Florida’s lien law (Florida Statutes §713.001-713.37) can help contractors, suppliers and construction professionals get paid. A good lien can act as a prime motivator in a contractor being paid what he/she is owed. However, the leverage that the law affords should not be interpreted as a license to force a payment that is otherwise not legitimately due. Florida Statutes section §713.31 reads, in pertinent part:
(2)(a) Any lien asserted under this part in which the lienor has willfully exaggerated the amount for which such lien is claimed or in which the lienor has willfully included a claim for work not performed upon or materials not furnished for the property upon which he or she seeks to impress such lien or in which the lienor has compiled his or her claim with such willful and gross negligence as to amount to a willful exaggeration shall be deemed a fraudulent lien. (emphasis added)
A “fraudulent lien” is one that willfully exaggerates the amount owed, willfully includes a claim for work not performed or materials not furnished, or one that is compiled in a such a way either intentionally or so negligently to amount to a willful exaggeration. A fraudulent lien can also involve labor, services or materials that are not contemplated as lienable under the lien law. In order to have a valid good lien, a contractor, supplier or professional must “improve” the real property which 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.
Stated another way, services, labor or materials are only lienable if they bestow a “permanent benefit” upon the land.
Of course, a real property owner on the receiving end of a claim of lien can challenge it in court. And if the court finds that it was fraudulent, it can declare the lien unenforceable and the lienor loses all rights. Bear in mind, a fraudulent lien is a complete defense to a claim of lien.
Losing lien rights is the least of one’s worries if a fraudulent lien is recorded. The court can award damages (including punitive damages) to an owner that arise from the imposition of a fraudulent lien as well as court costs and attorney’s fees. Troubles arising from a fraudulent lien may not end with civil repercussions. Florida Statutes section §713.31(3) reads:
Any person who willfully files a fraudulent lien, as defined in this section, commits a felony of the third degree, punishable as provided in s. 775.082, s. 775.083, or s. 775.084. A state attorney or the statewide prosecutor, upon the filing of an indictment or information against a contractor, subcontractor, or sub-subcontractor which charges such person with a violation of this subsection, shall forward a copy of the indictment or information to the Department of Business and Professional Regulation. The Department of Business and Professional Regulation shall promptly open an investigation into the matter, and if probable cause is found, shall furnish a copy of any investigative report to the state attorney or statewide prosecutor who furnished a copy of the indictment or information and to the owner of the property which is the subject of the investigation. (emphasis added)
A felony third degree conviction may lead to a term of imprisonment not exceeding 5 years and a $5,000.00 fine as well as scrutiny by the Florida Department of Business and Professional Regulation that may lead to the suspension of one’s license. It should be noted that officers of corporations are generally not held personally liable for corporate fraudulent liens when they solely act in their corporate capacity. Here are several examples of cases where courts have determined that a lien was fraudulent.
- A painting contractor filed a lien against homeowners alleging it was owed money on the original amount due under a painting contract as well as for additional work. The court found that the painting contractor included claims in excess of the original contract without any evidence of valid written change orders and that the contractor willfully included a claim for work not performed or materials not furnished and/or had otherwise willfully exaggerated its lien as such, the contractor’s lien was fraudulent.
- A real estate deal between a seller and purchaser soured. In the course of their business dealings, the purchasers made improvements to seller’s land at purchaser’s cost. After the deal went bad, the purchaser recorded a lien on seller’s property. As part of the amounts it claimed it was owed, purchaser included attorney’s fees, overhead, and items previously paid for pursuant to the purchase sales agreement. The court found the lien to be fraudulent as it included items that were not lienable under the lien law.
- The owner and builder entered into a cost plus contract for the building of a continuing care facility. The contract was for a fixed price of $7,268,206.00 and required written change orders. A dispute arose between the parties regarding payment and the builder filed a lien that exceeded the contract’s fixed price. On the basis that the excess costs were not authorized by the contract and that they were not the subject of any change order or change order application, the court found the lien to be fraudulent as the builder had included in the amount it claimed it was owed $150,524 for delays, $134,009 for additional field overhead expenses, $237,093 for overtime labor, $21,441.63 for markup on overtime labor, and $1,139.24 as interest on a withheld payment. The court considered the inclusion of these additional unauthorized amounts as a willful exaggeration and therefore made the lien fraudulent.
- An owner and construction consultant (not a contractor) entered into a written contract whereby the consultant was to guide the owner through the process of building the home. A dispute arose between the parties concerning payment and the consultant recorded a lien against the owner’s property. The court held that the consultant’s lien was fraudulent as the consultant did not perform labor or services constituting an improvement on the owner’s property and that its lien was based on breach of contract and lost profits, which are not a proper basis for a lien.
- Builder constructed a home and eventually filed a mechanic’s lien alleging it had not been fully paid. The trial court found that the lien filed by builder was fraudulent because it included nonlienable items such as pool upkeep charges, lawn maintenance charges, homeowner’s association fees and utility charges. The builder contended that because its building contract required it to pay for these items, it could properly include them in its lien. The court disagreed and found that the items listed were not lienable and further determined that maintenance work was not lienable labor under the lien law.
- A lawn service company filed a claim of lien against the homeowner for his alleged failure to pay for lawn mowing and shrubbery cutting services. The court declined to enforce the lien and found that lawn mowing and shrubbery cutting services do not bestow a permanent improvement on the land that would entitle the lawn service company to a lien.
In short, do not misrepresent or estimate in calculating what you claim is owed. Make sure that the services, labor or materials that you claim improved the real property are lienable under Florida’s lien law, otherwise you run the risk of being accused of recording a fraudulent lien. Importantly, seeking the advice of counsel, prior to the preparation and filing of the lien, can help mitigate accusations of “willful” intent and possibly avoid a fraudulent lien. Courts have held that the hiring of counsel for purposes of preparing a lien can be evidence of good faith intent and shield the lienor from claims of filing an improper lien.