WHAT TO DO IF THE PAYMENT BOND IS NOT RECORDED WITH THE NOTICE OF COMMENCEMENT

Posted on November 20, 2015November 20, 2015 by Edward Garber

There is an unconditional payment bond for the project but it was not recorded with the Notice of Commencement. Now there are subcontractor construction liens recorded against the property. What do I do? I thought the point of the payment bond was to exempt the real property from subcontractor and supplier liens.

No need to worry! Liens can be transferred to the payment bond even though the payment bond was not recorded with the Notice of Commencement.

The payment bond operates to “secure every lien under the direct contract accruing subsequent to its execution and delivery.” Fla.Stat. s. 713.23(2). Even though the payment bond was not recorded with the Notice of Commencement as required, the owner or contractor can record a Notice of Bond with a copy of the payment bond that will operate to transfer the lien to the security of the payment bond.

To this point, Florida Statute s. 713.13(1)(e) states in relevant part:

[I]f a payment bond under s. 713.23 exists but was not attached at the time of recordation of the notice of commencement, the bond may be used to transfer any recorded lien of a lienor except that of the contractor by the recordation and service of a notice of bond pursuant to s. 713.23(2). The notice requirements of s. 713.23 apply to any claim against the bond; however, the time limits for serving any required notices shall, at the option of the lienor, be calculated from the dates specified in s. 713.23 or the date the notice of bond is served on the lienor.

Stated differently, just because the payment bond was not recorded with the Notice of Commencement does not mean the payment bond is worthless. Rather, it can still be used to transfer construction liens to the security of the bond.

Further, if discovered early enough, and within the effective period of the Notice of Commencement, an Amended Notice of Commencement can be recorded which attaches a copy of the payment bond. The Amended Notice of Commencement needs to be served by the owner “upon the contractor and each lienor who serves notice before or within 30 days after the date the amended notice is recorded.” Fla.Stat. s. 713.13(5)(b). But, the Amended Notice of Commencement can be used to clarify the omission of the payment bond in the original 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.

CONDITIONAL PAYMENT BONDS AND TRANSFERRING A LIEN TO THAT BOND

Posted on October 31, 2015October 31, 2015 by Edward Garber

There are two types of statutory payment bonds that can be furnished on private construction projects in Florida: (1) unconditional payment bonds issued pursuant to Florida Statute s. 713.23 and (2) conditional payment bonds issued pursuant to Florida Statute s. 713.245.

With an unconditional payment bond, an owner’s real property is exempt from construction liens from subcontractors and suppliers.

However, with a conditional payment bond, an owner’s real property is not exempt from construction liens from subcontractors and suppliers. The conditional payment bond operates to condition claims against the bond to the extent the general contractor (principal of the bond) received payment from the owner. If the general contractor did not receive payment from the owner, then the conditional payment bond does not apply. If the general contractor did receive payment from the owner, then the conditional payment bond can operate to transfer the lien to the security of the conditional payment bond.

Because a lienor realistically has no way of knowing whether the general contractor was paid for their work, they are required to timely perfect their lien rights under Florida law. This means serving a Notice to Owner and recording a construction lien within 90 days of final furnishing.

Conditional payment bonds are fairly confusing so let’s use hypotheticals to explain.

Hypothetical #1: Owner pays contractor for painting scope of work. Painter timely served a Notice to Owner and recorded its lien for $75,000.

The objective here would be to transfer the painter’s lien to the conditional payment bond since the contractor has been paid for this work. Under this scenario, the owner or the contractor can record within 90 days from the recording of the lien a Certificate of Payment to the Contractor certifying that the contractor has been paid $75,000 (full lien amount) for the work described in the lien. The Certificate of Payment to the Contractor would be recorded with a Notice of Bond attaching a copy of the conditional payment bond.

If the contractor records the Certificate of Payment to the Contractor (together with the Notice of Bond), then the lien will be transferred to the conditional payment bond to the extent of the payment identified.

If the owner records the Certificate of Payment to the Contractor (together with the Notice of Bond), the contractor can do three things: (1) record a Joinder in Certificate of Payment agreeing with the Certificate of Payment to the Contractor recorded by the owner, (2) record a Notice of Contest of Payment stating that the contractor has only been paid “x” amount of the lien; or (3) do nothing. If the contractor does nothing or records a joinder in the Certificate of Payment, the lien will be transferred to the bond. If the contractor records a Notice of Contest of Payment, the “contested” portion will remain a lien against the real property and any uncontested amount will be transferred to the conditional payment bond.

Hypothetical #2: Owner paid contractor $50,000 but painter’s lien is $75,000. Owner records Certificate of Payment to the Contractor for $75,000.

Under this scenario, the contractor may want to record a Notice of Contest of Payment within 90 days from the lien certifying it has only been paid $50,000. If the contractor does this, the painter will have a $25,000 lien claim (the contested amount) and a $50,000 claim transferred to the conditional payment bond (the uncontested amount) since this amount would be transferred to the bond.

Hypothetical #3: Owner paid contractor for the painter’s scope and the painter liened. Neither the contractor nor the owner recorded a Certificate of Payment to the Contractor together with a Notice of Bond within 90 days from the lien.

Under this scenario, the painter’s lien has not been transferred to the conditional payment bond even though the owner paid the contractor for the painting scope of work. But, the lien can still be transferred to the security of the conditional payment bond even after 90 days and even after the painter files a lien foreclosure lawsuit. The same procedure will still need to be followed with the recording of a Certificate of Payment to the Contractor together with the Notice of Bond. The difference is that the Notice of Bond must be jointly signed by the owner, the contractor, and the surety for the lien to be transferred to the bond. See Fla.Stat. 713.245(4) (“Any notice of bond recorded more than 90 days after the recording of the claim of lien shall have no force or effect as to that lien unless the owner, the contractor and the surety all sign the notice of bond.”).

As you can see, conditional payment bonds can be procedurally confusing. The key for a lienor is that it still must perfect its lien rights and record and pursue its construction lien. The key for the owner and the contractor is that there are steps in place to transfer the lien or a portion of that lien (based on what the contractor has been paid) to the security of the conditional payment bond.

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

Posted on November 29, 2014November 29, 2014 by Edward Garber

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)