Bad Preliminary Notices Can Doom You From The Start

Bad Preliminary Notices Can Doom You From the Start

By: Ian T. Kravitz, Esquire

Making certain to properly prepare your Notice to Owner or Notice to Contractor can be the difference between getting paid, and learning an expensive lesson. All too often, contractors seek to save a little bit of money and have their preliminary notices done on the cheap. Either preparing those themselves, or utilizing unreliable services to do so. More than ever, we are seeing claims lost as a result of such frugalness.

Preparing a preliminary notice is not always so easy. Simply notifying the property owner may not be enough. For example, in the case of a leasehold where it is the tenant that contracts for the improvement, care must be taken to timely serve your preliminary notice not only on the property owner, but on the tenant as well. Failure to do so may limit your lien rights, or extinguish them altogether.

Knowing whether a bond exists for the project, and whether that bond precludes liens, or simply obligates a surety to make payment if certain payment conditions are met, can equally extinguish your lien rights, and any potential bond rights that you may have as well. For example, if there exists a payment bond for the project, a preliminary notice must be sent to the principle and surety on that bond. However, if all conditions precedent to the bond securing the real property from liens have not been properly met, you may still have lien rights along with your bond rights. Making sure to serve a preliminary notice on the property owner, including any applicable tenant as described above, as well as the parties to the bond, is essential to preserve all potential avenues of payment that you may have.

The Florida Construction Lien Law also allows for conditional payment bonds. These bonds are conditional because the surety's liability is conditioned upon the owner's payment to the general contractor. That means, if the owner does not pay the general contractor for your work, the bond surety is not liable to you for that work. These bonds protect subcontractors (as well as sub-subcontractors and material suppliers) in the event that the owner pays the general contractor but that payment does not flow downstream. Although not commonly used, the careful subcontractor, sub-subcontractor, and material supplier reviewing the bond (doing "due diligence" to ensure success on his favorite part of a construction project) will quickly notice the conditional payment bond for what it is because it will have the following statutorily required "legend" on the first page:

THIS BOND ONLY COVERS CLAIMS OF SUBCONTRACTORS, SUB-SUBCONTRACTORS, SUPPLIERS, AND LABORERS TO THE EXTENT THE CONTRACTOR HAS BEEN PAID FOR THE LABOR, SERVICES, OR MATERIALS PROVIDED BY SUCH PERSONS. THIS BOND DOES NOT PRECLUDE YOU FROM SERVING A NOTICE TO OWNER OR FILING A CLAIM OF LIEN ON THIS PROJECT.

The effect of this bond, different from an unconditional payment bond, is that the bond does not take the place of the real property as collateral for monies owed to you. It is an alternative to payment instead. That means, that you can still record a claim of lien against the real property, as well as pursue a claim against the bond. You must however still comply with certain notice provisions to be able to do so. As that "legend" suggests, the careful subcontractor will still timely serve a notice to owner and a notice to contractor (within 45 days of first work) and, if payments are not forthcoming, timely record a claim of lien (within 90 days of your last work), as well as to serve a Notice of Nonpayment regarding the bond within that time as well. In fact, although the bond may not say it, the recorded claim of lien is necessary for the subcontractor to have rights under the conditional payment bond because it is the recording of the lien that triggers obligations of the owner.

While it is of course essential to secure knowledgeable construction law counsel after you have gone unpaid on a particular project, it is even more essential that you ensure proper and timely service of all preliminary notices at the outset. Before any problems arise. Make certain to utilize only reputable and experienced notice services, and do so for every project. Your Construction Law FirmTM recommends Builders Notice Corporation for such tasks. Don't let the desire to save a few bucks early on render you unable to get paid when problems arise.