ARE YOU A CONSTRUCTION LIENOR?

Posted on November 11, 2017November 11, 2017 by Edward Garber

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

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

(18) “Lienor” means a person who is:

(a) A contractor;

(b) A subcontractor;

(d) A laborer;

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

(f) A professional lienor under s. 713.03;

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

Let’s break this down.

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

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

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

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

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

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

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

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

RECOMMENCING CONSTRUCTION ON A PROJECT DUE TO A CESSATION OR ABANDONMENT

Posted on October 21, 2017October 21, 2017 by Edward Garber

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

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

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

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

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

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

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

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

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

OWNERS SHOULD SERVE REQUEST FOR SWORN STATEMENT OF ACCOUNT ON LIENOR

Posted on August 6, 2017August 6, 2017 by Edward Garber

When an owner receives a construction lien, an owner should serve the lienor with a Request for Sworn Statement of Account. The Request for Sworn Statement is authorized by Florida Statute s. 713.16(2) and should be in the following form:

REQUEST FOR SWORN STATEMENT OF ACCOUNT

WARNING: YOUR FAILURE TO FURNISH THE REQUESTED STATEMENT, SIGNED UNDER OATH, WITHIN 30 DAYS OR THE FURNISHING OF A FALSE STATEMENT WILL RESULT IN THE LOSS OF YOUR LIEN.

To: (Lienor’s name and address)

The undersigned hereby demands a written statement under oath of his or her account showing the nature of the labor or services performed and to be performed, if any, the materials furnished, the materials to be furnished, if known, the amount paid on account to date, the amount due, and the amount to become due, if known, as of the date of the statement for the improvement of real property identified as (property description) .

(name of contractor)

(name of the lienor’s customer, as set forth in the lienor’s Notice to Owner, if such notice has been served)

(signature and address of owner)
(date of request for sworn statement of account)

From both an owner and lienor’s perspective, the bolded, capitalized language is key. It states that if the lienor fails to respond under oath within 30 days, it will LOSE its lien. That is a very punitive measure for a lienor’s failure to respond, meaning a lienor should absolutely respond, no questions asked. Plus, a lienor’s response to a Request for Sworn Statement of Account is not a burdensome ordeal. It is pretty simple, as exemplified in the response form below.

RESPONSE TO REQUEST FOR SWORN STATEMENT OF ACCOUNT

To: [Owner]

[Lienor] performed _____________ at the Owner’s project.
[Lienor] has been paid $________ to date.
The principal amount remaining due and owing [Lienor] is $___________.
The amount to become due to [Lienor] is $______________.

____________________________

[Lienor], Authorized Representative

STATE OF FLORIDA

COUNTY OF ______

Sworn to and subscribed before me this ____ day of _______, by ________ of [Lienor], who is personally known to me and who did take an oath.

Again, a lienor’s failure to respond under oath will result in a LOSS of its lien and court’s have not been sympathetic to a lienor’s failure to properly or timely respond. See, e.g., Palmer Elec. Services, Inc. v. Filler, 482 So.2d 509 (Fla. 2d DCA 1986) (lienor lost lien by failing to respond to owner’s Request for Sworn Statement, even though request failed to recite statute or the bolded and capitalized warning); accord Stresscon v. Madiedo, 582 So.2d 158 (Fla. 1991) (affirming that lienor’s failure to respond under oath to Request for Sworn Statement of Account is fatal to its lien and cannot be cured after-the-fact); Gonas v. Home Elec. of Dade County, Inc., 537 So.2d 490 (Fla. 3d DCA 1988) (reversing summary judgment in favor of lienor because lienor failed to respond to Request for Sworn Statement of Account even though Request did not specify statute or include the bolded and capitalized warning) aff’d by Home Elec. of Dade County, Inv. V. Gonas, 547 So.2d 209 (Fla. 1989).

There are only two instances when a lienor does not have to respond to an Owner’s Request for Sworn Statement of Account: (1) the lienor has already filed its lien foreclosure lawsuit – the Request for Sworn Statement was served on the liener after the lienor filed suit or (2) the Owner has already served a Request for Sworn Statement of Account and the lienor’s response will be the same as a prior response. Even with these two instances, a lienor should always make it a habit to respond because, as shown above, the response is uncomplicated. And, it is always advisable for a lienor to work with counsel to ensure its response is perfected and served since the failure to do so will result in the punitive loss of its lien.

TERMINATING THE NOTICE OF COMMENCEMENT (WITH A NOTICE OF TERMINATION)

Posted on July 6, 2017July 6, 2017 by Edward Garber

The notice of commencement is important for purposes of construction lien priority. Stock Bldg. Supply of Florida, Inc. v. Soares Da Costa Const. Services, LLC, 76 So.3d 313, 317 (Fla. 3d DCA 2011) (“[A] notice of commencement serves to determine the priority of liens under the Construction Lien Law.”). A lien relates back in time to the date the notice of commencement was recorded assuming the notice of commencement is still in effect when the lien is recorded (or an amended noticed of commencement is recorded). Lien priority is very important and the reason why a contractor should always want to ensure there is an effective notice of commencement in place rather than an expired notice of commencement.

For the same reasons why a contractor wants to ensure there is an effective notice of commencement, there are times an owner wants to terminate a notice of commencement. An owner may want to terminate the potential priority of a construction lien. For instance, say the owner is refinancing or obtaining a construction loan in the midst of construction. A lender will want to ensure its mortgage maintains first priority and certainly priority over a potential construction lien. Otherwise, why would a lender finance the construction if it does not maintain first priority. It generally will not. Thus, an owner needs to terminate the notice of commencement so that the closing occurs on the loan and the mortgage recorded before a new notice of commencement is recorded and construction continues.

Florida Statute s. 713.132 allows an owner to statutorily terminate the effectiveness of a notice of commencement by recording a notice of termination. It is a statutory procedure that must be followed and it is important that an owner and contractor seek the assistance of counsel in following this procedure. The statute contains in relevant part:

(3) An owner may not record a notice of termination except after completion of construction, or after construction ceases before completion and all lienors have been paid in full or pro rata in accordance with s. 713.06(4). If an owner or a contractor, by fraud or collusion, knowingly makes any fraudulent statement or affidavit in a notice of termination or any accompanying affidavit, the owner and the contractor, or either of them, as the case may be, is liable to any lienor who suffers damages as a result of the filing of the fraudulent notice of termination; and any such lienor has a right of action for damages occasioned thereby.

(4) A notice of termination is effective to terminate the notice of commencement at the later of 30 days after recording of the notice of termination or the date stated in the notice of termination as the date on which the notice of commencement is terminated, if the notice of termination has been served pursuant to paragraph (1)(f) on the contractor and on each lienor who has a direct contract with the owner or who has served a notice to owner.

“If a notice of termination of a notice of commencement is recorded as a result of the cessation of construction, a new notice of commencement must be recorded before completion of the improvement may be recommenced.” Stock Bldg. Supply of Florida, 76 So.3d at 317-18.

From a lienor’s perspective, it is important that they understand that when a new notice of commencement is recorded, the lienor must re-serve any required notices to preserve lien or bond rights (such as a notice to owner or notice of intent to look to the contractor’s bond). Stock Bldg. Supply of Florida, 76 So.3d at 318 (when owner recorded new notice of commencement, the project began anew and lienor was required to re-serve notices under Florida’s Construction Lien Law).

CONTRACTORS SHOULD NOT FORGET TO DELIVER CONTRACTOR’S FINAL PAYMENT AFFIDAVIT

Posted on May 28, 2017May 28, 2017 by Edward Garber

If you are a contractor and entered into a contract with an owner, then you need to serve the owner with a Contractor’s Final Payment Affidavit at least 5 days before filing a lien foreclosure lawsuit. Fla. Stat. s. 713.06(3)(d). Many times, when I am preparing a lien for a contractor, I like to work with the contractor on the Contractor’s Final Payment Affidavit at the same time as the lien to (for lack of a better phrase) kill two birds with one stone. This way, both the lien and Contractors’ Final Payment Affidavit can be served on the owner at the same time and the contractor has perfected its right to foreclose on the lien when it is ready to do so.

As Florida Statute s. 713.06(3)(d) states:

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.

Failing to serve the Contractor’s Final Payment Affidavit can be hugely detrimental to an otherwise valid lien. Without serving the Contractor’s Final Payment Affidavit, the lien foreclosure lawsuit is not proper and should be dismissed.

For example, in Puya v. Superior Pools, Spas & Waterfalls, Inc., 902 So.2d 973 (Fla. 4^th DCA 2005), a swimming pool contractor hired by a homeowner filed a lien foreclosure lawsuit and received a foreclosure judgment in its favor. There was one huge problem. The contractor never served a Contractor’s Final Payment Affidavit 5 days before filing the lawsuit. The Fourth District reversed the foreclosure judgment because the contractor’s failure to serve the Contractor’s Final Payment Affidavit deprived the contractor of the right to foreclose on the lien: “Where a contractor fails to timely furnish a final payment affidavit, the owner is generally entitled to dismissal of the contractor’s foreclosure lawsuit.” Puya, 902 So.2d at 974. See also Nichols v. Michael D. Eicholtz, Enterprise, 750 So.2d 719 (Fla. 5^th DCA 2000) (affirming trial court’s dismissal of lien foreclosure action where contractor failed to properly provide contractor’s final payment affidavit).

FLORIDA’S LIEN LAW AND SUBSTANTIAL COMPLIANCE VS. STRICT COMPLIANCE

Posted on April 14, 2017April 14, 2017 by Edward Garber

There 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.

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

Posted on March 18, 2017March 18, 2017 by Edward Garber

All 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.

SIGNIFICANT ISSUES TEST APPLIES TO FRAUDULENT LIEN CLAIMS TO DETERMINE ATTORNEY’S FEES

Posted on January 8, 2017January 8, 2017 by Edward Garber

Construction lienors need to appreciate on the frontend that recovering statutory attorney’s fees in a construction lien action is NOT automatic—far from it. This is because the prevailing party for purposes of attorney’s fees in a construction lien action is determined by the “significant issues test,” a subjective test with no bright line standards based on who the trial court finds prevailed on the significant issues in the case. If you want to talk about the subjective and convoluted nature of recovering attorney’s fees in a construction lien action under the significant issues test, a recent opinion by the Fourth District Court of Appeal is unfortunately another nail in the coffin.

In Newman v. Guerra, 2017 WL 33702 (Fla. 4th DCA 2017), a contractor recorded a construction lien on a residential renovation project and filed a lien foreclosure lawsuit. The homeowner countersued the contractor and asserted a fraudulent lien claim pursuant to Florida Statute s. 713.31. An evidentiary hearing was held on whether the lien was a fraudulent lien and the trial court held that the lien was fraudulent (therefore unenforceable) because it included amounts that were not lienable under the law. The remaining claims including both parties’ breach of contract claims proceeded to trial. There was no attorney’s fees provision in the contract. At the conclusion of the trial, the court found that the contractor was entitled a monetary judgment on its breach of contract claim.

Question: If the owner prevailed in the contractor’s construction lien claim and established that the lien was in fact fraudulent, is the owner entitled to his statutory attorney’s fees?

While equity may suggest “yes” as the answer, the answer is not necessarily. This is because of the significant issues test where the court is going to look at the outcome of the entire litigation to determine the party that prevailed on the significant issues in the entire case. Since the contractor ultimately recovered a money judgment, the court held the owner was not the prevailing party for purposes of attorney’s fees under the significant issues test. The contractor was not either, but this is beside the point since the owner established the lien was fraudulent and the contractor recovered a money judgment under a breach of contract claim that did not provide for attorney’s fees. Nonetheless, the court maintained:

In sum, the trial court properly applied the “significant issues” test…in denying the homeowner’s claim for attorney’s fees under section 713.31 [fraudulent lien statute]. Even if a party prevails on a fraudulent lien claim, the party must be the prevailing party in the case as a whole to be entitled to attorney’s fees under section 713.31.

Newman, supra, at *4.

FINAL FURNISHING DATE IS A QUESTION OF FACT

Posted on November 7, 2016November 7, 2016 by Edward Garber

Construction liens need to be recorded within 90 days from the lienor’s final furnishing date on the project. This date is exclusive of punchlist or warranty work. The final furnishing date needs to be proven at trial to establish that the construction lien was timely recorded. If there is an evidentiary dispute as the final furnishing date (the contractor claims the date was “x” to establish the lien was timely and the owner claims the date was “y” to establish the lien was untimely), then the date is a question of fact to be determined by the jury.

For instance, in Best Drywall Services, Inc. v. Blasczyk, 2016 WL 6246701 (Fla. 2d DCA 2016), a contractor and owner entered into an oral agreement for a residential renovation project. The contractor recorded a construction lien after its final two invoices went unpaid. During trial, the contractor offered conflicting evidence as to when its final furnishing date on the project was. Numerous dates were offered in the record including dates that were more than 90 days prior to the date the contractor recorded its lien, meaning the lien was arguably untimely. As a result, the trial judge entered a directed verdict in favor of the owner and against the contractor on the contractor’s lien claim finding the lien was untimely recorded.

On appeal, the Second District reversed the directed verdict against the contractor on its construction lien expressing that the conflicting evidence on different final furnishing dates was sufficient to create an issue of fact for the jury to determine the timeliness of the contractor’s lien–“If there are conflicts in the evidence or different reasonable inferences that may be drawn from the evidence, the issue is factual and should be submitted to the jury.” Best Drywall Services, Inc. supra quoting Simz v. Cristinzio, 898 So.2d 1004, 1005 (Fla. 2d DCA 2005).

The final furnishing date is an important part of any construction lien claim to establish the timeliness of the lien. Make sure this final furnishing date can be supported by reasonable competent evidence (testimonial evidence supported by daily reports, payroll records, pay apps, inspections, etc.).

PROPERLY TERMINATING A NOTICE OF COMMENCEMENT

Posted on September 26, 2016September 26, 2016 by Edward Garber

In prior postings I have discussed the importance of the notice of commencement, particularly when it comes to notifying lienors of applicable information regarding their construction lien or payment bond rights and the priority of construction liens.

In certain circumstances, it may be in an owner’s best interest to terminate the effectiveness of the notice of commencement by recording a notice of termination of the notice of commencement. This is governed by Florida Statute s. 713.132 set forth at the bottom of this article.

An owner cannot record a notice of termination of the notice of commencement as a “gotcha” tactic simply because it does not want to pay lienors or wants to lessen the value of potential liens by impacting the priority of those liens. If this were the case, owners may regularly try to employ this tactic as a means to reduce payment obligations or pay cents on the dollar (since a construction lien is only as good as the priority of that lien and the equity in the real property). To this point, s. 713.132(3) specifies those occasions when an owner can record a notice of termination of a notice of commencement:

An owner may not record a notice of termination except after completion of construction, or after construction ceases before completion and all lienors have been paid in full or pro rata in accordance with s. 713.06(4). If an owner or a contractor, by fraud or collusion, knowingly makes any fraudulent statement or affidavit in a notice of termination or any accompanying affidavit, the owner and the contractor, or either of them, as the case may be, is liable to any lienor who suffers damages as a result of the filing of the fraudulent notice of termination; and any such lienor has a right of action for damages occasioned thereby.

In a nutshell, an owner may terminate the notice of commencement by:

Recording a notice of termination that references the OR BK and PG of the notice of commencement and contains the same information in the notice of commencement;
Identifying the date in the notice of termination that the notice of commencement will be terminated, but the termination cannot be less than 30 days after the notice of termination is recorded (meaning the notice of commencement will NOT be terminated until at least 30 days after it is recorded);
Stating that ALL lienors have been paid in full;
Stating that before recording the notice of termination of the notice of commencement, the owner served a copy of the notice of termination on its contractor, anyone directly hired by the owner, and on anyone that served a notice to owner UNLESS the owner received a final waiver and release of lien upon final payment from that lienor; and
Including the contractor’s payment affidavit identifying the amount it is owed and that it owes lienors, which the owner can rely on in preparing the notice of termination.

Once the notice of termination of the notice of commencement is recorded, construction liens recorded after the termination will NOT relate back to the notice of commencement (thus, impacting the priority of the liens). This is why it is important to record any construction lien within 30 days once you receive a notice of termination of the notice of commencement if you have NOT been paid in full or there is a payment dispute.

For example, in Lasalle Bank National Association v. Blackton, Inc., 9 So.3d 329 (Fla. 5^th DCA 2011), the home-builder recoded a notice of termination of the notice of commencement that terminated the notice of commencement 30 days from its recording. Attached to the notice of termination was the homebuilder’s payment affidavit. There were no liens within this 30-day window. After homeowners moved into the house and their mortgage was recorded, they notified the homebuilder of certain defects/warranty items, and the homebuilder engaged a new subcontractor to fix the defects/warranty items. The subcontractor was not paid and recorded a lien. The issue was whether the subcontractor’s lien related back to the notice of commencement and took priority over the homeowners’ mortgage. The Fifth District Court of Appeal held that the mortgage had priority since the notice of commencement was terminated and the lien was recorded after the notice of commencement had been terminated. This meant the lien was inferior to the mortgage.