RESIDENTIAL CONSTRUCTION – SHOULD BOTH HUSBAND & WIFE SIGN THE CONTRACT?

UnknownIt is always good practice for residential contractors to get both husband and wife to sign the residential construction contract.   But, even if only one spouse signs the contract, Florida’s Lien Law doesn’t really punish the contractor when its comes to construction liens.

 

Florida Statute s. 713.12 provides:

 

When the contract for improving real property is made with a husband or wife who is not separated and living apart from his or her spouse and the property is owned by the other or by both, the spouse who contracts shall be deemed to be the agent of the other to the extent of subjecting the right, title, or interest of the other in said property to liens under this part unless such other shall, within 10 days after learning of such contract, give the contractor and record in the clerk’s office, notice of his or her objection thereto.

 

In other words, one spouse is deemed the agent of the other spouse when it comes to subjecting the other to construction liens.  This makes sense because generally when one spouse signs a contract for construction at his/her property, the other spouse has knowledge and is on board of the construction project.   But, assuming the other spouse wasn’t aware, Florida’s Lien Law allows that spouse to provide the contractor an objection to the contract and record that objection in the public records in order for any construction lien not to impact that spouse’s interest in the property.

 

However, the statute only applies to real property and doesn’t apply to personal liability relating to the non-signing spouse.  See Mullne v. Sea-Tech Const. Inc., 84 So.3d 1247, 1249 (Fla. 4th DCA 2012); Meadows Southern Const. Co. v. Pezzaniti, 108 So.2d 499, 502 (Fla. 2d DCA 1959).  This is why it is good practice for the contractor to get both spouses so sign the contract because while the contractor may be able to lien the non-signing spouse’s interest, that will be about it because it will not be able to impose personal liability against the non-signing spouse.

 

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.

 

 

AN AMENDED LIEN DOES NOT DELAY THE 60 DAY WINDOW TO FORECLOSE A LIEN WHEN A NOTICE OF CONTEST OF LIEN IS RECORDED

imagesI previously discussed the value of an owner recording a Notice of Contest of Lien under Florida Statute s. 713.22 to shorten a lienor’s statute of limitations to foreclose a construction lien to 60 days from the date the lien is contested.   For more information on recording a Notice of Contest of Lien please look at this posting and this posting.

 

What happens if after a Notice of Contest of Lien is recorded the lienor amends its construction lien? For instance, say the following sequence occurs:

 

1:  Lien

2:  Notice of Contest of Lien

3: Amended Lien

 

Does an owner need to record another Notice of Contest of Lien for the Amended Lien?  If an owner does, then a lienor could extend its 60 day window to foreclose its lien by simply recording an amended lien.

 

This exact scenario was addressed long ago by the Florida Supreme Court in Jack Stilson & Co. v. Caloosa Bayview Corp., 278 So.2d 282 (Fla. 1973) which held that the foreclosure of an amended lien MUST still be brought within the 60 days from the initial Notice of Contest of Lien.  In other words, the recording of an amended lien does NOT toll (or stop) the running of the 60 day window to foreclose the lien when a Notice of Contest of Lien is recorded.

 

Therefore, if you are an owner, there is certainly a benefit to recording a Notice of Contest of Lien.  Conversely, if you are a contractor, do not think you can delay or escape the 60 day window to foreclose your construction lien if you received a Notice of Contest of Lien by simply amending your lien.

 

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.

 

YES, LIEN PRIORITY IS IMPORTANT

UnknownWhen 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. 1st 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.

 

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 PRELIMINARY NOTICE REQUIREMENTS FOR LIENS AND PAYMENT BONDS

In previous articles, I discussed preliminary notice requirements to properly preserve construction liens and payment bonds on private projects, payment bonds on public projects, and public payments bonds for Florida Department of Transportation (FDOT) projects.  Now, how about a chart that assists in summarizing this information:

 

[ws_table id=”1″]

 

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.

INCLUDE PROPER (LIENABLE) AMOUNTS IN YOUR CONSTRUCTION LIEN!

images-1Contractors, 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.

 

 

imagesFor example, in Palm Beach Mall, Inc. v. Southeast Millwork, Inc., 593 So.2d 1121 (Fla. 4th 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. 4th 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!

 

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.

RECORDING THE NOTICE OF BOND TO TRANSFER THE CONSTRUCTION LIEN TO THE PAYMENT BOND

imagesIf a contractor furnishes a payment bond for a private project (per Florida Statute s. 713.23), a copy of that bond should be recorded with the Notice of Commencement recorded in the official records of the county where the project is located. A contractor furnishes a payment bond on a private project in order to exempt the owner’s real property from construction liens.

 
There are times, though, where a subcontractor or a supplier will still go ahead and record a lien against the owner’s real property even though there is a payment bond that was recorded with the Notice of Commencement. This is a frustrating scenario because the point of paying for the payment bond and furnishing the bond is to prevent this very scenario from occurring. No worries, however, because Florida’s Lien Law efficiently addresses this scenario by allowing the contractor or owner to record in the official records and serve on the lienor a verified Notice of Bond (attaching a copy of the payment bond) that will operate to transfer the lien to the payment bond. Fla. Stat. s. 713.23(2). A copy of the Notice of Bond form is provided below.

 
Moreover, this Notice of Bond procedure would apply even if the contractor furnished a payment bond, but for whatever reason, that payment bond was not recorded with the Notice of Commencement. When this happens, and it does happen, the subcontractor or supplier may honestly not know that the contractor actually furnished a payment bond and will move forward and record a lien. Again, no worries, because the contractor or owner should implement the same procedure by recording and serving the lienor with a Notice of Bond. Every lien recorded AFTER the execution and delivery of the payment bond will be transferred to the payment bond through the recording of the Notice of Bond (attaching a copy of the payment bond).

 

Now, if the contractor did NOT furnish a payment bond BEFORE the lien was recorded, the contractor could move to transfer the lien to a lien transfer bond pursuant to Florida Statute s. 713.24. This is different than a payment bond. The lien transfer bond is simply a mechanism where a contractor through a statutory procedure procures and records a lien transfer bond that is designed to transfer a specific lien to the security of the bond. (When a contractor procures a lien transfer bond, the bond must be for the principal amount of the lien, plus the greater of $1,000 or 25% of the principal amount to cover potential attorney’s fees and court costs, plus three years worth of interest on the principal amount at the prevailing statutory rate.)

 

 

NOTICE OF BOND

To (Name and Address of Lienor)
You are notified that the claim of lien filed by you on ___, ___, and recorded in Official Records Book ___ at page ___ of the public records of ___ County, Florida, is secured by a bond, a copy being attached.
Signed: (Name of person recording notice)

 

 

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.

LEARNING THE TRICKS OF THE TRADE / NUANCES UNDER FLORIDA’S LIEN LAW

images-1It is advantageous for all construction participants / lienors in Florida (e.g., owner, contractor, subcontractor, supplier, design professional) to learn the nuances under Florida’s Lien Law (and, in actuality, in any state the lienor performs work in).  This way, the lienor can learn the tricks of the trade in order to put them in the best position possible to protect their interests under the lien law.

 

For instance, under Florida Statute s. 713.165 (set forth at the bottom of this posting), there is a trick of the trade that allows an owner to formally request from its contractor a list of the subcontractors and suppliers the contractor hired.  “If the contractor fails to furnish the list, the contractor thereby forfeits the contractor’s right to assert a lien against the owner’s property to the extent the owner is prejudiced by the contractor’s failure to furnish the list or by any omissions from the list.”  Fla. Stat. s. 713.165(2).  Sure, it may be difficult for an owner to establish how it was “prejudiced” by the contractor’s failure to timely provide the list of subcontractors and suppliers (it would be an argument established on a case-by-case basis), it is still a defense to the contractor’s lien action that an owner can legitimately raise if the list is not timely furnished. And, from the contractor’s perspective, there is no reason to even deal with the risk that the trier of fact found it prejudicial that the list was not timely provided.

 

Further, under Florida Statute s. 713.16(1) (material portion set forth at the bottom of this posting), an owner can request from a lienor a copy that lienor’s contract.   Likewise, the lienor can request a copy of the owner’s contract with the general contractor as well as a copy of the contract between the lienor’s customer and the customer’s customer.  See 8 Fla.Prac., Constr. Law Manual s. 8:32 (2013-2014 ed.) (explaining application of s. 713.16).  “For example, a sub-subcontractor can lawfully request a copy of the direct contract between the owner and the [general] contractor, as well as a copy of the contract between the subcontractor (sub-subcontractor’s customer) and the contractor (sub-subcontractor’s customer’s customer).” See id.  “If the owner or lienor refuses or neglects to furnish such copy of the contract…any person who suffers any detriment thereby has a cause of action against the person refusing or neglecting to furnish the same…for his or her damages sustained thereby.”  Fla. Stat. s.713.16(1).

 

 

As exemplified, there are tricks of the trade under Florida’s Lien Law that an unwary construction participant / lienor could fall trap to.  This would apply to any state the lienor is performing work in.  Don’t fall trap to the nuances of the lien law or tricks of the trade!  Spend the time to understand the nuances and utilize the services of a knowledgeable construction attorney that will help you navigate around the lien law to best protect your interests!

 

 

Florida Statute s. 713.165:

 

(1) An owner of real property may request from the contractor a list of all subcontractors and suppliers who have any contract with the contractor to furnish any material or to perform any service for the contractor with respect to the owner’s real property or improvement to the real property. The request must be in writing and delivered by registered or certified mail to the address of the contractor shown in the contract or the recorded notice of commencement.

(2) The contractor must within 10 days after receipt of the property owner’s written request, furnish to the property owner or the property owner’s agent a list of the subcontractors and suppliers who have a contract with the contractor as of the date the request is received by the contractor. If the contractor fails to furnish the list, the contractor thereby forfeits the contractor’s right to assert a lien against the owner’s property to the extent the owner is prejudiced by the contractor’s failure to furnish the list or by any omissions from the list.

(3) A list furnished under this section shall not constitute a notice to owner.

 

 

Florida Statute s. 713.16(1):

 

(1) A copy of the contract of a lienor or owner…must be furnished by any party thereto, upon written demand of an owner or a lienor contracting with or employed by the other party to such contract. If the owner or lienor refuses or neglects to furnish such copy of the contract…any person who suffers any detriment thereby has a cause of action against the person refusing or neglecting to furnish the same…for his or her damages sustained thereby. …The person demanding such documents must pay for the reproduction thereof; and, if such person fails or refuses to do so, he or she is entitled only to inspect such documents at reasonable times and places.

 

 

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.

 

UNPAID TENANT IMPROVEMENTS AND LIEN RIGHTS

imagesContractors that perform tenant improvements / build-outs should know what their lien rights are when hired by the tenant (also referred to as the lessee).  This is because a contractor hired by the tenant may think their lien rights extend to the real property owned by the landlord when in reality they do not.

 

Under Florida’s Lien Law, a landlord can take precautions to prevent their real property from being subject to liens by virtue of a tenant improvement.  Many landlords take these precautions.  If these precautions are taken, a contractor’s lien against the landlord’s real property for unpaid tenant improvements will fail and potentially expose the contractor to liability in the form of reimbursing the landlord for its attorney’s fees. Ultimately, if a landlord takes such precautions, the unpaid contractor can lien the tenant’s LEASEHOLD INTEREST, which is much different than the landlord’s interest.  When the contractor moves to foreclose the lien, it is foreclosing on the leasehold interest and not the landlord’s real property. In other words, the foreclosure would result in the assumption of the lease (versus assuming title to the real property) and oftentimes is not an attractive option.  Think about it.  Which is better: assuming the leasehold interest of a new lease (where you will still be responsible for making the lease payments) or assuming title to the real property?  Naturally, it is assuming the title that provides the value in a lien action.

 

Florida Statute s. 713.10 sets forth the precautions a landlord can take to prevent their property from being subject to liens for tenant improvements as follows:

 

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

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

1. The lease, or a short form or a memorandum of the lease that contains the specific language in the lease prohibiting such liability, is recorded in the official records of the county where the premises are located before the recording of a notice of commencement for improvements to the premises and the terms of the lease expressly prohibit such liability; or

2. The terms of the lease expressly prohibit such liability, and a notice advising that leases for the rental of premises on a parcel of land prohibit such liability has been recorded in the official records of the county in which the parcel of land is located before the recording of a notice of commencement for improvements to the premises, and the notice includes the following:

a. The name of the lessor.

b. The legal description of the parcel of land to which the notice applies.

c. The specific language contained in the various leases prohibiting such liability.

d. A statement that all or a majority of the leases entered into for premises on the parcel of land expressly prohibit such liability.

 

Contractors looking in the public records will many times find a short form lease or notice that prohibits the landlord’s property from being subject to liens for tenant improvements.

 

By way of example, in MHB Const. Services, L.L.C. v. RM-NA HB Waterway Shoppes, L.L.C., 74 So.3d 587 (Fla. 4th DCA 2011), the landlord of a shopping center entered into a lease with a tenant.  A notice of lien prohibition was recorded in the public records long before the lease was ever executed.  The tenant hired a contractor to make tenant improvements and the landlord signed and recorded the required notice of commencement before construction began.  The contractor recorded a construction lien against the landlord’s interest in the real property and foreclosed on the lien.  The landlord relied on the notice of lien prohibition that was recorded in the public records.  The contractor countered that by the landlord signing and recording the notice of commencement, the landlord cannot rely on the notice of lien prohibition.  The contractor further argued that the landlord required or was responsible for construction because it gave its tenant a reimbursement towards construction improvements (very common). The appellate court disagreed with the contractor based in large part because the landlord complied with s. 713.10 to protect its property from liens.

 

As a contractor performing tenant improvements, you should know your rights in advance in order to understand what your lien rights are in the event of non-payment.   One option contained in s. 713.10 that Florida’s Lien Law provides that is unfortunately not often utilized is:

 

 

 (3) Any contractor or lienor under contract to furnish labor, services, or materials for improvements being made by a lessee may serve written demand on the lessor [landlord] for a copy of the provision in the lease prohibiting liability for improvements made by the lessee, which copy shall be verified….The demand must identify the lessee and the premises being improved and must be in a document that is separate from the notice to the owner….The interest of any lessor who does not serve a verified copy of the lease provision within 30 days after demand, or who serves a false or fraudulent copy, is subject to a lien under this part by the contractor or lienor who made the demand if the contractor or lienor has otherwise complied with this part and did not have actual notice that the interest of the lessor was not subject to a lien for improvements made by the lessee. The written demand must include a warning in conspicuous type in substantially the following form:

WARNING

YOUR FAILURE TO SERVE THE REQUESTED VERIFIED COPY WITHIN 30 DAYS OR THE SERVICE OF A FALSE COPY MAY RESULT IN YOUR PROPERTY BEING SUBJECT TO THE CLAIM OF LIEN OF THE PERSON REQUESTING THE VERIFIED COPY.

 

 

The bottom line is to KNOW your rights.   If you specialize in tenant improvements or perform tenant improvements, know your rights under Florida’s Lien Law so that you know what your options are in the event of non-payment.  This extends to any subcontractor that is performing work associated with tenant improvements.  Since non-payment may only be collateralized by the leasehold interest, a contractor or subcontractor may want to take this into consideration when negotiating their contract.  For instance, a contractor may want to ensure it has broad termination rights or suspension rights in the event of non-payment within “x” number of days.  A subcontractor may not want a pay-if-paid provision so that it has better recourse against the contractor that hired it.  Alternatively, parties may account for this risk by including a better mark-up.  Again, knowing your rights on the front-end will allow you to best assess the potential risk of non-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.