Construction Law Tips & Tricks Round Up

Notice to Owner

A lienor who does not have a direct contract with the owner must serve the owner with a Notice to Owner. This includes a subcontractor, a materialman and even a materialman to a sub-subcontractor and is a prerequisite to perfecting and recording a Claim of Lien. If the materialman to a sub-subcontractor knows the name and address of the subcontractor, it must also serve a copy of the Notice to Owner on the subcontractor as well.

The failure of a subcontractor or a materialman to serve a copy of the Notice to Owner on the owner bars a potential lienor’s claim.

The Notice to Owner must be served before commencing work but not later than 45 days after commencing work. However, it must always be served before the date of the owner’s disbursement of the inal payment after the contractor has furnished the Contractor’s Final Afidavit. While this is typically a rare event, it may be of importance to those lienors who appear very late on the job or for jobs of very short duration.

Claims of Lien

A Claim of Lien may be recorded at any time during the progress of the work but never later than 90 days after last furnishing labor or materials. A lienor is also advised to file separate claims of lien for work done under separate direct contracts between the owner and general contractor.

As well, there should be a separate Notice of Commencement for every separate contract between the owner and the contract As an example, a contractor was required to file two claims of lien against property, once for construction and then for subsequent repair work done on the same property, even though work was done on the same structure. This was because the construction and repairs were done under two separate contracts.

Any recorded Claim of Lien may be amended at any time during the original period allowed for recording the Claim of Lien, as long as the amendment shall not cause any person to suffer any detriment by having relied upon the original Claim of Lien. Any amendment of the Claim of Lien shall be recorded in the same manner as provided for the recording of the original Claim of Lien. Amending a defective Claim of Lien does not necessarily render it enforceable.

More often than not, you will only have one opportunity to record and serve a Claim of Lien (which is too often filed quickly on the 89th or 90th day). Errors or omissions are permanent and remain with you throughout the enforcement process.

Substantial Compliance

An owner may occasionally benefit from shortening the time in which a lienor may file suit to foreclose its lien. One way to accomplish this is to serve a Notice of Contest of Lien. Specifically, the lien of any lienor upon whom such notice is served shall be extinguished automatically unless the lienor institutes a suit to enforce his or her lien within 60 days. The clerk shall mail a copy of the Notice of Contest to the lien claimant at the address shown in the Claim of Lien. Service shall be deemed complete upon mailing. The Notice of Contest acts by operation of law to discharge a lien on 60th day without any intervention of the court. Moreover, the filing of a Notice of Contest of Lien should not violate an automatic stay imposed by the Bankruptcy Code.

A more drastic method for shortening the limitation period of a Claim of Lien is to file a complaint against the lienor demanding that the lienor show cause why the lien in question should not be vacated. Upon the failure of the lienor to show cause why the lien should not be enforced or the lienor’s failure to commence such action before the return date of the summons, the court shall immediately order cancellation of the lien.

A lienor’s motion for extension of time to respond to the property owner’s motion for discharge of lien does not constitute “good cause” as required by the mechanic’s lien statute for tolling of the statutory 20-day period. Strict compliance with statutory provisions is required in order to protect a lien. The court has no discretion to extend the 20-day period, even if the lienor requests additional time to obtain counsel.

Importantly, if a lienor has substantially complied with the Notice to Owner and Claim of Lien requirements both as to content and time, some errors or omissions should not prevent the enforcement of a Claim of Lien against a person who has not been adversely affected by such omission or error. Complying with all the technical statutory components for filing a claim, although desirable, is neither required nor can it form the basis for denial of the enforcement of an otherwise valid lien. Such liens are valid unless in the discretion of a trial court some prejudice is shown to the owner or another party.

The significance of this is quite obvious for both the lienor and the owner. From the lienor’s perspective, a slight error or omission should not invalidate its otherwise valid lien. A lienor, however, should not intend to rely on the equity of a court to overlook an error in a Claim of Lien or Notice to Owner; this would be a gamble with dire consequences.

Similarly, an owner should not expect that a technical oversight on the part of a lienor will necessarily result in an invalid lien. This is especially true if the owner was aware of the error early on and chose to do nothing about it. While there are many cases which have invalidated liens for technical omissions in the content of the lien, it is possible that a court sitting in equity may find that the lien, overall, substantially complies with the lien law.

Improvement Defined

“Improve” means build, erect, place, make, alter, remove, repair, or demolish any improvement over, upon, connected with, or beneath the surface of real property, or excavate any land, or furnish materials for any of these purposes, or perform any labor or services upon the improvements, including the furnishing of carpet or rugs or appliances that are permanently affixed to the real property and final construction cleanup to prepare a structure for occupancy; or perform any labor or services or furnish any materials in grading, seeding, sodding, or planting for landscaping purposes, including the furnishing of trees, shrubs, bushes, or plants that are planted on the real property, or in equipping any improvement with fixtures or permanent apparatus or provide any solid-waste collection or disposal on the site of the improvement.

Some improvements, however, are not lienable. A lienor was not entitled to lien shopping mall property for a kiosk where the trial court found that such structure was not a permanent benefit to the mall. A maintenance landscaping service consisting of mowing a lawn and cutting shrubbery did not bestow a “permanent benefit” upon the land within the mechanic’s lien statute and thus, did not entitle the laborer to a mechanic’s lien. It is not the duty of the court to weigh the relative advantage to the owner of each structure erected on the land to determine whether there has been an improvement of the land sufficient to support a lien.

Because there is no bright line rule, a lienor is advised to serve a timely Notice to Owner at the outset of any work. Careful consideration can then be given to the validity of any lien that may be recorded and served for the work in question. But be careful, the risk of filing a lien on non-lienable work may be a judicial finding that the lien was improper and possibly fraudulent, subjecting the hopeful lienor to attorney’s fees – not a good result.

Proper and Improper Payments

If an owner fulfills all of its duties under the mechanic’s lien law, then its liability for all lien claims will not exceed the contract price. While an owner is not required to comply with the notice requirements of the lien law, it does so at the risk of paying twice for improvements where the contractor may not have paid certain lienors.

An owner should not make a final payment unless it has received the Contractor’s Final Affidavit. A final payment under a building contract, made by the owner to the general contractor without first securing sworn statements from the contractor, is not considered “properly made”. As a result, the owner becomes responsible to the contractor’s unpaid subcontractors and materialmen in the amount of the final payment.

In addition, the owner must file a Notice of Commencement. A materialman’s lien was found to be enforceable against a homeowner where the homeowner, without knowledge of unpaid materials, paid a contractor in full upon completion of the contract and the homeowner had neither filed a Notice of Commencement nor obtained a contractor’s affidavit. This was the case even though the materialman did not serve a Notice to Owner until after the homeowner had paid the contractor in full.

An owner must pay careful attention if the contractor abandons the project or is terminated. Specifically, the owner must comply with the re-commencement procedures so that all future payments to the new contractor are considered proper. Following the abandonment of a construction contract by a general contractor, liability of the owner to subcontractors may be limited to the contract price remaining after deducting payments properly made.

How to Hire and Manage a Construction Lawyer

Payments on Account

The misapplication of a partial payment for materials may result in the invalidity of a lien and the burden is then on the party receiving the payment to clarify how the payment is to be applied. Specifically, when a payment for materials is made to a subcontractor, sub-subcontractor, or materialman, then the subcontractor, sub-subcontractor, or materialman shall demand from the person making the payment a designation for which account the payment is to apply.

It is a complete defense (up to the amount of the payment) if the owner can prove: one, that a payment made by the owner to the contractor for materials has been paid over to the subcontractor, sub-subcontractor, or materialman; and two, that when such payment was received by such subcontractor, sub-subcontractor, or materialman, he did not demand a designation of the account to which the payment was to be applied (or if he did note a designation, he failed to apply the payment in accordance with those instructions).

Notice of Re-Commencement

There is typically much confusion during the termination of or abandonment by a contractor on a job site. A lawyer’s concern is usually directed at the contract issues surrounding the termination of the old, and the engagement of a new, contractor. However, the service and recording of the necessary documents should also be of paramount importance.

If construction ceases before completion of the project he or she may pay all lienors in full or pro rata prior to recommencement. If this occurs, all liens for the re-commenced construction shall take a priority position.

Alternatively, the owner may record an affidavit in the clerk’s office stating his or her intention to recommence construction. The affidavit must state that all lienors who have served a Notice to Owner have been paid in full. The owner must then list any and all unpaid lienors in the affidavit. Thirty days after recording the affidavit, the rights of any person acquiring any interest, lien or encumbrance on the property (including any lienor on the re-commenced construction) will be superior to any lien on the prior construction. This will be the case unless a prior

lienor records a Claim of Lien within the thirty day period. However, before recommencing construction, the owner must also record and post a new Notice of Commencement for the re-commenced construction project.

The effect of an owner’s failure to record and serve an affidavit of intention to recommence construction and a new Notice of Commencement is threefold. First, the owner loses his right to set off costs of completing the project from the amount of the initial contract price. Second, the owner is unable to defeat claims of lienors arising from the original construction based on a proper payments defense. And third, where the owner’s affidavit is not recorded, the thirty-day shortened time for filing a Claim of Lien does not apply.

The effect on the attorney is more severe. An attorney hired to assist in the termination of a general contractor has an obligation to ensure that the affidavit of intention to recommence construction and a new Notice of Commencement are filed. At a minimum, the attorney must specifically advise his or her client of the necessity of these actions. An attorney’s failure to see that these requirements of the mechanics’ lien law are complied with may result in a claim of malpractice.

Right to Repossess Materials

If for any reason the completion of an improvement is abandoned or though the improvement is completed, materials delivered are not used, a lienor who has delivered materials for the improvement which have not been incorporated and for which he has not been paid may peaceably repossess such materials. That lienor however, will then no longer have a lien on the real property or improvements and shall have no right against any person for the price of the materials. This right to repossess the materials shall not be affected by their sale, encumbrance, attachment, or transfer from the site, except if the materials have been transferred to a bona fide purchaser. The right of

repossession and removal shall extend only to materials whose purchase price does not exceed the amount remaining due to the repossessing lienor. If the materials have been partly paid for, the person delivering them may repossess the materials as allowed upon refunding the part of the purchase price which has been paid. The recovery of materials under Florida’s lien law should not be considered a preferential transfer under the Bankruptcy Code and should not be voided. As well, materials on a construction site which are about to be incorporated into the realty are immune from levy, execution, or attachment by the material supplier’s creditors. This is true even if the creditor holds a security interest in the payments from the general contractor to the debtor.

Special Rules for Specially Fabricated Materials

Specially fabricated materials are materials which by their nature are not generally suited for, or readily adaptable to, use in a similar improvement. An example of a specially fabricated material is a roof truss for a uniquely designed roof. Once the wood is cut for that truss, it cannot be readily adaptable for use in another type of truss or roof.

A Notice to Owner must be served within 45 days from the commencement of construction of the specially manufactured goods, either on or off site.

In contrast, a Notice to Owner for all other types of construction materials must be served 45 days from the date of first delivery of said materials to the job site. Most importantly, actual delivery of the specially fabricated materials to the job site is not required.

A court may disagree with the lienor’s classification that certain goods are in fact specially fabricated. As such, a lienor should always comply with the earlier of the notice requirements, be it as a fabricator of specialty materials or as a supplier of standard construction materials.

Claims, Bonds, Insurance – What you Need to Know

Whether a project is big or small, you need to know how to deal with the inevitable claims that can be filed. Join Alex as he explains the impact of claims, the importance of insurance, and the use of bonds to assure performance.

Laborers vs. Labor Pools

Sometimes those performing work on a job site don’t easily fall into the category of a subcontractor or materialman. For example, a laborer, generally defined as any person other than an architect, landscape architect, engineer, surveyor and mapper, is someone who, under a properly authorized contract, personally performs on the site of the improvement labor or services which benefit the real property; he is not one who furnishes materials or labor service of others. A laborer is generally extended the greatest protection under the lien law while having to comply with the least amount of statutory prerequisites to enforce a lien. As an example, a laborer need not serve a notice to owner to perfect his or her lien. The rationale for exempting laborers from certain notice requirements is that an individual laborer will not work long without pay and consequently will not have a large claim unknown to the owner or general contractor.

A labor pool, however, is not a laborer. An employer, on behalf of its employees, cannot file and foreclose a mechanic’s lien as a laborer, where the employer provides the labor services of individuals with whom it contracts. Florida law clearly distinguishes between those who personally perform work and those who merely furnish persons to do the work. A business entity does not come within the general classes included in the definition of a laborer. For all practical purposes, a labor pool or temporary labor supply firm is a subcontractor or a sub-subcontractor and as such must comply with all of the notice requirements of that class of lienor.

Requests for Information

A lack of privity between parties to a construction project often results in a lack of information. This is easily overcome by requesting the needed information pursuant to Florida’s lien law. The owner may serve in writing a demand to the lienor for a written statement under oath of his or her account. The Statement of Account will include, if requested, the nature of the labor or services performed and to be performed, if any, the materials furnished, the materials to be furnished, if known, the amount paid on account to date, the amount due, and the amount to become due, if known. The failure or refusal to furnish the Statement within 30 days after the demand or the furnishing of a false or fraudulent statement will deprive the lienor of his or her lien.

The demand must be served on the lienor at the address and to the attention of any person who is designated in the notice to owner. If the demand is not served upon the designated persons and at the address as set forth in the notice to owner, then the failure or refusal to furnish the statement will deprive the lienor of his or her lien.

The demand must prominently display the following (or similar) warning:

WARNING: YOUR FAILURE TO FURNISH THE REQUESTED STATEMENT, SIGNED UNDER OATH, WITHIN 30 DAYS OR THE FURNISHING OF A FALSE STATEMENT WILL RESULT IN THE LOSS OF YOUR LIEN.

The failure to notarize an otherwise accurate and timely Statement of Account is fatal to a mechanics’ lien claim. This is in light of the strict compliance required within the mechanic’s lien statutes, even in absence of any showing of prejudice to the owner.

This method of gathering information should not be reserved for prelitigation. It is a very useful tool during litigation to obtain speciic information very quickly. In addition, such a request will usually prompt the opposition to more closely review their position, understanding they may lose their lien right if they fail to ile a timely or accurate response. Unfortunately (or fortunately), however, the failure to furnish a response to a demand for Statement of Account will not affect the validity of a claim of lien being enforced through a foreclosure case which was filed prior to the date the demand for the statement is received by the lienor.

Privity and non-privity lienors are also afforded a means to obtain information from the owner. Any lienor who has iled a claim of lien may make a written demand on the owner for a written statement under oath. The statement, if so requested, shall show the amount of all direct contracts, the amount paid by or on behalf of the owner for all labor, services, and materials furnished pursuant to the direct contracts, the dates and amounts paid or to be paid by or on behalf of the owner for all improvements described in any direct contracts, and the reasonable estimated costs of completing any direct contract under which construction has ceased. If known, the actual cost of completion must be provided by the owner in the statement.

The written demand must include the following warning in conspicuous type in substantially the following form:

WARNING: YOUR FAILURE TO FURNISH THE REQUESTED STATEMENT WITHIN 30 DAYS OR THE FURNISHING OF A FALSE STATEMENT WILL RESULT IN THE LOSS OF YOUR RIGHT TO RECOVER ATTORNEY FEES IN ANY ACTION TO ENFORCE THE CLAIM OF LIEN OF THE PERSON REQUESTING THIS STATEMENT.

An owner who does not provide the statement within 30 days after the demand, or who provides a false or fraudulent statement, will not be the prevailing party for purposes of an award of attorney’s fees under the applicable law.

4 Required Construction Contract Disclosures: Lien Law, Construction Defects and More

Who Needs a License to Work?

We can all see the signs of a healthier construction economy – more concrete trucks on the road, more houses being remodeled, and more customers at neighborhood Home Depots. But with this surge in construction comes the inevitable appearance of unlicensed contractors. These unscrupulous tradesmen pose as licensed contractors, ready to work at reduced prices. Don’t be fooled by their smooth talk. Do your homework and check to see if the contractor you’re prepared to hire is not only insured but actually licensed to work. Not doing so exposes you to the potential of shoddy if not unfinished work, and little recourse without having to get your construction lawyer involved. Take a look at what happened in this particular case.

The helpful infographic below points out the active role taken by Florida’s Department of Business and Professional Regulation to address this problem.

License-to-Work

Can you Lien for Work on Leased Property?

It is of crucial importance to determine if the party contracting for the work is the real owner – the one holding a recorded title. If not, then what interest does that contracting party have in the property? When an improvement is made by a tenant in accordance with an agreement between such tenant and her or his landlord, the lien shall extend to the interest of the landlord. However, when the lease expressly provides that the interest of the landlord shall not be subject to liens for improvements made by the tenant, the tenant is under an obligation to notify the contractor of said provision in the lease.

While the willful failure of the tenant to provide such notice to the contractor shall render the contract between the tenant and the contractor voidable at the option of the contractor, it is usually too late for the contractor. A contractor almost always learns that the true owner is not the contracting party after some or all of the work is done and payment is not forthcoming.

The law is very unforgiving. As an example, a landlord does not subject his property to a mechanic’s lien for work done by a contractor for the tenant merely because he knows the work is taking place and fails to take action to stop it. In another case, where the parties to a lease contemplated that the tenant would renovate the space, including certain electrical work, the tenant’s interest was not subject to a lien by the electrical contractor where the lease did not require such improvements. The improvements were for the benefit of the tenant and the landlord did not desire the renovations as they tended to convert the building from a general use property to a special use property thereby reducing its marketability.

In order for the contractor to be entitled to a lien on improved realty as against the landlord when work is done for the tenant, the lease must by its terms require the work to be done or by its terms make it obvious that the improvements were essential to the lease. Where the terms of the lease contemplated improvements, the landlord’s interest may be subject to a mechanics’ lien unless the landlord records the necessary disclaimer

What is a Notice of Contest of Lien?

An owner may occasionally benefit from shortening the time in which a lien holder may file suit to foreclose its lien. One way to accomplish this is to serve a Notice of Contest of Lien.

Specifically, the lien of any lien holder upon whom such notice is served shall be extinguished automatically unless the lienor institutes a suit to enforce his or her lien within 60 days. The clerk shall mail a copy of the Notice of Contest to the lien claimant at the address shown in the Claim of Lien. Service shall be deemed complete upon mailing. The Notice of Contest acts by operation of law to discharge a lien on 60th day without any intervention of the court. Moreover, the filing of a Notice of Contest of Lien should not violate an automatic stay imposed by the Bankruptcy Code.

Which is better: mediation, arbitration or litigation, and which should be in my contract?

The truth is it depends. Mediation should be mandatory (starting with a meeting of principals). Arbitration is not always faster, or cheaper, and importantly comes with no right to appeal. Litigation is predictable and has appeal rights. Listen to Alex and see what makes the most sense for you.

How Do You Lien a Job With Multiple Direct Contracts?

We’ve often written about it – how do you lien a job with multiple direct contracts? Do you file a blanket lien incorporating all the improvements arising out of these several contracts? After all, they’re all related to the same property. How many liens do you need?

Here’s What You Have To Do

You must file a separate lien for each direct contract. Take a shortcut and file only one lien to address various direct contracts on the same property and you could well lose your lien rights. We should know. We recently argued such a case on behalf of our condominium association client and won.

On April 17, 2015, The Daily Business Review reported:

“In a cautionary tale for contractors to dot their i’s and cross all their t’s, a Miami-Dade Circuit Judge has thrown out a lien due to what’s essentially a rookie mistake. The judge delivered a blow to an engineering firm suing a Miami Beach Condominium association for non-payment.”

Don’t Make This Mistake

The judge vacated the lien that had been filed against our client because it failed to comply with applicable Florida law. The engineer had entered into 9 separate contracts for concrete and stucco work, replacement windows, sliding glass doors, cabanas and a new entrance. It then added all the monies still owed under the 9 contracts into one lien, something the law does not allow.  Clearly, the consequences for any contractor, or in this case, an engineer, relying on what ended up being a faulty filing to secure payment can be costly. Liens can be filed only within 90 days of work being performed and once those 90 days expire, there’s no fixing the error of having filed just one lien to cover multiple contracts. Don’t make this mistake. Make sure your critical liens are reviewed by a construction lawyer, especially if you’re not totally familiar with the lien law which unfortunately is  very unforgiving.

Can You Amend Your Claim of Lien?

A claim of lien may be recorded at any time during the progress of the work but never later than 90 days after last furnishing labor or materials. (Obtain your own Calc-u-Lien to be able to calculate these deadlines). A lien holder must also file separate claims of lien for work done under separate direct contracts between an owner and contractor. As an example, a contractor was required to file two claims of lien, one for construction work and then another for subsequent repair work, even though both the construction and repair work were done on the same structure. This was because the construction and then the repairs were performed under two distinct contracts.

Okay, you’ve recorded your lien within the required 90 days; now can you amend your claim of lien? Maybe, since this must be done during the period allowed for recording the original claim of lien and as long as (there always seems to be an “as long as” with these legal issues) the amendment does not cause someone relying on the original claim of lien to be impaired. So if you recorded your claim on the 90th day, you will be out of luck. Any amendment of the claim of lien must be recorded in the same manner as required for the recording of the original claim of lien.

All that said, be aware that amending a defective claim of lien does not necessarily render it enforceable. Because you will generally only have one opportunity to record and serve a claim of lien (too often filed quickly on the 89th or 90th day), be careful and get it right the first time.

How do you assert a construction lien?

A construction lien is a right permitted to those in the construction industry who provide materials, services or labor to real property. If one who provides these services or materials are not paid, he or she may be able to force the sale of the property in order to recover their money. Let’s talk about the five specific deadlines associated with most, but not every, construction lien.

1. Within 45 days of first work on a project, those in the construction industry need to send what is called a Notice to Owner. This is a document that is sent to the owner to inform him that work is being on their property.

2. Within 90 days of last work on the job, one needs to record a Claim of Lien in the public records of where the project is located.

3. Within 15 days of the recording date of the Claim of Lien, one then needs to send a copy of the Claim of Lien to all interested parties. Primarily that would be the contractor and owner, and anyone else listed on the Notice of Commencement.

4. Anyone that has a direct contract with the owner needs to send the owner what is called a Contractor’s Final Affidavit. This needs to be done at least 5 days prior to the time that suit is filed to foreclose the Claim of Lien.

5. Finally, within 1 year of the recording date of the Claim of Lien, the lienor must file suit to foreclose his or her lien.

When asserting your lien rights, it is imperative that you comply with very specific time frames. Failure to do so could render your lien unenforceable.

Use Daily Job Reports

In a court of law, a contractor’s daily reports are critical. In many instances, they are considered key evidence showing what actually occurred at specific times on the job. And since people’s memories fade, a court will likely rely heavily on what the daily reports say happened (especially when presented with a corroborating witness).

The problem is that many contractors fail to create these reports. And those that do create them, do it only at the beginning of the project or sporadically throughout the progress of the job, generally only when they are reminded to do so. Daily reports (hence the name) only become truly effective when they are, in fact, done daily.

The Importance of Timely Documentation

The reason that daily reports are admissible in court (again, with corroborating testimony) is that they are interpreted as being recorded at or about the time the events in question occurred. Field managers should, therefore, write up these reports daily while the work is occurring or very soon thereafter to capture as accurate an account as possible. Not created until the end of the week or month, the information will surely not be as accurate and may not be as helpful in supporting a case if suit is filed.

What You Should Include in Daily Construction Reports

To reduce a company’s legal risk, daily reports should clearly describe the entire project’s status as it applies to a contractor’s scope and the schedule. At a minimum, the report should include:

  • The date of the report;
  • Who is writing the report;
  • The time work starts and finishes on that day;
  • A description of the weather;
  • On smaller jobs, the employees, and subcontractors, by name, title, and company, who are on the job site. On medium to large jobs, the total number of employees and subcontractors by title and company will suffice;
  • Any material deliveries of significance, such as large dollar items, for example, fixtures or pallets of tile;
  • The current state of the schedule as compared to planned scope of work and what is causing any delay; and
  • Anything else that is out of the ordinary that may be occurring, or not occurring, that is impacting or may impact the project or the contractor’s schedule and work.

Daily reports serve many purposes. Make sure those who complete them understand how they will be used and how they can positively impact a project summary. A contractor’s good name and financial success on a given project can depend on it.

10 Business Debt Collection Strategies that Work

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