Tag Archives: lien

CHART SUMMARIZING PRELIMINARY NOTICE REQUIREMENTS FOR LIENS AND PAYMENT BONDS

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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:

 

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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!

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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. 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

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If 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

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It 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

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Contractors 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.

NOT SO FAST DEVELOPER WITH YOUR CREATIVE EFFORT TO WIPE OUT THE CONTRACTOR’S (INFERIOR) LIEN!

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Two things are certain in construction: (1) developers will obtain construction loans to finance the construction of their project and (2) there will unfortunately be bad projects where the developer’s lender forecloses on the (first priority) mortgage given in connection with the construction loan.   Not only is this bad for the developer, but it is bad for contractors because the lender will look to foreclose (and wipe out) all inferior liens, such as unpaid contractors and suppliers’ liens (which will be inferior to the lender’s mortgage).

 

 

The case of CDC Builders, Inc. v. Biltmore-Sevilla Debt Investors, LLC, 39 Fla. L. Weekly D1997a (Fla. 3d 2014) illustrates a bad project where a lender moved to foreclose on a construction loan.  But, unlike a more traditional example of the construction lender foreclosing, this case involved a hyper-creative attempt by the developer to purchase its own construction loan and then foreclose on the corresponding mortgage for the sole purpose of intentionally wiping out its general contractor’s lien.

 

 

In this case, the developer hired the contractor to build luxury homes.  The contractor completed the homes, but the developer failed to pay the contractor for the last eight homes.  The contractor recorded construction liens to collateralize its nonpayment.  The developer was unable to pay off its construction loan due to a lack of luxury home sales. To avoid the lender foreclosing, the developer negotiated loan extensions where the developer was required to pay money to reduce the lender’s exposure on the loan. However, the developer did not want its payments to reduce the principal of the loan.  Why? Because the developer wanted to ensure there would be no equity in the real property to satisfy the contractor’s liens.  So, the developer negotiated with its construction lender to treat any money it paid the lender for loan extensions as junior liens against the property.   The developer then had another company created. This other developer-related company purchased the construction loans from the construction lender in exchange for loan assignments. (This was done so the other company maintained a first priority interest with the real property since it purchased the original construction loans.)  Once this other developer-related company purchased the construction loans, it moved to foreclose on the loans.  Why?  Because, by doing so, the developer could wipe out the contractor’s liens as inferior liens on the real property.  Very creative and it actually worked as the trial court entered a final summary judgment of foreclosure in favor of this  developer-related company (meaning the contractor’s inferior liens would be valueless based on the equity in the real property).

 

 

The Third District Court of Appeal reversed the trial court’s foreclosure judgment (as there were questions of fact as to whether the developer-related company was actually created by the same investors that controlled the developer).  The Third District, employing a policy of fairness,  held that:

 

“The law does not permit a person to borrow money from a bank, give the bank a mortgage, incur additional liens and junior mortgages on the property, purchase the mortgage back from the bank, and then foreclose on the mortgage for the primary purpose of eliminating the additional liens and junior mortgages.

***

[I]nvestors cannot grant mortgages, contract for the improvement of the property mortgaged, and then use a network of companies to purchase and foreclose the mortgage for the primary purpose of extinguishing the construction liens that increased the value of the property.  To hold otherwise would undermine the long-standing principle…persons cannot do indirectly what they are not permitted to do directly.”

CDC Builders, supra. 

Stated differently, and less eloquently then the Third District, the law does not permit a developer to undertake creative avenues to purchase the very mortgage and loan it originally obtained to finance its construction for the sole purpose of cheating its contractor out of payment for improving the real property.  To find otherwise would simply give the developer a windfall since it would not have to pay for construction improvements that it wanted and which improved the value of its property.

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.

THE IMPORTANCE OF AN EFFECTIVE NOTICE OF COMMENCEMENT ON YOUR LIEN RIGHTS

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Contractors, subcontractors, and suppliers need to appreciate the importance of an EFFECTIVE Notice of Commencement.    This recorded document, among other things, governs the priority of YOUR lien rights on a private construction project because a construction lien RELATES BACK in time to an effective Notice of Commencement.

 

The Notice of Commencement is recorded in the public records where the project is located.  It is a statutory form (per Florida Statute s. 713.13) and gives the lienor the required information about the project so that the lienor can preserve its lien / bond rights.  A copy of the Notice of Commencement form is included at the bottom of this posting.   The Notice of Commencement must be recorded within 90 days of construction otherwise the Notice is invalid.

 

The Notice of Commencement is effective for 1 year unless a different expiration date is specified.  If a project is going to last longer than a year, a more realistic expiration date should be specified.  However, the Notice of Commencement can be amended at any time within its effective period to extend the expiration date.  The amended Notice of Commencement should reflect that it is amending the original Notice of Commencement that is recorded (and specify the book and page of the recording) and a copy must be served by the owner on the contractor and any other lienor that served a Notice to Owner to preserve its lien rights “before or within 30 days after the date the amended notice is recorded.”  Fla. Stat. s. 713.13(5)(b).

 

In demonstrating the importance of an effective Notice of Commencement, Section 713.13(6) provides:

 

“Unless otherwise provided in the notice of commencement or a new or amended notice of commencement, a notice of commencement is not effectual in law or equity against a conveyance, transfer, or mortgage of or lien on the real property described in the notice, or against creditors or subsequent purchasers for a valuable consideration, after 1 year after the date of recording the notice of commencement.”

 

 

What does this mean?  The best way to explain is to apply this statutory language to the following facts of a condominium project:

 

Construction loan recorded on 1/1/09.

Notice of Commencement recorded on 5/1/09.  It is only effective for 1 year and an amended Notice was never recorded.

On 6/15/10 a mortgage is recorded on a condominium unit.  When this is recorded, the unit owner’s mortgagee secures a release from the construction lender relating to the lender’s mortgage relating to the unit.

On 7/1/10 a construction lien is recorded.

 

Under this factual pattern, the lienor that recorded a lien would absolutely want its lien to take priority over the unit owner’s mortgage.  The lienor will argue it takes priority since the lien should relate back to the Notice of Commencement that was recorded prior to the mortgage on the unit.  But, wait.  The Notice of Commencement expired before the lien was recorded and an amended Notice of Commencement was never recorded.  This means the lien takes priority as of the date it is recorded and, thus, the mortgage on the condominium unit takes priority.

 

Now, let’s add another realistic wrinkle to this fact pattern.  Let’s say the Declaration of Condominium (the instrument creating the condominium) is recorded on 6/1/10, before the lien is recorded.

 

The Declaration of Condominium would need to be recorded before mortgages are recorded on individual units.  For the construction of a new condominium, the lien would apply to the ENTIRE condominium property provided the lien relates back to the Notice of Commencement.  This is because the lien would take priority before the Declaration of Condominium was even recorded.  But, if the Notice of Commencement expired, then the Declaration of Condominium would take priority over the lien since the Declaration of Condominium would have been recorded first (since the lien would not relate back to the Notice of Commencement).  This means that the lien would not apply to the entire condominium property, but would more equitably apply to each unit based on the unit’s pro rata share of the common expenses. See Fla. Stat. 718.121.  In other words, if the lien is $100,000 and there are 100 units each responsible for 1% of the condominium association’s budget, each unit would be responsible for the principal amount of $1,000 in order to discharge the lien relating to the unit. And, mortgages on the individual units may take priority over the lien potentially nullifying the value of the lien based on the equity in the units.

 

Notably, even if a lien relates back to the Notice of Commencement and takes priority over the Declaration of Condominium, a court may still find the equitable result is that each unit is only liable for its pro rata share of common expenses.  See Southern Colonial Mortgage Co., Inc. v. Medeiros, 347 So.2d 736 (Fla. 4th DCA 1977).  However, this equitable approach should arguably not apply because the lien would attach to the entire condominium property and the lienor should be entitled to foreclose that property including all units since the lien would have priority over any mortgage and deed associated with those units.  At this point, the unit owner should look to its title insurance policy.

 


Take-aways:

 

  • Make sure the Notice of Commencement is recorded within 90 days from the start of construction.  If not, there will be a strong argument that the Notice is not valid.  This means that a lien would not be able to relate back to the Notice.

 

  • Make sure the lien is recorded within an effective Notice of Commencement.  If not, the lien will not relate back to the Notice, but will take priority as of the date it is recorded.  This is a big difference.

 

  • If the Notice of Commencement is on the verge of expiring, prepare and send a letter to the owner advising the owner that it needs to record an amended Notice of Commencement to ensure the parties are performing construction within an effective Notice of Commencement.

 

  • Understand the potential priority of your lien based on the recording of the Notice of Commencement, any amended Notice of Commencement, the Declaration of Condominium, and other recordings that may impact the priority of your lien if the Notice of Commencement expired.

 

 

 

 

NOTICE OF COMMENCEMENT

State of _____

County of _____

The undersigned hereby gives notice that improvement will be made to certain real property, and in accordance with Chapter 713, Florida Statutes, the following information is provided in this Notice of Commencement.

1. Description of property: (legal description of the property, and street address if available).

2. General description of improvement: __________.

3. Owner information or Lessee information if the Lessee contracted for the improvement:

a. Name and address: __________.

b. Interest in property: __________.

c. Name and address of fee simple titleholder (if different from Owner listed above): __________.

4. a. Contractor: (name and address) .

b. Contractor’s phone number: _____.

5. Surety (if applicable, a copy of the payment bond is attached):

a. Name and address: __________.

b. Phone number: _____.

c. Amount of bond: $_____.

6. a. Lender: (name and address) .

b. Lender’s phone number: _____.

7. Persons within the State of Florida designated by Owner upon whom notices or other documents may be served as provided by Section 713.13(1)(a) 7., Florida Statutes:

a. Name and address: __________.

b. Phone numbers of designated persons: __________.

8. a. In addition to himself or herself, Owner designates __________ of __________ to receive a copy of the Lienor’s Notice as provided in Section 713.13(1)(b), Florida Statutes.

b. Phone number of person or entity designated by owner: _____.

9. Expiration date of notice of commencement (the expiration date will be 1 year from the date of recording unless a different date is specified) _____.

WARNING TO OWNER: ANY PAYMENTS MADE BY THE OWNER AFTER THE EXPIRATION OF THE NOTICE OF COMMENCEMENT ARE CONSIDERED IMPROPER PAYMENTS UNDER CHAPTER 713, PART I, SECTION 713.13, FLORIDA STATUTES, AND CAN RESULT IN YOUR PAYING TWICE FOR IMPROVEMENTS TO YOUR PROPERTY. A NOTICE OF COMMENCEMENT MUST BE RECORDED AND POSTED ON THE JOB SITE BEFORE THE FIRST INSPECTION. IF YOU INTEND TO OBTAIN FINANCING, CONSULT WITH YOUR LENDER OR AN ATTORNEY BEFORE COMMENCING WORK OR RECORDING YOUR NOTICE OF COMMENCEMENT.

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.

LIEN RIGHTS FOR PROFESSIONAL (DESIGN) SERVICES

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Design professionals  (e.g., architect, engineer, interior designer, surveyor, and mapper) have lien rights for professional services they perform under Florida’s Lien Law.

 

 

Florida Statute s. 713.03 governs liens for professional services and provides:

 

(1) Any person who performs services as architect, landscape architect, interior designer, engineer, or surveyor and mapper, subject to compliance with and the limitations imposed by this part, has a lien on the real property improved for any money that is owing to him or her for his or her services used in connection with improving the real property or for his or her services in supervising any portion of the work of improving the real property, rendered in accordance with his or her contract and with the direct contract.

 

(2) Any architect, landscape architect, interior designer, engineer, or surveyor and mapper who has a direct contract and who in the practice of his or her profession shall perform services, by himself or herself or others, in connection with a specific parcel of real property and subject to said compliances and limitations, shall have a lien upon such real property for the money owing to him or her for his or her professional services, regardless of whether such real property is actually improved.

 

 

This statutory language is important to the design professional.  Paragraph 1 says that a design professional shall have lien rights for their professional services rendered pursuant to their contract and the direct contract (or contract with the owner of the real property, typically the owner-architect contract in the design-bid-build scenario) in connection with improving the real property.  This would be the paragraph relied on by design professionals NOT in privity of contract with the owner.  On the other hand, Paragraph 2 would apply to design professionals that enter into a direct contract with the owner of the real property for professional services (such as the architect in the design-bid-build scenario).  Under this paragraph, the design professional has lien rights for their professional services regardless of whether the real property is even improved.  This means that the owner can decide not to use the professional services (the design) or abandon the project and the design professional in direct contract with the owner has lien rights even though the real property has not been improved.   Now, if a design professional enters into a contract with a developer or person that never had an interest in the real property, the design professional is not going to be able to use this statute to create lien rights because it never entered into a contract with the actual owner of the real property.  See Grossman v.  Pollack, 100 So.2d 660 (Fla. 3d DCA 1958) (finding that architect could not enforce lien for leasehold interest that never came into being because there was no privity between architect or anyone with interest in the real property).

 

Design professionals have flexibility preserving lien rights since they do not have to comply with all of the technical requirements that a general contractor, subcontractor, or supplier must comply with.  Design professionals do NOT need to serve a Notice to Owner (within 45 days of initial furnishing) unlike the supplier or subcontractor not in privity of contract with the owner.  And, the design professional in privity of contract with the owner does NOT need to serve a contractor’s final payment affidavit (at least 5 days before filing a lawsuit) unlike the contractor hired directly by the owner.   The ONLY thing the design professional needs to do to secure its lien rights is to record a lien within 90 days of its final furnishing of professional services (and serving a copy of the lien on the owner).

 

 


The downside, however, is that a design professional’s lien maintains a priority standpoint from the date the lien is recorded.  So, anything that is recorded before the design professional’s lien will be superior to the lien.  This is different than a lien recorded by a general contractor, subcontractor, or supplier in that their lien relates back to an effective notice of commencement, which is important from a lien priority standpoint.

 

For example, let’s assume there is a new construction project.  The owner obtains financing and a mortgage securing the construction loan is recorded.  This mortgage should have superior priority to any other encumbrance on the property (if not, lenders would never lend money!).  After the mortgage is recorded, and before construction commences, a notice of commencement is recorded (which lasts for 1 year unless a different expiration date is specified; although, the notice of commencement can be amended).  Within the effective period of the notice of commencement, the structural engineer records a lien; the next day the architect records a lien.  Months later, and within the effective period of the notice of commencement, the framing subcontractor records a lien.  What is the priority of these liens? The framing subcontractor’s lien will have priority because it will relate back to the notice of commencement.  Then, the structural engineer’s lien will have priority over the architect’s lien because it was recorded the day before the architect’s lien.  Remember, design professional’s liens do not relate back to the notice of commencement and their priority is dictated as of the date/time they are recorded. Any other contractor or supplier that records a lien within the effective notice of commencement will have priority over the design professional’s lien since these liens will relate back to the earlier recorded notice of commencement.

 

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.

CONSTRUCTION RENTAL EQUIPMENT SUPPLIERS AND THE ENFORCEMENT OF LIEN RIGHTS

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Construction rental equipment suppliers play a large role in the performance of construction projects, whether it is through furnishing a crane, barge, excavator, scissor lift, scaffolding, loader, compressor, generator, shoring, pump, etc. Routinely, the trade subcontractor that needs the equipment to perform its contractual scope of work procures the rental equipment.

 

Well, how do these rental equipment suppliers enforce lien rights on private projects if they remain unpaid?

 

To begin with, they need to serve preliminary notices such as the Notice to Owner within 45 days from initial furnishing, which is the date rental equipment is delivered to the site.  The lien must then be recorded within 90 days from final furnishing, which is the last date the rental equipment is on the job site and available for use.  These dates should (hopefully) be pretty easy to determine as suppliers document the date rental equipment was delivered to the job site and the date the equipment was picked-up from the job site.  If not, these dates should be obtained by the renting party’s records.

 

Before recording the lien, the rental equipment supplier needs to determine the lien amount. The rental equipment supplier will typically lien for the entire amount of the rental equipment it furnished to the renting party / lessee for the project pursuant to the contractual rate(s) in the rental agreement.  This is generally the appropriate strategy because Florida’s Lien Law provides in pertinent part:

 

“The delivery of rental equipment to the site of the improvement is prima facie evidence of the period of the actual use of the rental equipment from the delivery through the time the equipment is last available for use at the site, or 2 business days after the lessor of the rental equipment receives a written notice from the owner or the lessee of the rental equipment to pick up the equipment, whichever occurs first.”

Fla. Stat. s. 713.01(13). 

 

This language is important to the rental equipment supplier because if the supplier has the documentation as to when the rental equipment was delivered and picked-up, then this should shift the burden to the owner to prove that the rental equipment was not actually used on the project to diminish the amount of the lien.

 

Notably, the language in Florida’s Lien Law regarding rental equipment used to provide: “to the extent of the reasonable rental value for the period of actual use (not determinable by the contract for rental unless the owner is a party thereto),” meaning that the onus was on the rental equipment supplier not in privity with the owner to determine actual usage of the equipment on the project and the reasonable value for the period the equipment was actually used on the project.  This verbiage has since been removed from Florida’s Lien Law (in 2007), such that burden is really shifted to the owner to prove that the equipment was not actually used on the job site irrespective of when it was delivered and when it was picked-up.  While an owner may still argue that the supplier must also prove the “reasonable value” of the equipment actually used on the job site (with the reasonable value differing from the contract rental rate), this argument is based on the statutory language and case law interpreting the verbiage that has since been removed from Florida’s Lien Law. See, e.g., Rosenholz v. Perrine Development Co., 340 So.2d 1264 (Fla. 4th DCA 1976) (interpreting older version of Fla. Stat. s. 713.01 and finding that contractual rental rate, although unchallenged, did not support the reasonable rental value because the supplier did not introduce evidence of the reasonable, actual use of the equipment required for the lessee’s scope of work).  In other words, to the extent the owner wants to maintain this argument, it really should have the burden challenging (a) the actual use of the equipment, perhaps by resorting to daily reports showing the equipment was not actually used and (b) the reasonable rental value should be different than the contractual rental rate based on evidence supporting this position.

 

Now, even under the older verbiage in Florida’s Lien Law, a rental equipment supplier did not have to jump through hoops in an action against a payment bond for a private project (issued per Florida Statute s. 713.23) to prove both the actual use of the rental equipment and the reasonable rental rate for that equipment.  See, e.g., Insurance Co. of N. America v. Julien P. Benjamin Equipment Co., 481 So.2d 511, 513 (Fla. 1st DCA 1985) (“We distinguish from this [language in the payment bond] the language found in the statute [Fla. Stat. s. 713.01], which, in our view, is substantially more restrictive and clearly requires actual proof of the time of use of rental equipment and the reasonable value thereof unless the owner of the project is shown to have been a party to the rental contract covering such equipment.”).

 

Therefore, it is important for the rental equipment supplier to keep records documenting the delivery date and pick-up date from the specific project in which it plans to lien.  The owner, especially an owner that did not contract for the rental equipment, needs to obtain this information and, to the extent there are daily reports from the lessee (party that rented the equipment), cross-reference the equipment with the daily reports to examine when the equipment was actually used.  While the owner may still choose to argue the “reasonable rental value” for the equipment based on “actual usage,” this burden should fall on the owner with evidence supporting the reasonable rental value the owner believes should apply based on actual usage.  Sometimes, even though these arguments may have teeth, it may be efficient for the owner to negotiate a resolution with respect to equipment it recognizes was utilized on its project in the performance of the work.

 

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.