SERVING CONTRACTOR’S FINAL PAYMENT AFFIDAVIT BY CONTRACTORS (OR SUBCONTRACTORS) IN PRIVITY OF CONTRACT WITH PRIVATE OWNER

Posted on April 8, 2015November 8, 2024 by Edward Garber

Contractors (or even subcontractors) in privity of contract with a private owner must serve a Contractor’s Final Payment Affidavit within 5 days before foreclosing on the lien. The objective is to swear to the owner the final payment the contractor is seeking and those unpaid lienors working under the contractor. This is set forth in Florida Statute s. 713.06(3)(d) which provides:

(d) When the final payment under a direct contract becomes due the contractor:

1. The contractor shall give to the owner a final payment affidavit stating, if that be the fact, that all lienors under his or her direct contract who have timely served a notice to owner on the owner and the contractor have been paid in full or, if the fact be otherwise, showing the name of each such lienor who has not been paid in full and the amount due or to become due each for labor, services, or materials furnished. The affidavit must be in substantially the following form:

CONTRACTOR’S FINAL PAYMENT AFFIDAVIT

State of Florida

County of _______

Before me, the undersigned authority, personally appeared (name of affiant) , who, after being first duly sworn, deposes and says of his or her personal knowledge the following:

1. He or she is the (title of affiant) , of (name of contractor’s business) , which does business in the State of Florida, hereinafter referred to as the “Contractor.”

2. Contractor, pursuant to a contract with (name of owner) , hereinafter referred to as the “Owner,” has furnished or caused to be furnished labor, materials, and services for the construction of certain improvements to real property as more particularly set forth in said contract.

3. This affidavit is executed by the Contractor in accordance with section 713.06 of the Florida Statutes for the purposes of obtaining final payment from the Owner in the amount of $___.

4. All work to be performed under the contract has been fully completed, and all lienors under the direct contract have been paid in full, except the following listed lienors:

NAME OF LIENOR _______AMOUNT DUE

Signed, sealed, and delivered this ____ day of ____, ____.

[Add signature and notary seal]

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.

Not timely serving the Contractor’s Final Payment Affidavit 5 days before commencing the construction lien foreclosure action has the unkind affect of invalidating the contractor’s construction lien. See Timbercraft Enterprises v. Adams, 563 So.2d 1090 (Fla. 4^th DCA 1990) (contractor hired to clear land lost its construction lien by failing to timely serve Contractor’s Final Payment Affidavit); Sunair Development Corp. v. Gay, 509 So.2d 1361 (Fla. 2d DCA 1987) (contractor hired to perform painting and carpentry lost construction lien by failing to timely serve Contractor’s Final Payment Affidavit); Bishop Signs, Inc. v. Magee, 494 So.2d 532 (Fla. 4^th DCA 1986) (sign contractor lost its construction lien by failing to serve Contractor’s Final Payment Affidavit).

If a contractor fails to serve the Contractor’s Final Payment Affidavit before filing its lien foreclosure action, it needs to (a) promptly serve the Affidavit and file an amended complaint within the applicable statutory limitations period, (b) argue that its noncompliance should be excused, or (c) argue that the owner waived the right to invalidate the contractor’s lien through the contractor’s failure to serve a Contractor’s Final Payment Affidavit.

A. Serving Affidavit and Amending Complaint within Statutory Limitations Period

The Florida Supreme Court in Holding Electric, Inc. v. Roberts, 530 So.2d 301 (Fla. 1988) held that if a contractor fails to timely serve a Contractor’s Final Payment Affidavit before initiating a lien foreclosure lawsuit, the contractor can remedy this noncompliance by serving the affidavit and amending its complaint within the statutory limitations period. See Holding Electric, 530 So.2d at 302 (“[A]n amended complaint may be filed to show delivery of the contractor’s affidavit, provided the statute of limitations has not run prior to the filing of the amended complaint.”).

B. Noncompliance should be Excused

In Coquina, Ltd. V. Nicholson Cabinet Co., 509 So.2d 1344 (Fla. 1^st DCA 1984), noncompliance with the timely service of the Contractor’s Final Payment Affidavit was excused when the owner contested the lien by recording a Notice of Contest of Lien that shortened the statutory limitations period to foreclose the lien to 60 days and the contractor served the Affidavit 3 days (instead of 5 days) before filing suit. Notwithstanding, the Fourth District in Pierson D. Construction, Inc. v. Yudell, 863 So.2d 413 (Fla. 4^th DCA 2003) still held that the Contractor’s Final Payment Affidavit needed to be served within the applicable statutory limitations period (even if it was not served within 5 days before filing the lawsuit). In other words, not serving it at all could be fatal to the contractor’s lien foreclosure action.

Also, the Fourth District in Bishop Signs held, “[t]he applicable concern should be whether it is the type of contract which, by its nature, does not entail the services of subcontractors or the furnishing of labor or material by others.” Bishop Signs, 494 So.2d at 534. Hence, if the contractor failed to serve the Contractor’s Final Payment Affidavit, it may want to argue that its noncompliance is excused because the type of project it was hired to perform does not entail the services of suppliers or subcontractors. Though, on most projects, this is a difficult argument to realistically make!

C. Owner Waived the Right to Argue Noncompliance

In Rivera v. Hammer Head Constr. & Development Corp., 14 So.3d 1190 (Fla. 5^th DCA 2009), the contractor failed to serve the Contractor’s Final Payment Affidavit. The contractor’s complaint pled that all conditions precedent to bringing the action had occurred, had been performed, or were waived. In response to this allegation, the owner pled is was “without knowledge” as to whether this allegation was true. The owner, however, did not plead that this was not true because the contractor failed to timely serve a Contractor’s Final Payment Affidavit. As a result, when the owner raised this issue at trial to invalidate the contractor’s lien, the court held that the owner waived its right to raise this argument because the owner never pled the contractor’s non-performance with any particularity.

In conclusion, it is always good practice to timely serve the Contractor’s Final Payment Affidavit within 5 days before filing suit, even if the statutory limitations period is shortened through a Notice of Contest of Lien (or even a lawsuit to show cause). But, if the Affidavit is not timely served, there are arguments a contractor can raise under the law to try to defeat an owner’s efforts to invalidate the lien due to this noncompliance.

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

CHART SUMMARIZING ENFORCEMENT OF CONSTRUCTION LIEN AND PAYMENT BOND RIGHTS

Posted on December 30, 2014December 30, 2014 by Edward Garber

Previously, I included a chart that summarizes the preliminary notice requirements for construction liens and payment bonds in Florida. This chart focuses on steps a potential lienor / claimant must undertake to preserve lien or payment bond rights.

Now that the lienor / claimant preserved its rights to record a lien or pursue a claim against the payment bond, what are the next steps to undertake if in fact that lienor is owed money? To follow-up on this preliminary notice chart is a chart that summarizes these next steps of enforcing the lienor’s / claimant’s rights against the real property (in the case of a lien) or the payment bond.

[gview file=”https://floridaconstru.wpengine.com/wp-content/uploads/2015/07/lien-chart.pdf”]

YES, LIEN PRIORITY IS IMPORTANT

Posted on December 19, 2014November 8, 2024 by Edward Garber

When a construction lender forecloses, a lienor (e.g., contractor, subcontractor, supplier) is in a bad predicament because the lender’s mortgage will maintain priority over the lienor’s construction lien. The lienor would be named in the lender’s lawsuit (provided a lien has been recorded) because the lender will look to foreclose or wipe out the lienor’s inferior construction lien.

From a real-world standpoint, if there is not enough equity in the real property to satisfy the lender’s mortgage / loan, there is not going to be any surplus from a foreclosure sale to satisfy the inferior construction lien(s). Since a lien really is only as good as the equity in the real property being liened, if there is not any equity in the real property and/or the construction lender is foreclosing, pursuing the lien may be an exercise in futility.

Sometimes, due to the lack of equity in the real property at the time of the foreclosure, the lender will file the foreclosure lawsuit but delay in prosecuting the action. One reason is that the lender knows the owner is under water and hopes the value in the property increases down the road. The lender knows that it will ultimately take possession of the real property but at the time of the foreclosure the value of the property is much less than the amount owed under the loan.

Unfortunately, irrespective of any delay by the lender in prosecuting the foreclosure, the lender’s interest in the real property will always take priority. There is little the lienor can do to establish that its lien should jump priority over the lender’s mortgage. This point was confirmed in the non-construction case U.S. Bank National Association v. Farhood, 39 Fla. L. Weekly D12594a (Fla. 1^st DCA 2014), where the appellate court claimed that it was error for a trial court to sanction a lender in a mortgage foreclosure lawsuit for dilatory practices by deeming that a condominium association’s lien on a unit for unpaid assessments took priority over the mortgage.

So, yes, the priority of your construction lien is important and should always be a consideration in a lien foreclosure action.

INCLUDE PROPER (LIENABLE) AMOUNTS IN YOUR CONSTRUCTION LIEN!

Posted on December 13, 2014November 8, 2024 by Edward Garber

Contractors, subcontractors, and suppliers need to appreciate what amounts to actually include in a construction lien before preparing and recording that lien. Stated differently, contractors, subcontractors, and suppliers need to appreciate what items are lienable and what items are not. In a nutshell, the item needs to relate to a labor, service, or material constituting an improvement to the real property—the item needs to bestow a permanent benefit on the real property and should be performed under another’s (e.g., general contractor) direct contract with the owner.

Not every item constitutes an improvement / bestows a permanent benefit to real property.

Items that have NOT been found to be properly lienable include without limitation:

Extended general conditions / delay damages;
Residential cleaning;
Maintenance services including landscaping and pool upkeep (see example below);
Materials from a supplier not incorporated into property (excluding specially fabricated materials);
Lost profit;
Expert witness services;
Insurance and property tax payments for partially constructed home (see example below);
Constructing a removable kiosk at a mall (see example below); and
Extras (change order work) not performed in good faith, pursuant to the terms of a contract, within a reasonable time, and were unnecessary to finish a job.

For example, in Palm Beach Mall, Inc. v. Southeast Millwork, Inc., 593 So.2d 1121 (Fla. 4^th DCA 1992), a contractor constructed a kiosk in a mall and recorded a lien for unpaid amounts. The kiosk was not a permanent improvement to the mall, but was removable at the termination of the tenant’s lease. The Court held that the contractor could not lien for constructing the kiosk.

As another example, in Levin v. Palm Coast Builders and Const. Inc., 840 So.2d 316 (Fla. 4^th DCA 2003), a contractor recorded a lien that included costs for lawn maintenance, pool upkeep, utility charges, and association maintenance fees. Not only did the Court hold that these items were not lienable, but affirmed that the lien was fraudulent!

And, as the last example, in Sam Rodgers Properties, Inc. v. Chmura, 61 So.3d 432 (Fla. 2d DCA 2011), discussed in detail in a previous posting, a contractor was building a custom home when a payment dispute arose. The owner stopped making payments and the contractor ceased construction and recorded a lien. Subsequently, the contractor performed additional work to protect the unfinished structure from the elements and amended its lien to include these amounts as well as property taxes and insurance the contractor paid on the property. Regarding the additional work to protect the unfinished structure, the Court held that these amounts were lienable: “All of these items were contemplated by the contract, and all of them were completed in a good faith effort to secure the property and mitigate damages so that a bad situation did not become worse.” Chmura, 61 So.3d at 439. But, as it related to the property taxes and insurance, the Court held these items were not lienable as they pertained to the maintenance of the property as opposed to improvement of the property.

By including inappropriate amounts in a lien, a lienor runs the risk of having its lien declared fraudulent under Florida’s Lien Law that would not only render the lien invalid, but expose the lienor to liability. Do not let this happen to you!