Subcontractors and suppliers need to know the preliminary notices (such as a Notice to Owner for liens or Notice to Contractor for payment bonds) that need to be served to preserve their lien or payment bond rights on private projects.
A. Obtaining a Copy of the Notice of Commencement
The first thing a potential lienor should do is obtain the Notice of Commencement for the project (or any Amended Notice of Commencement). The Notice of Commencement will be recorded in the official records where the project is located and will provide a potential lienor with a description of the real property, the owner’s information, the contractor’s information, the construction lender’s information, whether the contractor has a payment bond (which should be recorded with the Notice of Commencement), and persons other than the owner that the Notice to Owner needs to be served on.
B. Preliminary Notices for Liens- the Notice to Owner
If there is no payment bond recorded with the Notice of Commencement, then the potential lienor knows it wants to preserve its lien rights. Entities not in privity of contract with the owner will need to serve a Notice to Owner. The Notice to Owner must set “forth the lienor’s name and address, a description sufficient for identification of the real property, and the nature of the services or materials furnished or to be furnished.” Fla. Stat. s. 713.06(2). A statutory form is included in Florida’s Lien Law (Florida States Chapter 713) and set forth at the bottom of this posting. Importantly, the Notice to Owner must be served by the potential lienor “before commencing, or not later than 45 days after commencing, to furnish his or her labor, services, or materials.” Fla. Stat. s. 713.06(2). The key is that the Notice to Owner must be served within 45 days of the entity’s initial furnishing. For instance, a supplier’s initial furnishing is when the materials arrive on site. However, a supplier of specially fabricated material’s initial furnishing is when the supplier started fabrication irrespective of when the materials arrived on site. A company supplying construction rental equipment’s initial furnishing is when the rental equipment arrived on site. And, a subcontractor’s initial furnishing is when it first starts to furnish labor, services, or materials for the project. Again, there is no reason to delay serving the Notice to Owner – it should be served immediately as a matter of course.
A copy of the Notice to Owner should be served on the contractor if the potential lienor was not hired by the contractor in addition to the potential lienor’s customer’s customer. In other words: “A sub-subcontractor or a materialman to a subcontractor must serve a copy of the notice on the contractor as a prerequisite to perfecting a lien under this chapter and recording a claim of lien. A materialman to a sub-subcontractor must serve a copy of the notice to owner on the contractor as a prerequisite to perfecting a lien under this chapter and recording a claim of lien. A materialman to a sub-subcontractor shall serve the notice to owner on the subcontractor [potential lienor’s customer’s customer] if the materialman knows the name and address of the subcontractor.” Fla. Stat. 713.06(2). (Lien rights, however, are not automatic in that the further removed an entity is from the owner may impact whether or not that entity has lien rights. For example, a sub-sub-subcontractor does not have lien rights and a supplier to a supplier is not going to have lien rights. On the other hand, sub-subcontractors will have lien rights and a supplier to a sub-subcontractor should also have lien rights.)
C. Preliminary Notices for Payment Bonds-the Notice to Contractor and the Notice of Nonpayment
Now, if there is a payment bond in place, the owner’s property is exempt from liens and the entities should look to the payment bond for payment. In this case, entities not in privity of contract with the general / prime contractor “before beginning or within 45 days after beginning to furnish labor, materials, or supplies…shall serve the contractor with notice in writing that the lienor will look to the contractor’s bond for protection on the work.” Fla. Stat. s. 713.23(1)(c). Similar to the Notice to Owner, this Notice to Contractor of the potential lienor’s intent to look to the bond must be served within 45 days of initial furnishing. A statutory form for this notice is also included in Florida’s Lien Law and further set forth at the bottom of this posting. Importantly, if a lienor is unsure and/or wants to preserve both lien and payment bond rights the lienor can combine the Notice to Owner form with the Notice to Contractor form by calling the Notice to Owner form “NOTICE TO OWNER/NOTICE TO CONTRACTOR.” This is actually common as it kills two birds with one stone in the event the lienor is unsure and wants to preserve both lien and bond rights.
However, unlike perfecting a lien claim, potential lienors looking to recover under a payment bond for a private project must serve a Notice of Nonpayment to the contractor and payment bond surety within 90 days of finial furnishing at the project. (As it relates primarily to subcontractors, “The failure of a lienor to receive retainage sums not in excess of 10 percent of the value of labor, services, or materials furnished by the lienor is not considered a nonpayment requiring the service of the notice provided under this paragraph. Fla. Stat. s. 713.23(1)(d).) This Notice of Nonpayment even needs to be served by the subcontractor/supplier in privity of contract with the general contractor (even though the preliminary Notice to Contractor does not need to be served by the subcontractor/supplier in privity of contract with the general contractor). Final furnishing refers to the last date the lienor furnished labor, services or materials (excluding warranty or punchlist work). With respect to companies that furnish rental equipment, this final furnishing date is measured from the last date the rental equipment was on the project site and available for use.
Understanding the specific preliminary notices that need to be served and the timing of these notices is important to ensure that a subcontractor, supplier, etc. is properly preserving their lien or bond rights.
D. Preliminary Notice Companies
There are numerous companies that cost effectively assist subcontractors and suppliers with serving preliminary notices as a matter of course based on the information provided by the subcontractor and supplier. This is important to ensure the company preserves lien and bond rights!
One such emerging company that can assist with the generation, preparation and service of preliminary notices is FileMyPrelim (www.filemyprelim.com) with its cool, innovative web-based platform called PrelimTracker (www.prelimtracker.com). FileMyPrelim and PrelimTracker have developed a preliminary notice service and tracking platform that adapts to a construction industry that is evolving with the generation and transmission of electronic documentation. What is really cool is that by using FileMyPrelim, the lienor’s data is stored and tracked with PrelimTracker. Because these preliminary notices (whether it is a Notice to Owner, Notice to Contractor, etc.) are linked to PrelimTracker, the general contractor, the owner, and even the owner’s construction lender can universally track those entities that served the preliminary notices jointly on this web-based platform. By doing this, the general contractor, owner, and lender are all on the same page to ensure that those entities that preserved lien rights are properly transmitting releases of lien in consideration of progress payments (so that their lien rights are released through a specified date) and that a final release of lien is given in consideration of final payment to that lienor. In fact, PrelimTracker can generate the lienor’s release of lien based on the information provided by the lienor and transmit it electronically with a secure electronic signature. This allows all of the lienor’s releases to be stored and tracked in a platform accessible to the project team. Even if a lien could not be recorded against the owner’s project because the general contractor furnished a payment bond, PrelimTracker could track the preliminary notices from lienors served through FileMyPrelim preserving payment bond rights to ensure the general contractor is obtaining releases of lien from those entities. (Keep in mind, PrelimTracker provides value as it pulls data compiled in FileMyPrelim to report critical lien related documents.) Check out the website links to learn more about this emerging technology that can serve as a beneficial tool to the entire project team.
E. Preliminary Notice Forms
Preliminary Notice for Liens
WARNING! FLORIDA’S CONSTRUCTION LIEN LAW ALLOWS SOME UNPAID CONTRACTORS, SUBCONTRACTORS, AND MATERIAL SUPPLIERS TO FILE LIENS AGAINST YOUR PROPERTY EVEN IF YOU HAVE MADE PAYMENT IN FULL.
UNDER FLORIDA LAW, YOUR FAILURE TO MAKE SURE THAT WE ARE PAID MAY RESULT IN A LIEN AGAINST YOUR PROPERTY AND YOUR PAYING TWICE.
TO AVOID A LIEN AND PAYING TWICE, YOU MUST OBTAIN A WRITTEN RELEASE FROM US EVERY TIME YOU PAY YOUR CONTRACTOR.
NOTICE TO OWNER
To (Owner’s name and address)
The undersigned hereby informs you that he or she has furnished or is furnishing services or materials as follows:
(General description of services or materials) for the improvement of the real property identified as (property description) under an order given by____________.
Florida law prescribes the serving of this notice and restricts your right to make payments under your contract in accordance with Section 713.06, Florida Statutes.
IMPORTANT INFORMATION FOR
Under Florida’s laws, those who work on your property or provide materials and are not paid have a right to enforce their claim for payment against your property. This claim is known as a construction lien.
If your contractor fails to pay subcontractors or material suppliers or neglects to make other legally required payments, the people who are owed money may look to your property for payment, EVEN IF YOU HAVE PAID YOUR CONTRACTOR IN FULL.
–RECOGNIZE that this Notice to Owner may result in a lien against your property unless all those supplying a Notice to Owner have been paid.
–LEARN more about the Construction Lien Law, Chapter 713, Part I, Florida Statutes, and the meaning of this notice by contacting an attorney or the Florida Department of Business and Professional Regulation.
Copies to: (Those persons listed in Section 713.06(2)(a) and (b), Florida Statutes)
Preliminary Notices for Payment Bonds
NOTICE TO CONTRACTOR
To (name and address of contractor)
The undersigned hereby informs you that he or she has furnished or is furnishing services or materials as follows:
(general description of services or materials) for the improvement of the real property identified as (property description) under an order given by (lienor’s customer) .
This notice is to inform you that the undersigned intends to look to the contractor’s bond to secure payment for the furnishing of materials or services for the improvement of the real property.
(name of lienor)
(signature of lienor or lienor’s representative)
NOTICE OF NONPAYMENT
To (name of contractor and address)
(name of surety and address)
The undersigned notifies you that he or she has furnished (describe labor, services, or materials) for the improvement of the real property identified as (property description) The amount now due and unpaid is $___.
(signature and address of lienor)
Please contact David Adelstein at firstname.lastname@example.org or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.