

Florida Statute s. 713.18, hyperlinked for your review, includes the statutory ways to serve “notices, claims of lien, affidavits, assignments, and other instruments permitted or required under [Florida Statutes Chapter 713].”

Furthermore, a contractor in privity with the owner must serve a Contractor’s Final Payment Affidavit per Florida Statute 713.06(3)(c) “at least 5 days before instituting an action as a prerequisite to the institution of any action to enforce his or her lien.”  The Contractor’s Final Payment Affidavit must also be served per s. 713.18.

The reason this is important is demonstrated in the Fourth District Court of Appeal’s opinion in Fettig’s Construction, Inc. v. Paradise Properties & Interiors LLC, 2020 WL 6479580 (Fla. 4th DCA 2020) that involved a petition for writ of certiorari to the appellate court after the trial court entered partial judgment in favor of an owner dismissing a claim of lien and lien foreclosure due to the contractor’s failure to property serve a claim of lien and Contractor’s Final Payment Affidavit on the owner.

Of importance, a trial court discharging a lien (or even lis pendens) will give rise to a basis for an appeal (petition for writ of certiorari) because it would permit an owner to immediately sell or transfer that asset—the real property— without the encumbrance of the lien which could NOT be remedied on a post-final judgment appeal.  See Fettig’s Construction, Inc. at *1.

Without getting into the nitty gritty of this case, the contractor served the lien on the owner per its addresses registered with the Secretary of State and property appraiser but not the address located in the notice of commencement.  The lien was returned undeliverable to the contractor.   The owner claimed that the contractor didn’t properly comply with the service requirements in s. 713.18.   While the trial court, somewhat surprisingly, bought this argument, the appellate court did not and reversed the judgment.   Moreover, the appellate court noted that even if the contractor did not properly serve the lien, s. 713.08 provides the lien would be voidable “to the extent that the failure or delay is shown to have been prejudicial to any person entitled to rely on the service.”  This, however, is a question of fact.

As to the Contractor’s Final Payment Affidavit, the contractor seemed to serve the Affidavit to the address in the notice of commencement, but it was returned undeliverable too.  The appellate court found this was acceptable if there was proof the non-delivery was not caused by the contractor, which would require an evidentiary to address “whether the failure of delivery was not the fault of Contractor.”  Fettig’s Construction, Inc., supra, at *4.

What does this all mean?  It means to follow the advice in the very first paragraph – work with counsel to ensure your rights regarding recording a construction lien, serving a construction lien, and preserving your rights to foreclose a construction lien are properly perfected and preserved.

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.

 

EQUITABLE LIEN DESIGNED TO PREVENT UNJUST ENRICHMENT

There are instances where a party does not have construction lien rights but, nevertheless, feels the need to pursue an equitable lien against the real property.

No different than a construction lien, an action to enforce an equitable lien has a one-year limitations period if it arises from the “furnishing of labor, services, or material for the improvement of real property.”  Fla. Stat. s. 95.11(5)(b).  In other words, an equitable lien–not nearly as powerful as a construction lien because a construction lien is recorded in the official public records whereas an equitable lien is not–is tied to an analogous one-year limitations period for those liening for construction improvements.  (Notably, if the equitable lien arises outside of the construction improvement context, the one-year statute of limitations would not apply.  See Gabriji, LLC v. Hollywood East, LLC, 45 Fla. L. Weekly D2251a (Fla. 4th DCA 2020) (one-year statute of limitations period does not apply to all equitable liens such as those that do not arise from furnishing labor, services, or material for the improvement of real property)).

An equitable lien is designed to prevent unjust enrichment when there is no adequate remedy at law although it is a completely separate cause of action than a cause of action for unjust enrichmentGabriji, supra.   An equitable lien:

[I]s “ ‘a right granted by a court of equity, arising by reason of the conduct of the parties affected which would entitle one party as a matter of equity to proceed against’ certain property.”  “Such a lien ‘may be declared by a court of equity out of general considerations of right and justice as applied to the relations of the parties and the circumstances of their dealings.’ ” 

Gabriji, supra (internal citations omitted).

However, importantly, there is also law that supports that a claim for an equitable lien must be supported by “evidence of fraud, misrepresentation, or other affirmative deception.”  Wal-Mart Stores, Inc. v. Ewell Industries, Inc., 694 So.2d  756, 757 (Fla. 1st DCA 1997); Gordon v. Flamingo Holding Partnership, 624 So.2d 294, 297 (Fla. 3d DCA 1993).  Such evidence will likely be needed to support an equitable lien in a construction context which is pursued because a party did not properly perfect construction lien or payment bond rights.  An equitable lien may be an appropriate cause of action in certain instances as an argument to pursue recourse for non-payment where the cause of action is designed to foreclose a lien based on equity–not a statute or written instrument.

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.