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

shutterstock_46898038If 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. 4th 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. 5th DCA 2000) (affirming trial court’s dismissal of lien foreclosure action where contractor failed to properly provide contractor’s final payment affidavit).

 

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.

 

OWNER REQUESTING PROGRESS PAYMENT AFFIDAVITS FROM CONTRACTOR

imagesFlorida’s Lien Law provides an owner, in particular, an infrequently used tool to take advantage of before making a progress payment to a contractor.

 

Previously, I talked about a contractor’s requirement to furnish the owner with a final payment affidavit before foreclosing on its construction lien.

 

But, an owner can request for a contractor to serve a progress payment affidavit before making a progress payment to a contractor.  The owner, however, seldom requests this progress payment affidavit before making a progress payment.

 

Florida Statute s. 713.06(3)(c) provides:

 

(c) When any payment becomes due to the contractor on the direct contract, except the final payment:

1. The owner shall pay or cause to be paid, within the limitations imposed by subparagraph 2., the sum then due to each lienor giving notice prior to the time of the payment. The owner may require, and, in such event, the contractor shall furnish as a prerequisite to requiring payment to himself or herself, an affidavit as prescribed in subparagraph (d)1., on any payment made, or to be made, on a direct contract, but the furnishing of the affidavit shall not relieve the owner of his or her responsibility to pay or cause to be paid all lienors giving notice. The owner shall be under no obligation to any lienor, except laborers, from whom he or she has not received a notice to owner at the time of making a payment.

2. When the payment due is insufficient to pay all bills of lienors giving notice, the owner shall prorate the amount then due under the direct contract among the lienors giving notice pro rata in the manner prescribed in subsection (4). Lienors receiving money shall execute partial releases, as provided in s. 713.20(2), to the extent of the payment received.

3. If any affidavit permitted hereunder recites any outstanding bills for labor, services, or materials, the owner may pay the bills in full direct to the person or firm to which they are due if the balance due on the direct contract at the time the affidavit is given is sufficient to pay the bills and shall deduct the amounts so paid from the balance of payment due the contractor. This subparagraph shall not create any obligation of the owner to pay any person who is not a lienor giving notice.

4. No person furnishing labor or material, or both, who is required to serve a notice under paragraph (2)(a) and who did not serve the notice and whose time for service has expired shall be entitled to be paid by the owner because he or she is listed in an affidavit furnished by the contractor under subparagraph (c)1.

 

One reason an owner should want to comply with these provisions in Florida’s Lien Law and request a progress payment affidavit is to safeguard what is known as the proper payments defense.  Under the proper payments defense, an owner will not be liable for construction liens that exceed the owner’s contract price with its contractor.  See Continental Concrete, Inc. v. Lakes at La Paz III Ltd. Partnership, 758 So.2d 1214 (Fla. 4th DCA 2014) (“The [proper] payment defense provides that where an owner fulfills all the duties the Mechanics’ Lien Law places upon him, his liability for all mechanics’ lien claims cannot exceed the contract price.”) (internal citation omitted).  But, for the proper payments defense to apply, an owner is required to comply with the requirements of Florida’s Lien Law. An owner makes proper payments by obtaining progress payment affidavits in consideration of each progress payment made to the contractor (and a final payment affidavit in consideration of the final payment) and by getting progress / partial lien wavers and releases from the contractor and subcontractors and suppliers that preserved their lien rights (and a final lien waiver / release in consideration of final payment).

 

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

 

 

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

imagesContractors (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. 4th 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. 4th 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 periodSee 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. 1st 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. 4th 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. 5th 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.

 

PRESERVING CONSTRUCTION LIEN RIGHTS BY SERVING A NOTICE TO OWNER

UnknownEntities such as subcontractors and suppliers that are not in privity of contract with the owner are required to serve a notice to owner in order to perfect their construction lien rights. See Fla. Stat. 713.06. Not timely serving a notice to owner can be fatal to a lien foreclosure action by an entity that is not in privity of contract with an owner.

 

 
The case of Marble Unlimited, Inc. v. Weston Real Estate Investment Corp., 38 Fla. L. Weekly D686b (4th DCA 2013) discusses notices to owners. In this case, a marble contractor contracted directly with the owner to install granite countertops in condominium units. (Due to the privity of contract, a notice to owner was not required.) The owner, at some point during construction, transferred its ownership of condominium units to a related entity. The issue was whether the marble contractor should have served a notice to owner on the “new” owner of the condominium units. The Fourth District said NO!, i.e., this would simply “allow corporate owners to play a shell game with ownership and frustrate the valid claims of contractors who complete work on real property.” Marble Unlimited.

 
Importantly, the Fourth District discussed cases when there is common ownership between the owner and the contractor. For example, let’s assume an owner and contractor, although maintain separate corporate names, have a common identity. The contractor then hires a subcontractor. In this situation, there is an argument that the subcontractor does not need to serve a notice to owner on the owner because no prejudice would exist to the owner that should be aware of the subcontractor based on its common identify with the entity that hired the subcontractor. See Marble Unlimited discussing Aetna Cas. & Surety Co. v. Buck, 594 So.2d 280 (Fla. 1992) and Boux v. East Hillsborough Apartments, Inc., 218 So.2d 202 (Fla. 2d DCA 1969).

 

 
In an abundance of caution, an entity not in privity with an owner should serve a notice to owner to preserve its lien rights as a matter of course, even when the owner and general contractor share a common identity / ownership. The entity should know prior to performing work whether they will have payment bond or lien rights in the event of nonpayment, and undertake actions to ensure they are preserving their rights from the get-go.

 

 

For more information on Notice to Owner, please see: http://www.floridaconstructionlegalupdates.com/contractors-and-suppliers-do-not-neglect-the-notice-requirements-in-floridas-lien-law/

 

 

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.

CONTRACTORS AND SUPPLIERS-DO NOT NEGLECT THE NOTICE REQUIREMENTS IN FLORIDA’S LIEN LAW

imagesOftentimes, subcontractors, suppliers, and sub-subcontractors rely on companies to serve the statutory notices that are prerequisites to preserving a lien or bond claim under Florida’s Lien Law in the event of nonpayment.  However, if these notices are not served in accordance with Florida’s Lien Law, the outcome could be injurious to the subcontractor, supplier, or sub-subcontractor.  Stated differently, the outcome could mean a loss of lien or bond rights which may be the only true leverage the party has to secure payment.

 

The case of Stock Building Supply, Inc. v. Soares Da Costa Construction Services, LLC, 36 Fla. L. Weekly D2200a (Fla. 3d DCA 2011), illustrates the absolute importance of complying with the notice requirements in Florida’s Lien Law.

 

 

In this case, an owner hired a contractor to build a condominium.  The contractor subcontracted with a structural shell subcontractor which, interestingly, held a 40% ownership interest in the contractor.   The subcontractor engaged a supplier to provide rebar to the project.  The contractor also engaged the same supplier to provide certain materials to the project.  To graphically illustrate:

 

 

Contractor –> Shell Subcontractor –> Supplier

and

Contractor –> Supplier

 

 

Originally, there was no payment bond on the project.  Therefore, once the supplier was engaged to provide materials, it served a statutory notice to owner on the contractor and the owner stating that it was supplying materials under an order given by the subcontractor.  It served a second notice to owner on the contractor and owner stating it was supplying materials under an order given by contractor. (Notably, Florida Statute §713.06 requires lienors not in privity of contract with the owner to serve a notice to owner on the owner no later than 45 days after commencing services.  The notice should also be served on anyone up the chain to the owner the lienor is not in privity of contract with, i.e., the sub-subcontractor or supplier to the subcontractor should serve the notice on the contractor too.  This is a mandatory statutory notice if there is not a payment bond in place.)

 

 

Shortly after construction commenced, there was a funding problem that led to a halt in construction.  The supplier recorded 2 claims of lien for nonpayment: one for nonpayment by the subcontractor and the other for nonpayment by the contractor.

 

 

The owner then paid the supplier and had the liens satisfied and recorded a notice of termination of the initial notice of commencement which is a procedure under Florida’s Lien Law that allows an owner to terminate a notice of commencement that accurately states that all lienors were paid in full.  After the notice of commencement was terminated by law, the owner recorded a new notice of commencement that attached a payment bond, meaning the owner’s property was now exempt from all liens except that of the general contractor it hired.  (One of the main reasons an owner would terminate a notice of commencement and record a new notice of commencement is so a construction lender financing construction can record a mortgage and maintain a first priority encumbrance on the property in the event the owner did not repay the loan.)

 

 

Once construction restarted, the supplier continued supplying rebar to the structural shell subcontractor.  The supplier also continued to supply building materials to the contractor.  However, for whatever reason, the company the supplier hired to serve the statutory notices served only one statutory notice to contractor stating that the supplier was supplying building materials under an order given by the contractor.   Unlike the notice to owner mentioned above, when there is a payment bond in place, lienors not in privity of contract with the contractor must serve a notice on the contractor stating that they intend to look to the contractor’s payment bond for payment.  In other words, the supplier was required to serve a notice on the contractor that it was supplying materials under an order given by the subcontractor, but it really wasn’t required to serve the same notice for the supplies it was providing under an order given by the contractor.

 

 

The point or objective of the notices is so the owner, in a situation without a payment bond, and a contractor, in a situation with a payment bond, know specifically who is performing work on the project to ensure these entities get paid.  The reason why a contractor doesn’t need to serve a notice to owner (when there is no bond) or a subcontractor doesn’t need to serve a notice on the contractor (when there is a payment bond) is because the owner or contractor in these situations know the entities it hired to ensure these entities get paid.

 

 

Although the contractor paid the structural shell subcontractor for the rebar, the subcontractor did not pay the supplier.  The supplier then served a notice of nonpayment on the payment bond surety (another prerequisite to suing on a general contractor’s payment bond) and filed suit.

 

 

The main issue in this case was whether the supplier had properly preserved a payment bond claim for the rebar it supplied to the subcontractor that it was not paid for by virtue of its neglect in serving the proper notice on the contractor that it was supplying rebar under an order given by the subcontractor.  The trial court concluded that the supplier could NOT pursue a payment bond claim because it failed to serve this notice.  The Third District affirmed the trial court on this issue essentially holding that because lien and bond claims are creatures of statute, the supplier’s failure to comply with the lien law by serving this initial notice was fatal to its bond claim for rebar materials it supplied to subcontractor.

 

 

Unfortunately for the supplier, this is a hypertechnical argument that killed its claim against the payment bond for materials it supplied under the order given by the structural shell subcontractor. This ruling, however, does not seem to make sense in light of the specific facts of the case.  Again, the whole point of the notice is so the contractor in this situation knows that the supplier is supplying rebar to the subcontractor and that it will look to the payment bond if it is not paid so that the contractor can affirmatively ensure the supplier gets paid.  First, the contractor knew the supplier was supplying rebar because before the owner terminated the notice of commencement, the supplier was supplying the same rebar and the contractor was made aware of same. Second, after the owner recorded a new notice of commencement with a payment bond, the supplier served a notice on the contractor (although it was not legally required to do so) that it was serving materials to the contractor per an order given by the contractor.  Well, at this point in time, the contractor had continued knowledge the supplier was still involved in the project and still supplying materials, even though there may have been oversight in that another notice was not also provided by supplier for the materials it was providing under an order given by the subcontractor.  And, last, the subcontractor owned 40% of the contractor, thus, how could contractor not know that its minority owner was still utilizing and ordering rebar?  The Third District did not get into this, but I believe this fact is important because it would seem to impute some knowledge on the contractor under this fact pattern  that the subcontractor was still utilizing the supplier, which just so happened to an identical supplier that contractor was utilizing and ordering materials from.  Thus, where was the prejudice to the contractor??

 

 

Regardless of the equities of the Third District’s decision, the morale remains that it is absolutely critical to comply with Florida’s Lien Law, as in many circumstances, oversight or neglect will not be tolerated!!  Do not let this happen to you!

 

In this case, the supplier used an outside company to serve the required statutory notices and it was uncertain why the outside company did not serve the required notice on the contractor that supplier would look to the bond for protection if it was not paid for materials supplied to the subcontractor, especially when it served the unnecessary notice for materials being supplied directly to contractor.  The supplier or outside company’s oversight, whatever the case may be, resulted in a loss of its payment bond claim.

 

 

To prevent this from happening, it is always a good idea to utilize an attorney on the front end to ensure the proper notices are being served.  An attorney understanding construction will ask: 1) is it a private project or publicly funded project; 2) do you have a copy of the notice of commencement (to see whether there is or is not a payment bond in place); 3) who hired you; and 4) when did you first start commencing services.  In the event of nonpayment, the attorney will ask the follow-up questions: 5) when was your last day on the job and 6) how much are you owed and how did you arrive at this specific amount (e.g., retainage owed, contractual work owed, change order work owed, does this include delay-related damages or lost profit, etc.) in order to ensure the lien or payment bond claim comports with Florida’s Lien Law.

 

 

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.