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An Owner's Rights and Duties Under the Florida Construction Lien Law

AN OWNER'S RIGHTS AND DUTIES UNDER THE FLORIDA CONSTRUCTION LIEN LAW

By: LARRY R. LEIBY, Esq.

The Florida Construction Lien Law affords security by way of a claim against the owner's property for amounts unpaid to those who work to improve the property. The law was written with protections built in for the owner so that the owner may complete a construction project lien free. Many have described the procedures as complex. Owners must follow the statutory procedures to reduce the opportunity for double payment. A potential lienor must follow the procedure in the statute to obtain a lien. The owner should take the following important steps in order to be best protected.

1) Investigate the Contractor at the beginning -- Ask the contractor for a list of some completed jobs that you can check to see if other owners were happy with the contractor's performance. You should obtain the contractor's license number and may check with the Florida Construction Industry Licensing Board, or local licensing board, to see if the license is in good standing and if the license is issued for the entity with whom you are about to do business. Don't do business with someone who has a bad track record or who is not licensed. The law is insufficient to fully protect you from such persons.

2) Understand the Contract -- Construction contracts can be very technical and very subtle. Be sure you understand the agreement. Be sure it says that the contractor is going to do what you understand he or she is supposed to do in accordance with your negotiations. If there is something that you do not understand, get legal counsel knowledgeable about construction law before you execute the contract. The contract sets forth the rights and duties of the parties for the transaction. If everyone does what is understood, the contract won't matter. The contract will matter if the parties have a disagreement, and thus the contract language is important. Most homeowners would be well advised to consult with legal counsel before signing a construction contract. Moreover, an owner (who is expected to be able to understand the status of work in order to make payments) would also be well advised to hire a construction manager or architect to act as the owner's representative to give construction advice as to the project performance.

3) Record and Post a Notice of Commencement -- A Notice of Commencement is the first document that arises in the construction lien context. The form is in Florida Statute 713.13. It is the owner's duty to sign the notice of commencement and to post a certified copy at the jobsite. It is the lender's duty to record the notice of commencement if there is a construction loan, otherwise it is the owner's duty to record it. The Notice of Commencement is the information source document for potential lienors. It is also the document that fixes the time that most liens attach to the title of the property if liens are filed. The governmental unit that issues the building permit should furnish a form notice of commencement. There is a space in the Notice of Commencement (paragraph 9) which lists an expiration date of the Notice of Commencement. This date should be a time after which the job should be fully completed, anticipating some delays. If the expiration date is coming up and the job is not complete, record an amended Notice of Commencement extending the expiration date. Payments that are made after an expired notice of commencement are improper payments and will not reduce the owner's exposure for liens. If a notice of commencement indicates that it is effective for a significant period beyond when final completion is actually achieved and all potential lienors are paid, the owner may use a procedure to terminate the effect of the notice of commencement.

4) Obtain a list of subcontractors and suppliers -- You may make a written request of the contractor by certified or registered mail to obtain a list of all subcontractors and suppliers. The contractor has a duty to give you this information, or lose lien rights. This information may be helpful later on if there are issues of nonpayment or nonperformance. An owner should be careful, however, to not give direction to subcontractors without contractor knowledge and approval beforehand.

5 Obtain Releases each time a payment is made. -- When an owner makes a payment he or she should obtain a release from the contractor and from each person who has served the owner with a notice to owner to the extent of the payment made. If an owner makes a payment without obtaining releases from every person who has served a notice to owner, those who did not give a release may claim against the property for sums owed, even though payment was made to the contractor. One way to determine how much is owed to subs and suppliers is to require from the contractor an affidavit reciting the status of payments to such persons, as well as the status of payments to laborers (who are not required to serve a notice to owner). If an owner has received a notice to owner, the owner may not rely on an affidavit from the contractor, but may seek an affidavit directly from the sender of the notice to owner. You can see that if affidavits are obtained from the contractor and releases are obtained from the contractor, subs, and suppliers as the job progresses, the money is flowing downstream and the opportunity for payment problems reduces with each payment. In some cases the contractor may not have the funds to pay the subs and suppliers without receiving payment from you. If that is the case, you should consider making joint payments to the contractor and each sub or supplier in order to get the releases. If there is an issue about obtaining releases from the contractor and each sub and supplier who has served a notice to owner, or if there are insufficient funds to pay everyone, consult legal counsel immediately.

6) Final Payment. -- At the time of final payment it is the owner's duty to obtain (and the contractor's duty to furnish) a contractor's final affidavit. The form is now found in the lien law. A final payment made without the owner obtaining a final contractor's affidavit is an improper payment. Like progress payments, a release should be obtained from the contractor and each person who has served a notice to owner. The owner may rely on the final contractor's affidavit as to any persons from whom a notice to owner has not been received. The owner should verify the status of payments directly with subs and suppliers who have served a notice to owner.

7) If a lien is filed. -- If a lien is filed, consult legal counsel knowledgeable about construction law. If proper payments are made (notice of commencement not expired, releases obtained to the extent of each payment, final contractor's affidavit given) the owner's exposure is limited to the unpaid contract price. Liens may be filed as a result of honest disputes, or may be filed as a result of nonperformance. A lien may be enforced by a lawsuit asking the court to sell your property to pay the lien. The prevailing party in a lien enforcement action may recover attorney fees for the action. There may be defects in the lien about which legal counsel will advise you. A lien expires by operation of law one year after recording if no suit is filed to enforce the lien. There are other procedures that may be used to shorten the effective period of the lien. There is also a procedure whereby a cash deposit or surety bond may be used to transfer the lien from the title of the property as an alternative security.

8) If a contractor defaults or abandons the project. -- If this occurs, consult with legal counsel. There are typically notices required to be given, and a procedure to re-commence completion of the job to preserve your proper payments defenses. The procedure must be followed.

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