Notice To Owner Issues

SOME ISSUES REGARDING LIENS
BY THOSE ARRIVING ON THE PROJECT NEAR COMPLETION

By: Robert S. Tanner, Esq. and Larry R. Leiby, Esq.

Your Construction Law FirmTM

Protecting your construction lien rights is one of the best collection tools that contractors and suppliers can use. But, the procedures and timing can be complicated. An overview of the construction lien process and timing can be found here. Working closely with a board certified construction lawyer is advised.

A timely served Notice to Owner ("NTO") is an absolute requirement for a subcontractor, sub-subcontractor, or material supplier to have lien rights (unless they are a subdivision improver). The statutory scheme can be problematic for a sub or supplier who starts work toward the end of the job. Of concern will be the timing of service of the NTO, when the owner makes final payment, and whether the owner's final payment is made pursuant to a contractor's final payment affidavit. This concept is discussed in the case Superfos Construction (U.S.), Inc. v. Hajoca Corporation, 712 So. 2d 1228 (Fla. 2d DCA 1998).

Hajoca was the project owner ("Owner") and Superfos was a subcontractor ("Sub"). The project was completed. On July 1, 1996, Owner made final payment to the general contractor. After that final payment was made, on July 10, 1996, Sub served its NTO". Sub's NTO was served within 45 days of when it commenced work. Sub recorded a lien and then sued to enforce it. Owner defended, arguing that the NTO was untimely because it was served after Owner had made final payment.

Florida Statutes, section 713.06(2)(a) states in relevant part that an NTO:

must be served before commencing, or not later than 45 days after commencing, to furnish his or her labor, services, or materials, but, in any event, before the date of the owner's disbursement of the final payment after the contractor has furnished the affidavit under subparagraph (3)(d)1.

Owner had made final payment to the general contractor without first receiving the contractor's final payment affidavit. Thus, under the above-quoted statutory language, Sub's NTO was timely. Further, another provision of the statute spells out the consequences for an owner who disburses final payment before receiving the general contractor's final payment affidavit:

When final payment has become due to the contractor and the owner fails to withhold as required by subparagraph 5. [i.e., until receipt of the contractor's final payment affidavit], the property improved shall be subject to the full amount of all valid liens of which the owner has notice at the time the contractor furnishes his or her affidavit.

Unfortunately, the trial court bought the Owner's arguments and entered judgment against the Sub. Fortunately, Sub appealed and won. The appellate court said: "By making final payment without obtaining a contractor's affidavit, [Owner] subjected itself to the claim of any subcontractor who, like [Sub], filed a notice to owner within forty-five days of commencing work." Thus, it was determined that Sub had an enforceable construction lien.

Even though a sub or supplier timely serves a notice to owner before final payment is properly disbursed, at least two additional potential problems exist for the sub or supplier starting on a job that is nearly completed. First, subcontractors and suppliers rarely know when the general contractor provides its final payment affidavit to the owner. The closer to project completion, the greater the likelihood that the affidavit has been, or soon will be, provided. So, it is wise to serve your NTO as soon as possible.

Second, the closer to project completion, generally less funds will remain unpaid on the owner's contract with the general contractor. When an owner complies with its obligations under the lien law, then its liability for construction liens is limited to the amount of the contract with the general contractor reduced by proper payments. Thus, even if the late-arriving subcontractor or supplier timely serves an NTO, its lien for labor, materials, and services will not exceed the amount the owner has unpaid to the general contractor at the time the NTO is served. As a consequence, the sub or supplier's lien may not provide full security for the monies owed, but can be limited based on the amount left unpaid under the prime contract.