Construction Lien Law Basics

Filing a Claim of Lien

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.

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.

Within 90 days of last work on the job.

You need to record a Claim of Lien in the public records of where the project is located.

Within 15 days of the recording date of the Claim of Lien.

You then need 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.

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.

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.

Who Can Prepare and Who Should Sign a Claim of Lien

The preparation of a construction claim of lien appears to be such a routine task that many take for granted the importance of who is actually authorized by statute to do so. But not knowing who is legally allowed to prepare and sign the claim and not truly understanding the process can open one up to certain liability and even invalidate the claim of lien.

Specifically, a claim for a construction lien in Florida can only be prepared by the lienor or an attorney licensed to practice law in the state, and that claim of lien can only be signed by the lienor or its authorized agent. The preparation of a claim of lien for others, in the state of Florida, is considered the practice of law. If any other party prepares the claim of lien other than the lienor or its attorney, then that party will, in Florida, be found to be engaging in the unauthorized practice of law. Moreover, and potentially devastating, is that such a practice could cause the claim of lien to run afoul of the fraudulent lien laws and completely invalidate its effectiveness. As well, utilizing parties unfamiliar with the lien process or the specifics of a lien claim could lead to mistakes. For example, not listing the correct names of all parties in interest or the correct legal description of the property being liened could be as problematic as not having proper start and end dates for the lienor’s services, or worse having dates that fall outside the time frame requirements imposed by the applicable statute.

Validating your lien through the proper and timely insertion of all needed information is the first step. Seeing that the claim of lien is prepared and signed by a party authorized to do so will then ensure that it remains enforceable and allow you to secure payment for those unpaid services or materials.

Update:

The Florida legislature recognized the chilling effect of statutory limitations on who could prepare and sign a claim of lien. Particularly problematic was the situation where the lienor was not an individual person, but rather, a corporation or limited liability company. Many, if not most lienors organize corporations or limited liability companies to protect the individual contractor from liability that could result from construction. Under the wording of the applicable statute previously in place, if a corporation was wholly owned by a single individual, that individual would be unable to prepare or sign a claim of lien on behalf of the corporation. This was not the intended effect of the statute. The statute has since been amended to read that a “claim of lien may be prepared by the lienor or the lienor’s employee or attorney and shall be signed and sworn to or affirmed by the lienor or the lienor’s agent acquainted with the facts stated therein.” This revision to Florida statutes mitigates many of the hazards previously associated with preparing and signing claims of lien in-house.

Missed That Lien Deadline?

You believe you’ve missed a lien deadline, and as a result might have missed your chance to get paid. Don’t give up! There are still options to exhaust.

What Are Your Options?

You may think you know the basic notice and lien rules, but do you also know there are exceptions:

• You must send any notice to owner within 45 days of your first work or delivery of materials to the site. Exception: If you have a direct contract with a bonded contractor, you don’t need to send a notice to owner/contractor to maintain your rights. (That said, it’s a sound practice to always send a notice to owner, regardless of what’s required.)
• Another exception: On a bonded project, the 45-day notice to owner requirement doesn’t start until you have actual or constructive knowledge of the bond. If a contractor doesn’t file/record the bond properly, you can’t know there is one. Keep digging and you might breathe new life into your claim.
• You must file any claim of lien or notice of nonpayment on a job within 90 days of your last work or delivery of materials to the site. Exception: If the job is public, you don’t have to send a notice of nonpayment to still have rights. (Again, it’s sound practice to always send timely notices, regardless of requirements.)
• You must file any suit to enforce the lien within one year of lien recording, or, for a bonded job, one year from last work on bond claims. Note the lien gives you a little more time.

Calculating Dates Correctly

Calculating dates correctly can be less of a burden with the Calc-U-Lien. Downloadable on IOS or Android devices, this app does the counting and remembering for you.

Once you confirm whether deadlines and exceptions apply to you, also make sure there isn’t another bond you could pursue. If you are a sub-subcontractor or a material supplier to a sub or sub-sub, you may have rights against the subcontractor’s bond. The catch is the bond doesn’t exist in the public record. Since you can’t do a search for this bond, you’ll have to ask the contractor for a copy. Often the contractor is happy to oblige and hopes this will keep you from filing against him. The subcontractor might not be as forthcoming, but you can ask. You can even send a written demand.

On occasion, a subcontractor will lie and say he doesn’t have a bond. We were involved in such a situation and kept digging, eventually discovering there was indeed a bond in play. Our client got paid.

With no applicable exceptions and no other bond to pursue, there are two more options: suing for breach of contract and suing for unjust enrichment. For breach, you just need an agreement with another person or entity. Having that agreement in writing is preferable, but not required. A proposal, a quote, an invoice – even a handshake can work if you provided labor or materials and did not get paid. However, the more proof in writing you have supporting your claim, the more likely you will get paid. See your construction lawyer to review your options.

Beware of pay-when-paid and pay-if-paid provisions. They will cut against your efforts to get paid. Sometimes these provisions are unenforceable, but it’s better to be aware of their potential to derail payment before you sign a contract.

Suing for unjust enrichment is typically used for parties further up the payment chain, including owners. You conferred a benefit (that’s enrichment) and you haven’t been paid (that’s unjust). It’s possible the owner has paid the contractor and the money never got to you. If that’s the case, then you have no claim. These cases can often be more effective prior to the end of a job, when an owner is holding back money from a contractor.

You may be absolutely certain you have missed a deadline that will cost you payment. But are you that certain you have exhausted any available exceptions, pursued other bonds and fully considered lawsuits?  Sometimes if a door seems shut, a window remains open. With additional knowledge and the advise of a construction lawyer, you may still have options for getting paid.

Notice to Owner: Why Do You Need It?

All contractors actively engaged in construction work are undoubtedly familiar with Notices to Owner – that section in most mechanics’ lien statutes which outlines what a materialman, laborer, subcontractor or sub-subcontractor, who is not in privity with the owner, must do to perfect his lien rights in order to record a claim of lien. The notice must set forth the lienor’s name and address, a description of the real property, and the nature of the services or materials furnished or to be furnished. Simple enough, but the more significant issues surrounding Notices to Owner stem from their timing component. The law is unwavering in holding that a failure to timely serve such a notice when required is a complete defense to enforcement of a lien. Therefore, prudence dictates that a lienor understand the timing requirement of a notice to owner and comply with all deadlines irrespective of where he stands in the chain of interested parties.

In Florida the applicable statute mandates that the notice to owner be served no later than the earliest of the following: (a) 45 days from first furnishing of his labor, services or materials, or (b) before the making of final payment in reliance upon a final contractor’s affidavit.

Notice to owner not required

Knowledgeable contractors are aware that they must file a Notice to Owner before they can ever file a Claim of Lien on those jobs where they don’t have a direct contractual relationship with the owner. But what if the owner transfers ownership to a related corporation after it had already directly contracted with a sub, say a marble installer? Does that installer now have to file a Notice to Owner? A recent case has determined it does not. The court relied on the basic principle of fairness. Where, as here, there is a common identity between the owner and the developer, there is no need to file a new notice. Courts have held that if the same individuals were officers of both the owner corporation and the contractor corporation, a subcontractor’s failure to file a Notice to Owner was not fatal to its lien claim against the corporate owner. To allow otherwise would be to encourage parties to play a shell game with ownership and    frustrate the valid claims of contractors completing work on an owner’s property.

Is a notice to owner always necessary?

But is a notice to owner always necessary? It depends on whether you are in privity of contract with the owner – if you are, then you are not obligated to send a Notice to Owner and you can move on. If you are not, you must then comply with applicable statutes as early as possible to ensure that you timely file your notice and preserve your lien rights. Notwithstanding your conclusion, always err on the side of caution and file a Notice to Owner even if you are uncertain you need to do so.

However, if you conclude that you are definitely not in privity of contract with the owner and you find yourself outside the proper time frame for filing a Notice to Owner, don’t lose heart. First off, know that even the most diligent and meticulous lienor can find himself in this precarious situation. For example, let’s say you are a subcontractor who has been performing work under a contractor’s direction and the contractor has held himself out as the owner from the commencement of the project. After a few months, well past the prescribed notice period, you come to learn that the contractor is not really the owner. Now, the timeframe for sending a timely Notice to Owner has passed and you are left scrambling for armor.

First know that there are situations which preclude the necessity of sending a Notice to Owner. A subcontractor doing work for a bonded contractor – a contractor who posts a bond pursuant to statute, committing to pay for labor, services, and material used to improve the real property, may not have to file a Notice to Owner. You can easily determine if your contractor is bonded since the owner is required to attach a copy of the bond to the Notice of Commencement (the Notice of Commencement is the first document to be recorded in the sequence of documents necessary to enforce a construction lien). But, it is important to note that this exception only applies to lienors who are in privity with the contractor. Lienors who are not in privity with the contractor are still required to file a preliminary notice after first work as called for under applicable statutes.

Another instance where filing a Notice to Owner may not be necessary occurs when the contractor and owner have a “common identity.” In such cases, the law has in many states carved out an exception relieving a subcontractor of its obligation to give a formal notice to owner as a prerequisite to establishing a mechanic’s lien. It is important to understand that questions of privity and common identity are factual in nature. These cases have varied results based on their particular facts but much can be learned from Florida’s Supreme Court, which in 1992 opined as follows:

The purpose of serving notice to an owner is to protect an owner from the possibility of paying over to his contractor sums which ought to go to a subcontractor who remains unpaid. Because the purpose of serving notice is to alert the owner to guard against double payment, such notice will be excused only when privity exists between the owner and the subcontractor.

Thus, we find that privity exists either when the owner knows a subcontractor is working on the job and that owner has assumed the contractual obligation for the work or when the owner and contractor share a common identity. In either situation, notice is not required.”

A Notice to Owner is also not necessary in most jurisdictions where the lienor is an architect, landscape architect, interior designer, engineer, or surveyor and mapper and their professional services are performed pursuant to or under a direct contract with the owner. Moreover, a professional lienor who has a direct contract with the owner may be entitled to a lien, even though the property is never actually improved. In addition, it is not necessary that there be a face-to-face personal meeting between owner and professional to constitute a “direct contract.” Owners can become obligated through acts of their authorized agent. It is noteworthy that although a Notice to Owner is not necessary for these particular lienors, the professional lineor is still required to adhere to other statutory requirements, such as recording its Claim of Lien within the statutory number of days of last work and to serve a copy of that lien on the owner within a certain number of days of recording.

Finally, most states specifically except laborers from the requirement of filing a Notice to Owner. A “laborer” is generally defined as any person other than an architect, landscape architect, engineer, surveyor, mapper and the like who, under properly authorized contract, personally performs on the site of the improvement labor or services for improving real property and does not furnish materials or the labor service of others. To be a proper laborer under this exception, he or she must have a contract with a subcontractor, owner, general contractor, or materialman on the project. The logic for exempting laborers from the Notice to Owner requirement stems from the theory that an individual laborer is unlikely to work long without pay and, consequently, is unlikely to have a large hidden claim.

In conclusion, courts have come to expect and demand strict compliance with their state’s lien laws. To that end, it behooves all potential lienors to know the intricacies of such statutes and to timely adhere to their notice requirements. Knowledge and fast action here could be the difference between protecting or losing a valid lien.

Update:

The Florida Supreme Court has analyzed the time component for serving a Notice to Owner “pursuant to an authorized contract.” The case involved a landscaper who was requested by the owner to fly with him to view a particular type of palm tree that the owner wanted on his project. The landscaper selected and tagged several trees. Weeks later, the landscaper received a contract and began digging holes and planting the trees at the project site. The landscaper was not paid, recorded a lien and sued the owner to enforce his lien. The owner defended by alleging that the Notice to Owner was not served within 45 days of when the landscaper tagged the trees in the other city. The landscaper argued that the tagging of the trees was only done in anticipation of receiving a contract, and that the triggering date was when the landscaper began digging and planting trees at the site pursuant to the contract. Both the Fourth District Court of Appeal and the Florida Supreme Court agreed with the landscaper that the time began to run from the date the labor or materials commenced at the site pursuant to an authorized contract.

Forget to Send My Notice to Owner

What happens when you forget to send out that Notice to Owner? The short answer is all is not lost. There are still things you can do to get paid. Before we discuss that in detail, let’s go through what the basic notice to owner and lien rules are so that everyone is on the same page.

Basic Notice to Owner and Lien Rules

In order to have a lien right in most situations, you need to send a notice to owner no later than forty-five calendar days from your first work or delivery of materials onto the site. Forty-five days is the outside date within which the owner or any other parties that are supposed to receive the notice actually receive that notice. Therefore, you shouldn’t wait till the forty-fourth day or the forty-fifth day to send it because it’ll be too late. We advise our clients to have a process in place in their office to ensure the notice to owner is promptly sent.

If the job is bonded, you need to record your claim of lien or serve your notice of non-payment within 90 days of your last work or delivery of materials. Again, you should not be waiting until the ninetieth day. You should be doing it well before that. When it’s about day 60 from your last work, and you haven’t been paid, that’s when you need to record your claim of lien or serve your notice of nonpayment.

Also, you need to file an action in the courts no later than one year from when you record your lien or one year from your last work if you’re suing a bonding company. Note that there’s a little difference of up to 90 days between suing on lien and suing on a bond, but the outside limit is one year after which your lien and bond claim is automatically extinguished.

Some clients believe that they can re-record the lien. For example, they record the lien on January 2nd, 2016. So, when January 2nd, 2017 comes along, they think they will be able to keep their lien alive by recording another copy. That’s not a thing to do. That would actually constitute slander of title because the second lien is no good. You can keep that lien alive by doing one thing and only one thing, and that is to file a lawsuit to foreclose on your lien no later than the one year.

What happens if you miss the deadline?

More importantly you think you missed the deadline?

There are some instances where no notice to owner is actually needed. Here are the common exceptions.

When you have a direct contract with the owner:

You don’t need to send a notice to owner when you have a direct contract with the owner of the property. You should still have a proper process in your office to send notices on every job, but you don’t need one in this case. So, if you’re a plumber and you do some work for an owner, and you didn’t send a notice to owner, you have nothing to worry about because you still have lien rights.

When you have a direct contract with a bonded contractor: There is no need to send a notice to owner when you have a direct contract with a bonded contractor. Technically, it is called a notice to contractor, but it is a similar form. You should still send one, but it is not required. Let’s consider an example. If you are the plumber on a project and your contract is with a general contractor who has a payment and performance bond on this project. Here you don’t need to send the notice to owner or in this case, the notice to a contractor. The reason is that you have a direct contract with a bonded contractor and your recourse for nonpayment is against the contractor and their surety bond. And they already know that you are on this job, so you don’t need to send them another notice informing them that you’re on the job.

On bonded projects, the 45 days to serve the notice to owner (or technically notice to contractor) does not start to run until you have actual or constructive knowledge of the bond:

We had a client who was a sub-subcontractor on a public project in Homestead. He did not send his first notice within 45 days of his first work on the job. The mistake came from his office. He was switching administrative staff, and they missed that deadline. They just totally forgot to send it. The job went on for a little less than a year. When he finished the job, he was owed about $100,000, and came to us. He said I didn’t send my first notice to the subcontractor (remember our client is the sub-subcontractor) and the subcontractor had filed for bankruptcy. We did some digging, and we realized that the job was a public job and it was bonded, but the contractor failed to record a copy of the bond. So, that means that we as the sub-subcontractor and everyone else on the job did not have actual or constructive notice of the bond because the contractor did not record a copy like he was obligated to do.

That meant our 45 days had not even started to run (remember we are now almost about a year out from when we started the work). What did we do? We served a notice to contractor once we figured out that the job was bonded and we were able to obtain a copy of the bond. The next day we served a notice of non-payment on the bond and then the day after, we filed the lawsuit on the bond to get paid. The end result was that our client got all their money plus legal fees plus interest. These were the same people that were ready to give up because they thought they missed that first notice. Lucky for them, they fell into an exception in the lien law that gave them rights that they didn’t even know they had.

Pro tip: No notice of nonpayment is needed when you have a direct contract with the bonded contractor on a public project (but still send one).

Is there another bond that you can go after?

On most projects, the general contractor is required to obtain a payment bond on the project. But sometimes on certain projects, typically larger projects, not only is the general contractor bonded but many of the subs are bonded as well. On these jobs, most general contractors will have their subs bond back to them. Know that If you’re a sub-subcontractor or a material supplier to the subcontractor or the sub-subcontractor, not only do you have rights against the general contractor’s bond but you may also have rights against these subcontractors’ bond.

The question now is how do you get your hands on that loud? Because that secondary bond from the sub is not a statutory bond, it doesn’t get recorded in the public records. The best place to obtain it in our experience is from the contractor. If you ask the subcontractors for the bond, they may ignore your request because they don’t want you to be making claims on their bond. But the contractor who required the sub to get a bond and has a copy of it, is looking to protect not only himself but his bond. So he would usually be more than happy to give you a copy of the subcontractor’s bond instead of his bond. If you send a certain formal written demand as outlined in the statute, and it contains the right magic language both the contractor and the subcontractor are technically obligated to give you a copy of their payment bonds.

Keep in mind that other bonds may exist. The importance of that is that if you miss your deadlines on the general contractor’s bond, you may have rights under the subcontractor’s bonds which are considered common law bonds and are not governed by the same notice requirements that are in the statute. So, you may not need to send the first or second notice if you have rights under this subcontractor bond.

What other rights do you have?

Now, let’s assume that either you’ve missed all of the deadlines or something went wrong and you cannot make a claim against either the general contractor’s bond or subcontractor’s bond. Note of course that these rights exist in addition to the rights to file a lien or to make a bond claim. When we are asked to bring an action for a client that’s owed money, we usually bring an action on the bond or the lien if those exist. If not, we can also sue for breach of contract and unjust enrichment.

What is a breach of contract action?

In essence, it says that someone owes you money because they didn’t do what your agreement with them said they were supposed to do. That agreement does not need to be in writing – it’s better if it is, but it doesn’t have to be. A proposal, a quote, an invoice with terms, or any other writing that describes what the terms and conditions are will constitute an agreement. Even an oral agreement is still an agreement that you can sue on. Keep in mind (if you are a sub) that the major defense that most contractors use is the “pay when paid” defense. That means if they have not been paid by the owner, and they have a valid “pay when paid provision” in your contract, then even though you haven’t been paid, they may be able to defend your breach of contract action based on that pay when paid provision. Look for that early on.

Suing for unjust enrichment

The legal theory behind unjust enrichment is pretty simple. It’s that you provided a benefit (“enrichment”) and you have not been paid for it (unjust).  Therefore, if you can show that you provided labor or materials and that you haven’t been paid, then you potentially have an action for unjust enrichment. It is typically used against a party that is further up the chain.  If you are a material supplier, you’ll bring an unjust enrichment action against the owner or the contractor.

Know that if the party that you’re suing for unjust enrichment has paid the money to somebody, even though you may not have received that money, that would undercut your unjust enrichment claim. Let me give you an example.  You haven’t been paid for materials you deliver to a job site, but the owner paid the contractor, and the contractor ran off with the money. The owner has not been unjustly enriched. In this case, you would not have a claim for unjust enrichment against the owner.

Don’t Forget Filing Your Lis Pendens When Foreclosing A Construction Lien

The filing of a construction or mechanic’s lien is just one in a series of steps a contractor can take to protect its right to receive payment for labor and materials provided. Assuming that the contractor has properly followed the required steps before filing its claim of lien, and the contractor still has not received payment, the next step in most instances would be to foreclose the lien before the statute of limitations expires. Typically, when such an action is commenced, the party filing the suit also files a lis pendens (a notice of a pending suit). This device places everyone on notice that there is a dispute which involves title to a property. In effect, the lis pendens hamstrings the owner’s ability to sell or otherwise encumber the property until the dispute which resulted in the filing of the notice of lis pendens is resolved.

Suppose a contractor with a valid construction or mechanic’s lien files to foreclose its lien before the statute of limitations for doing so expires. In Florida, for example, said statute of limitations expires one (1) year after the lien is recorded, or one (1) year after an amended lien showing the furnishing of later work or materials is recorded (assuming that no foreclosure action was otherwise filed). May the owner of the property convey clear title to a buyer without notice of the foreclosure? The answer is governed by statute and depends upon the facts of each particular case. If the action is filed before the statute of limitations expired, but the foreclosure is still being litigated after the statute of limitations would otherwise have expired, the construction lien will not be good against subsequent purchasers or creditors unless a notice of lis pendens is filed. What this means is that you can follow all the right steps to obtain your lien and foreclose on your lien, but still lose your rights to collect the money owed to you!

Another question raised is whether the usual statute of limitations for filing a foreclosure action on a construction or mechanics lien is for a set period of time, or whether it can be shortened. Generally there are procedures to shorten the length of time in which the lienor must file its foreclosure action. In Florida, by filing a document known as a “Notice of Contest of Lien,” the owner of a property can compel the lienor to file its foreclosure action within sixty (60) days after service of the Notice of Contest of lien. Failure of the lienor to do so within the sixty (60) day period will result in extinguishment of the lien.

Why You Should File on Time

By timely filing a foreclosure action prior to expiration of a lien, the lienor effectively serves to “continue” its lien until the foreclosure action is concluded. Suppose a lienor who is served with a Notice of Contest of lien timely files a foreclosure proceeding within sixty (60) days from receipt of the Notice – does this lienor prevent the owner from selling the property to prospective buyer without notice? The answer is the same when this question was raised previously. The construction lien will not be good against subsequent purchasers or creditors unless a notice of lis pendens is filed.

So while a foreclosure action may continue the effect of the lien during the pendency of the foreclosure case, unless a notice of lis pendens is filed, the owner may be able to circumvent the lien and sell the property to a subsequent purchaser for value. This would effectively serve to deprive the contractor or materialman who filed the lien the fruits of its labors and wares.

The time lines and required filings that accompany construction or mechanics liens can sometimes be tricky, and if not handled properly, will almost surely result in an adverse outcome for the lienor – more so, when the lienor forgets to file that all important lis pendens.

Don’t Lien for Non Lienable Services

A general contractor entered into a contract to remodel a house. He hired a number of subcontractors to complete the contracted work. The interior designer wasn’t one of them; she had a direct contract with the owner but she performed her work through the contractor.

When the owner missed making certain payments to the general contractor because of a disagreement over some change orders, the contractor recorded a claim of lien against the owner’s property. Multiple suits followed, with subcontractors suing the general contractor for non-payment and the general contractor claiming against the owner for breach of contract and foreclosure of his lien. The owner resisted, claiming the lien was fraudulent.

Problem for the general contractor was that he had included the interior designer’s unpaid invoices in his lien amount. He should have known any costs associated with labor, materials or services that were not part of his direct contract with the owner would not be lienable, and for that reason, the contractor’s lien was thrown out.

Understand that if the improvements are not actually part of the real property, you will be unable to lien that work. Clearly, lawn maintenance, pool services, as an example, would not be lienable services.

Never Combine Claims Of Lien

Claims of lien are often a contractor’s last resort. But sometimes filed at the last minute, when all other attempts at obtaining payment have failed, some of these liens may be defective and not enforceable.

Defective Liens

While some errors are more obvious than others, many can be fatal. Contractors want to surely minimize this risk. In most states, a lien can be immediately lost if it contains inaccurate information or is filed too late. A lien can also be disallowed if it is not preceded by a timely Notice to Owner, not enforced after a Notice of Contest of Lien or not supported by a proper Statement of Account. And at least in Florida, claims of lien on the same property arising out of different contracts can’t be aggregated. This is a lot of information for any construction professional to take in, so it is easy to see how mistakes can be made.

Aggregated Lien

One recent example exemplifies how filing a lien without knowing the applicable law can be very, very risky.

A condominium association located in Miami Beach had entered into nine separate contracts with its engineer to perform a number of services, including designing and administering certain concrete and stucco remediation work, designing replacement window and sliding glass door systems, and designing new cabanas and a new entrance. After a falling out between the parties, the engineer recorded a single claim of lien for amounts allegedly due under all the contracts and then sued the association to foreclose its one lien.

The association counterclaimed for fraudulent lien and filed its motion for partial summary judgment, arguing that the aggregation of disparate claims into a single lien claim resulted in an exaggeration of the amount due under any single contract. Such an aggregated claim violated the state’s statutory requirement that a lien claim set forth the amount unpaid “under the lienor’s contract.”

The court not only threw out the engineer’s six-figure lien, but also found the engineer liable for the association’s legal fees, costs and possible punitive damages.

While the lien law permits an unpaid lienor to record a claim against an owner’s property if the lienor has not been paid for work it performed to improve that property, it does not allow that more than one direct contract be included with a single claim of lien (at least not in Florida).

Know the Lien Law

It is bad enough to have to resort to the filing of a claim of lien to protect what is owed. It is worse to do so without a thorough knowledge of the applicable law. Minimize the risk of not getting paid by staying on top of the lien laws.

Attorneys Fees for Separate Claims

Know that a Florida court held that a construction lien foreclosure claim was separate and distinct from the claim for loss of future profits. The prevailing party on each claim was entitled to attorney’s fees.

A stucco contractor, entered into a contract  to perform work on a residential development. After it was terminated pursuant to the termination clause, it sued for breach of contract, future lost profits, foreclosure of a construction lien, and attorneys’ fees.

The parties settled the claim for foreclosure of a construction lien, including the stucco contractor’s entitlement to attorneys’ fees for that particular claim. It’s claim for future lost profits, however, hinged on the court’s interpretation of a termination clause, which stated that the contractor may terminate subcontractor services “at anytime for any reason by giving at least ten (10) days prior written notice”. In an earlier decision, the court held that clause enforceable.  Consequently, the court found that contractor was the prevailing party as to the future lost profits claim, and awarded Avatar attorneys’ fees for the appeal, appellate costs, and even for attorneys’ fees associated with the stucco contractor’s request for Florida Supreme Court review.

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.  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.

So you’ve recorded your lien within the required 90 days; can you now amend your claim of lien? Maybe. It must be done during the period allowed for recording the original claim of lien and the amendment does not cause someone relying on the original claim of lien to be impaired.

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.

Here’s an example. Sometime after construction had begun on a project, the customer ceased making payments. Construction stopped, and the contractor timely filed a claim of lien for the balance still due to him for work done on the project. Two months later, the contractor amended his lien to include additional work he had to perform to protect the partially finished project from the elements.

The customer wasn’t happy. He claimed the amended lien was filed late and for exaggerated amounts. The court, however, sided with the contractor, finding that the additional work done by the contractor to safeguard the yet-to-be completed project was done in good faith, within a reasonable time, and pursuant to a contract. The court then determined that this subsequent work extended the time for filing a lien. It was not remedial work (which would not extend the statutory deadlines for the filing of a lien), but rather work necessary to complete the contract.

It was a good day for the contractor. His good faith efforts to fulfill his contractual obligations, and his filing of the amended lien for the correct amount and in the right time frame, carried the day.

Dealing with Claim of Lien Errors

A lien can often be prepared quickly, maybe too quickly. After all, it is just a simple form which you fill out and file, right? Not really. Any one of the following errors could invalidate your lien, causing you to lose this all important ability to protect your right to be paid.

Double check each lien before it is filed. It may sound easy enough, but some of the lien law’s requirements may not be so clear. For example, where is the right county to record your lien – is it where the property is located or where the lienor’s business is located? The lien is going to encumber the property improved by your work so it is always filed where the property is located. Filing on time also seems pretty straightforward; however, knowing the correct time-frames applicable to a particular lien can make all the difference. Your calculation should be based on calendar not business days. Many contractors make this next mistake, exaggerating the amount of their lien. Rounding out the amount or putting in an estimated cost to complete versus the correct contract balance – neither would be correct. And finally does your lien actually cover lienable items – work which improved the property and is considered lienable under the applicable statute?

You’ve filed a lien because you’re concerned about getting paid. The last thing you want is a document that won’t stand up to the scrutiny of a construction expert or a judge. You want that lien to be right.

Mistake in a Claim of Lien, What Could Happen?

A lienor 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.

All in all, a lienor would be smart to catch and correct any errors, no matter how minor, before filing that Florida claim of lien.

What happens if you filed your claim of lien with a typo, misprint or other insignificant mistake? Not much, not if you have substantially complied with the Notice to Owner and Claim of Lien requirements as to content and time. As any Florida construction lawyer will tell you, minor 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, while desirable, is neither required nor should it form the basis for denial of the enforcement of an otherwise valid lien. But a lienor must still be careful. All this could quickly change if some prejudice is shown to the owner or another affected party.

Here are 6 quick ways to lose your claim of lien:

1. Not serving a Notice to Owner on any owner with whom you don’t have a direct contract.
2. Not filing a separate lien for each direct contract.
3. Failing to file suit to enforce your lien within 60 days of receiving a Notice of Contest of Lien.
4. Misapplication of a partial payment of materials.
5. Not furnishing a Statement of Account within 30 days of demand.
6. Refusing to provide a list of subcontractors and suppliers who have a contract to furnish material or services.

Don’t make these mistakes. Know the law by downloading the #1 guide to Florida’s construction lien law, Sink or Swim: Navigating Florida’s Lien Law. You’ll learn when and how to record a construction lien that can be enforced.

Caution: That Lien Can Be Wiped Out!

Owners are always eager to cancel any recorded liens. What a lot of contractors don’t know is that there are actually legal ways in which a lien can be extinguished.

Notice of Contest of Lien

One way to accomplish this is to serve a Notice of Contest of Lien. Specifically, the lien 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 automatically discharge a lien on 60th day without any intervention of the court.

Filing Suit to Show Cause

A more drastic method for shortening the limitation period associated with 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 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.

All pretty harsh results – lienors should not assume that their liens will remain in place for a year when confronted by either a Notice of Contest of Lien or a suit to show cause why a lien should be enforced. Ignoring these filings would be a big mistake.

Common Lien Questions Answered

Work as a Florida construction lawyer long enough and you’ll see the same lien questions come up over and over again.  Do you need a written contract to have lien rights? How long do I have to record my lien? How do I account for weekends and holidays? What is “last work” under the lien law? What happens after I lien? And can I lien homestead property?

Can I lien homestead property?

The short answer is yes. A contractor can lien and foreclose on homestead property that it improves. Understand that the homestead law in Florida does provide very strong protection to people’s primary homestead. Most times, creditors are unable to touch someone’s homestead property if it is properly registered as their homestead property and falls within the guideline of the homestead law.  However, there are two major exceptions to this rule. One is if there is a mortgage on the property. Obviously, if there is a mortgage on homestead property and the mortgage is not paid, then the bank can foreclose on the property. The other is if you improve someone’s homestead property, and comply with the lien laws, rules and timeline for notices, then you can foreclose on that homestead property and sell it.

Do you need a written contract to have lien rights?

The answer is no, but it’s nice to have. We strongly recommend that any agreement be in writing. But it is not required in order to have lien rights. Oral contracts are valid, enforceable and lienable. You must of course comply with all of the lien law rules and notice requirements whether your contract is in writing or not. We advise our clients to get their agreements in writing.  One reason is because some residential construction disclosure requirements require certain things in your contract to be in writing. One significant example is Florida Statute 713.015. You may not need a written agreement, but you should have one.

What about my invoice, proposal, and estimate, are they a contract? The answer is yes, all of those types of documents, no matter what you call them, are either a written contract (because what you have the other person sign it) or evidence of the terms of an oral agreement (because it may not be signed). We recommend that you have a series of terms and conditions in your estimates and proposals, and also have a process in your offices to get those documents signed.  Know that even if you have nothing in writing, and you perform work to improve a piece of property, you have lien rights as long as you comply with the rules of the lien law.

How long do I have to record my lien?

The short answer is 90 days from your last work or delivery of materials to the property being improved. There are, however, certain exceptions to this. One of these exceptions is for ‘specially fabricated materials.’ Delivery to the project is not required as your last work for specially fabricated materials in order to have lien rights. For example, let’s assume that you’re making a custom ornament for an exterior overhang. You have to fabricate it in your facility and bring it to the job site. If you don’t get to attach it to the property, then it has to go to trash because it has no other value other than for this project. So let’s say the job gets canceled, or you get fired, or the owner runs out of money, whatever it may be, but your specially fabricated materials never make it to the job site. Your lien rights run from the time you finished the fabrication or were notified that it was no longer needed, even if it never made it to the job site.

There is also another exception to the time period to record your lien in this instance. If the notice of commencement is terminated, you have 30 days to record your lien. We often see this on larger projects and even residential projects where the project started with no financing but then obtain financing along the way. For example, you started a project, and a notice of commencement was recorded, and let’s say the project goes on for three months. The owner gets financing along the way, but the lender wants to record their mortgage in the public records before the notice of commencement. How will they do that? They need to terminate the first notice of commencement, record the mortgage and then record a new notice of commencement after the mortgage. That puts the mortgage in first place and all of the liens related to the notice of commencement on the project in second place. So, if you’re given notice of this termination of the notice of commencement, you have 30 days from that point in time to record your lien, for any amount of money including your retainage that may be due for that initial part of the work. In the example, it could be anything that was owed in that initial three months. If you don’t record the lien within the 30 days, then you no longer have lien rights for that first work.

How do I account for weekends and holidays?

Count every day starting after the last date of work. For instance, if the last day you did work was on a Monday, you are going to start counting on a Tuesday. Say the last work day was on March 7th, you are going to start counting on the 8th.  March 8th in my example is day one, and the 9th is day two, and so on. Include in your count every weekend and legal holiday through and including the 90th day for liens and the 45th day for notice to owners. This rule applies to both how you count for notices to owner delivery deadlines as well as lien and bond deadlines. If the last date falls on a weekend or legal holiday(any day your local court clerk office is closed), then you roll the last date over to the next business day. That means, if the 90th day was a Saturday, then you roll on to the next day which is a Sunday – which also falls on a weekend. Again, you roll on to the next day which is a Monday. And if Monday was a legal holiday, and the court was closed, then you roll to the Tuesday. That’s how you count the dates for your notice to owner and your claim of lien. To make the calculation easier and accurate, you can obtain our Calc-U-Lien which will help calculate the notice to owner and liens deadlines for you.

What is “last work” under the lien law?

“Last work” is the last day of substantive contract work that would entitle you to compensation. It does not include any punchlist or warranty work. For instance, if you’re the electrician and you go back to the job site to work on certain fixtures that were not working, this work is not your last work.

“Last work” also does not include the act of passing an inspection or obtaining a TCO or CO. What does that mean? If after you finish your work, you call for an inspection, but the inspector doesn’t show up until a week later. If you pass the inspection a week after you finish your work, your last date of work under the lien law is not the day the inspector showed up. It is not the day you got the TCO or CO. It is the day you did the work.

Also, know that “last work” has nothing to do with invoice dates. Your invoice date is not a measure of the last work date under the lien law. If you send your invoice the same day you did your last work, it may coincide, but it’s not because that’s the day you send the invoice.

Your 90 days may be running once you submit a 100% payment application. That means if you submit a pay request, and you ask for all of your retainages, or you use the AIA form, and you see that everything there is listed at a 100%, red flags should be waving because you are probably into the 90 days.

Approved change orders can be last work, and may extend your time to lien. What does that mean? If after you finish your base contract work, you receive a change order that is fully executed and approved, that change order becomes part of your contract. So, that work done because of the change order will extend the time to lien.

What happens after I lien?

Sometimes, when you file a lien, the lien itself gets you paid. However, most times, nothing happens. Your lien is merely a cloud on the title of the property that you improved or delivered materials to. That lien may affect the lender continuing to fund or it may cause the contractor not to get paid by the owner, so it is then that your lien gets satisfied. There may be times the owner is forced to pay you because your lien is on the property. But if that doesn’t happen right away, know that it’s up to you to enforce your rights.

Our advice generally is that once you secure your rights, continue all of your normal collection efforts. What does that mean? That means calling your customers and frequently send them emails. Whatever it takes to get paid, you should be hassling the people that need to write you the check. Accept partial payments. If you’re owed $50,000 and they want to give you a $30,000 check, you should be willing to accept it, but just be careful that you don’t sign any releases that are broader than the payment you’re receiving. Be careful of releases that are vague in their through date. Also, always remember that the through date of the lien release and the amount of money that you are getting have to match.

Once you don’t seem to be making any more progress on your collections effort, consider hiring a construction lawyer because the next set of steps are critical. You must file a lawsuit to foreclose on that lien within a year from the recording date of the claim of lien. This is a hard deadline. It cannot be extended. Some clients do not understand the lien law rules; they think that they can just re-record the lien at the one year mark and then have another year. No, that’s not possible. Your lien will expire after the first year from recording, and if you decide to record a new one, that new lien will be considered a fraudulent lien, and can expose you to a claim by the owner for having a fraudulent lien on his or her property.

Know that the time can be shortened from one year. It can be shortened down to 60 days with what’s called the notice of contest of lien. It can even be shortened down to 20 days which is done with a document called a summons to show cause. Know that if you wait too long, you may run out of time.

You may also have other rights that extend beyond the one year. For example, you may have a contract action against the customer that owes you the money. You have five years on a contract action to sue someone for breach of contract, but most people typically recognize that their strongest claim is their lien claim.

Liening Tenant Improvements

When doing work for a tenant, what rights do you have regarding placing a lien on tenant improvements?  Not many, especially if the landlord/owner has incorporated lien prohibitions within the lease document.

As any construction expert will tell you, a lien is a legal claim of one person upon the property of another to secure the payment of a debt.  If you’re doing work for a tenant, you are aware the tenant doesn’t own the property, and therefore your lien doesn’t attach to the real property.

Let’s make it concrete. Say you are building out a restaurant in a strip mall or an office in a high-rise building. If the tenant contracts for the work, then whether you are a supplier to the electrician or the electrician, your lien most likely attaches only to the tenant’s interest. That interest isn’t ownership – just the right to possess that space in exchange for rent. And that can do little to satisfy your need to get paid.

So how should you handle safeguarding yourself when doing work or providing materials to a tenant? First off, follow the following 5 rules precisely to secure your lien rights.

• Send any notice no later than 45 days from your first work or delivery to the project.
• Record your claim of lien no later than 90 days from your last work or delivery to the project.
• Ensure all interested parties are served within 15 days of the recording of the lien.
• Serve a contractor’s final affidavit no later than five days before you foreclose on the lien.
• File a civil action to foreclose on the lien no later than a year from the recording date of the lien.

Calculating these dates correctly can be less of a burden with Calc-U-Lien. It’s an app downloadable on your IOS or Android device that does the counting and remembering for you.

If your work in a project would be such that you have to secure lien rights in the landlord’s ownership interest in the property, the same five points listed above apply. But there’s more to do as well.

The terms of the tenant’s lease impact you as a contractor, subcontractor or supplier. Your lien will only attach to a landlord’s interest in the property if the work being performed is at “the pith of the lease.” Here’s what that means. Often when a landlord contracts with a tenant, it’s basically “You pay me rent, and in exchange you can use this space.”

If a tenant decides to build out space, and doesn’t pay contractors, liens won’t attach because there was no lease provision that required the tenant to build out the space. That wasn’t at the heart of the lease.

However, sometimes a lease spells out that, in addition to paying rent, the tenant is required to, say, build out a Class A office space. Maybe the owner gives improvement allowances to the tenant, maybe not. But if this is in a lease governing your project, your lien is attached to tenant’s interest, and the landlord’s.

Don’t take anyone’s word for what’s in the lease; ask for a copy. A landlord can keep his property free of liens, but that provision – a lien prohibition – must be attached to the lease and be in the public records. Safeguard your hard work by knowing what you are getting into if it comes down to lien recovery!

You can have your construction lawyer search public records for a lease under the legal name of the property owner. Once you have that name, which can be found on the appropriate county’s property appraiser website, search for the memorandum of lease in the county where property is located. If there is a provision preventing liens, it should be attached. If a build out is at the pith of the lease agreement, it will be there.

Remember, if you aren’t getting paid by a tenant, there’s a good chance the landlord isn’t either. If the tenant gets evicted, that would make your contract with the tenant void. Time is precious in your line of work. Taking the time to secure this information before you begin a project is far better than finding out the hard way that you have no lien to stand on beyond the tenant’s interest.

In one real-life example, a tenant built out his restaurant space. There was a dispute with a contractor, and he didn’t pay. The restaurant continued operation, but then failed a year later. The tenant defaulted on the lease, and because the landlord had included lien prohibitions, the contractor has nothing to pursue.

You can file suit against that tenant, but if they own nothing now and have disappeared; it’s an uphill battle at best. So get that lease.

Under Florida Statutes you have a right to demand a copy of the lease. The lienzone.com provides this form you can copy or download to request that lease and know for sure whether it contains a no-lien provision.

If you send this request and don’t receive a verified copy within 30 days, you can terminate your contract. Be aware of other red flags as well. Avoid pay-when-paid and pay-if-paid provisions. If a contractor isn’t paid by the tenant, and tenant defaults on the lease, you have no one to go after. You can’t sue the contractor, as they aren’t in breach. You can’t sue the tenant, because the lease is now void.

As a supplier, if you have no other security than the tenant’s lease, this may a create risk you can’t afford to take. One other option is to obtain a project-specific personal guarantee, if you can get the tenant to sign off.

Whatever decision you make on taking a job with a tenant, make it with your eyes wide open, understanding your rights and potential pitfalls after discussing your options with your construction lawyer. Your work is worth it.

Can You Lien a Leased Property?

There’s a popular misconception that doing work on a leased property for a tenant means you can’t protect yourself when it comes to getting paid. Not true! But doing work for a tenant does mean you need to take specific steps to have rights and recourse.

Generally, you can lien a leased property. The first step is determining who is contracting with whom on the project. If you are the general contractor, are you signing a construction contract with the landlord or with the tenant? If you are the subcontractor or a supplier, with whom is your general contractor’s contract?

Here’s why it matters. Florida Statutes allow you to lien the interest of the party contracting with the general contractor. If the landlord is the one contracting with the general contractor for the work, and that contract is not paid, your lien rights would be on the contractor’s interest – the actual property as a whole.

But say your contract, or your GC’s contract, is with a tenant, perhaps the owner of the restaurant that’s being built out. If you have lien rights, those rights would only attach to the restaurant owner’s lease. You wouldn’t be able to sell the property as a whole if you needed to get paid.

So how do you learn what the contract signer’s interest is? Search public records to determine the owner of the property. Go to the property appraiser’s website for the county where the property is being worked on. (Google “property appraiser [Your County] County.”) On the site, enter the property address, the folio number, or the name you have. The taxpayer on the property is what will come up, and most of the time, that’s the owner. If you are a general contractor, you’ll want to compare that to who signed the contract with you. If it’s not the owner, it’s likely the lessee or tenant.

Don’t make the mistake of relying on the notice of commencement for this information. Just because a corporation is listed in the notice of commencement doesn’t mean you will have lien rights on the property. Stick to the taxpayer records.

Once you determine whether you have lien rights on the property or the lease, there’s another crucial and important question to answer. Does the lease between landlord and tenant prohibit liens from being placed on the property? Most sophisticated owners have gone through a process that allows them to do just that. If your job is in a significant commercial building, chances are the owner has been counseled to include such a no-lien provision in its leases. The language would read something like this: “under no circumstances can the tenant do anything to encumber the property.” This would of course frustrate your goal of being able to sell the property at a public auction if you haven’t been paid.

Florida Statute 713.10 addresses recording a lien on a leased property. The landlord’s property is exempt from liens if: the lease expressly prohibits liens; notice of this prohibition was recorded in the official record of the county in which the parcel of land is located and before the recording of a notice of commencement for the work; and the notice includes the lessor’s name, a legal description of the parcel, the specific no-lien language contained in the lease, and a statement that all or a majority of the leases on the property prohibit such liability.

Sound confusing? You’re not alone. Most folks seek out legal representation when confronted with these scenarios so as to better protect their interests.

If you aren’t paid and have a lien on the leaseholder’s interest, you still have a shot at recouping payment. Your lien would permit you to take over the lease, which you could then sell. Of course, someone would have to be interested in buying what could be a partially completed restaurant. It’s not an attractive proposition, though not an impossibility.

You could also foreclose your lien on the leaseholder’s interest. If you succeed, you get to move in, pay rent, and run a restaurant.  Again, not a very attractive proposition. Quite often when the tenant isn’t paying for construction, they aren’t paying rent either. You may have a lien on a lease that’s in the process of being terminated, with the tenant being evicted.

So, in light of savvy property owners and tenants with uncertain lease equity, can you protect yourself and your work? Take these steps each time you consider work and you’ll be on the right track:

• Before you sign a contract, know what party hired the contractor, and who the owner is, by searching public records.
• Determine whether there’s a no-lien provision. Google the public records of the appropriate county, and then search by corporate name of the landlord or the tenant. See if they have properly recorded no-lien documentation. Know that most owners have taken steps to keep their property free and clear of liens.
• Avoid pay-when-paid or pay-if-paid clauses generally but especially when doing work on leased improvements. When your lien attaches to the lease and not the property, these clauses increase your credit risk if something goes wrong. If you are owed money, but the party paying you hasn’t been paid, a pay-when-paid clause means he doesn’t have to pay you.
• If you decide to go ahead with this type of work, send your notice-to-owner and record your lien in a timely manner. Make sure you can record your lien on something, even if there is not a lot of value in the lease. A tenant, especially a national or regional chain, will likely pay the bill rather than be evicted from the space due to a contractor dispute.
• When you sign a contract, send a demand for a copy of the lease which includes the language prohibiting liens. This is to be sent separate and apart from your notice to owner. Send by certified mail to the landlord, reference the lessee by name and address with the legal address and description of property, and include this warning: Refusal to serve the requested verified copy within 30 days, or service of a false copy, may result in your property being subject to the claim of lien by the person requesting the information. Check TheLienZone.com/Forms for assistance with this step.

Securing your work for a tenant does present some potential challenges. However, being thorough and timely with your paperwork and doing the appropriate research can go a long way toward ensuring you get paid.

Landlord’s lien prohibition no longer a sure thing

Contractors have long accepted the idea that they have little chance of enforcing a lien filed against a landlord for contracted tenant improvements.  Landlords have had the upper hand for years on this issue.  As long as they recorded a copy or an abbreviated version of the applicable lease, or as most landlords do, filed a statement that its leases prohibit any encumbrance or lien for improvements initiated by their tenants, landlords have been able to limit their liability for tenant improvement liens.

However, all that changed when the Florida Legislature revised §713.10. Now contractors are allowed to lien, even if there is a recorded  document attempting to bar such filings.  The amended law allows a contractor to request written verification of the landlord’s lien prohibition and requires the landlord to deliver the verification within 30 days.  If the landlord fails to do so, or responds incorrectly, then its property interests can be subject to a lien.

Of course the contractor still has to comply with the requirements of Florida lien law, providing timely and proper notice to owner.  And landlords also have to be more careful in their filings.  The blanket filing requirement applicable to landlords has been amended  such that a specific notice is now required to advise that the landlord’s leases prohibit liens and all recorded statements by the landlord must include language that all or a majority of its leases entered into on a subject property specifically forbid the liens.  A landlords’ filings must precede the recording of a notice of commencement if they are to be legally effective.

Can you lien without a change order?

Obtaining a signed change order can be harder than doing the actual changed work. As a result, you may get to the end of a job with a number of change orders that have yet to be signed.

Can you lien for those amounts?

This is a tricky question and is subject to some debate. But the most conservative answer is that you should only lien for work that is contained in a change order executed by all parties. What if you have other documentation (letters, emails, text messages) which supports your position, showing that the owner or contractor approved the change or modification? This may suffice to satisfy the requirement that the owner or contractor consented to the change. Verbal confirmations only, however, are difficult to prove and should not be the basis to consider your change order “approved” for the purpose of including it in your lien. You may still be able to sue under contract to collect these amounts, but including them in your lien could subject you to a claim for fraudulent lien or slander of title.

It is important to note that only permanent improvements to the real property can be the basis for the amounts noted in your lien. Therefore, amounts related exclusively to delays or extended general conditions are not lienable, unless they are memorialized in a change order signed by all parties. Without a fully executed change order, even with other documentation, amounts related to delays should not be included in your lien amount.

That said, it is common practice to footnote in the lien those additional amounts which are not lienable. For example, you may have $20,000 in work and materials for which you have no signed change order or documentation as well as $30,000 in delays and extended general conditions, again, without a signed change order. Therefore, you should exclude those amounts from the amount claimed in your lien but you could include a footnote at the bottom of the lien that reads “In addition to the lien amount above, the lienor is owed an additional $50,000 for work, materials, delays and extended general conditions.” This serves as a bright red flag to the owner and contractor.

Liening without the benefit of executed or approved documentation is surely risky, so lien carefully.

Liening Specially Fabricated Goods

As a general rule, the limitation period in most jurisdictions for filing a materialman’s lien on a property, assuming all other conditions have been met, begins to run when the materials are delivered to the property. Suppose, however, a contractor or owner order goods to be specially manufactured. These goods can only be used for the project for which they were ordered. Should the materialman be denied its right to lien the project if the owner or contractor wrongfully prevents delivery or incorporation of these specially manufactured goods into the property? As a matter of fairness, the rule should be no – assuming the materialman has otherwise satisfied the conditions for filing a lien.

One condition in many jurisdictions required for filing and allowing a materialman’s lien on a construction project is for the lienor to file and properly serve a notice to the owner. This raises an issue: When does the clock start ticking on the deadline for the materialman who is specially manufacturing the subject goods to provide the required notice to the owner? In most cases, this would be the date on which the materialman first furnished the subject goods. As a rule of thumb, this would the date on which the materials were delivered to the job site or to the owner or contractor. However, this rule will not work in the case of specially manufactured goods. These goods cannot be completed until they are actually manufactured, and the manufacturing process can take some time. Therefore, some courts have ruled that the starting date for the deadline period to file the required notice to owner begins to run when the materialman starts to fabricate the goods.

It can be said that the primary difference between goods that have been specially manufactured as opposed to other goods ordered for a construction project is that the specially manufactured goods are not readily saleable in the marketplace. As a general rule, assuming all other requirements have been met, the deadline for filing a materialman’s lien against a property begins to run on the last day that the subject materials were furnished. This has been interpreted by many courts to mean the last date of delivery. Suppose, however, an owner, for whatever reason, prevents a materialman from delivering goods to a project that otherwise could be purchased over the counter despite the fact that these goods were previously ordered. Should the materialman be entitled to file a lien against the property? The better answer is no. The materialman has the ability to sell these goods in the open marketplace. If the materialman sustains damages such as out of pocket delivery expenses, a suit for damages can be filed against the party that wrongfully prevented delivery.

The Materialmen’s Dilemma

Materialmen who specially fabricate goods for a project are faced with a dilemma not presented to suppliers who merely attempt to deliver goods that can be sold over the counter. There is no ready marketplace for specially manufactured goods. For this reason, many states, when conditions for allowing the filing of a materialman’s lien have otherwise been met, allow materialmen who specially manufacture goods to lien a property – even if the owner or contractor who ordered such specially fabricated goods now decides the goods are no longer needed. Generally, the owner or contractor who ordered the goods must take some act to prevent the delivery or incorporation of these materials into the property. In such case, fairness dictates that the materialman should be entitled to its lien. Many construction lien statutes expressly provide that materialmen who specially fabricate goods are in fact entitled to their lien in such a case.

One final point to ponder – suppose a materialman who specially manufactures goods at the request of an owner or contractor is faced with the situation where the owner or contractor reneges. Assuming all other conditions for filing a materialman’s lien have been met, when does the deadline for filing the lien start to run? In some jurisdictions, this question has not been answered by either the legislature or the courts. In such a situation, the materialman would be forewarned to take a conservative approach. Such an approach would assume that the deadline for filing the materialman’s lien starts to run on the earlier of (1) the date on which the materialman was prevented from delivering the goods to the site, or (2) the date on which the materialman substantially completed the fabrication of such goods. By taking a conservative approach, the materialman would minimize the risk that its lien could be challenged has having been filed in an untimely fashion.

The issues associated with specially manufactured materials for a construction site can often be numerous and complex, and usually require the input of a construction law practitioner.

What No One Tells You About Specially Fabricated Materials

As today’s construction projects become more and more complicated, so do the corresponding materials needed for each job. And more often than not, suppliers are being asked to custom order these materials – many times specially fabricating the items.

Is it really special?

So what distinguishes a stock item from a custom one? Generally it is the fact that the custom item can’t be easily used anywhere but on the job for which it was ordered. Specially manufactured goods are not readily available in the marketplace and are made just for that one project.

Can you lien?

Materialmen who specially fabricate goods can file a lien. The issue, however, is when does the clock start to run? The general rule that one can do so when goods are delivered to the jobsite or to the owner or contractor doesn’t work in the case of specially fabricated goods. These goods cannot generally be completed until they are actually manufactured, and the manufacturing process could take some time. Therefore, some courts have ruled that the start date for any notice period under the lien law begins to run when the supplier or materialman starts to fabricate the goods.

Do the goods have to be incorporated?

Another stumbling block for suppliers of specially fabricated goods is the general requirement that goods must be incorporated into the property for there to be a valid lien. But in the case of specially fabricated goods which may be rejected by the owner or contractor and not allowed to be delivered or incorporated into the property, the law dictates that the supplier or materialman should be entitled to its lien.

Assuming all other conditions for filing a materialman’s lien have been met, a supplier would be wise to assume that the deadline for filing its lien starts to run on the earlier of the date on which the supplier was prevented from delivering the goods or the date on which the supplier substantially completed the fabrication of these special goods. Likewise, the required Notice to Owner should be forwarded 45 days from when the supplier begins to fabricate the materials.

Is Your Lien Fraudulent?

Everyone involved in the construction industry has at least heard about, if not dealt with, liens. They are useful tools in assisting contractors, subcontractors, and material suppliers to get paid what they’re owed. A lien represents an amount of money which remains due for work performed to improve real property. And when prepared properly, and filed timely and correctly, they are very effective. But what happens when a lien isn’t accurate, or worse, is fraudulent. The result is never very good.

Let’s start with what isn’t a fraudulent lien. It isn’t a lien with minor mistakes or errors, especially when the miscalculations have not adversely affected the property being liened. And it isn’t a lien where the incorrect amount is the result of a good faith dispute. An innocent mistake within an otherwise valid lien for legally lienable materials or services will normally not invalidate that lien.

If however there is a willful exaggeration of amounts due or a claim for work not performed or materials not furnished, or if a document is prepared so negligently as to amount to an intentional overstatement, then that lien will be considered fraudulent.

So when a flooring contractor with a contract to install marble tiles throughout an apartment only installed a portion of the tiles and then filed a lien as if he installed the entire job, his lien was found to be fraudulent since he knew a substantial portion of the work remained to be done. And when a lienor included the additional costs incurred for corrective work because his work was not properly performed, his lien was determined to be fraudulent.

Interestingly, some courts have gone so far as to extract amounts from a lien which were not proper, such as overhead and profit, and then allowed the remainder of the lien to stand. But this is unusual and such a result should not be counted on.

Liens, being creatures of statute, are almost always interpreted strictly. There is rarely any wiggle room if a non-lienable item, such as for example, lawn and pool maintenance, cleaning services, restocking charges or office overhead, is included in a lien. Worse, courts are especially unhappy if it is shown that work specifically not authorized by the applicable contract are included in a lien.
The repercussions of filing a fraudulent lien can be quite harsh. Not only would the lien be thrown out but the filer can be exposed to damages and fees for having filed such a lien.

3 Ways Your Lien Can Become Fraudulent

When properly filed, a construction lien is a great tool for contractors, subcontractors, and material suppliers seeking money owed for work performed or goods provided to improve real property. So, when a property owner fails to pay the general contractor that general contractor is entitled to enforce a claim for payment by placing a lien on the owner’s property.  But when improperly filed, a claim of lien may be found to be fraudulent and prove to be unenforceable.  Worse, the lienor can be liable for damages including attorneys’ fees, court costs, and, potentially, punitive damages. Additionally, if the lienor files the fraudulent lien willfully, the consequences may include a third degree felony charge.

Given the harsh consequences for improperly filing a claim of lien in Florida, it’s important to understand what qualifies as a fraudulent lien and what can be done to avoid having a lien declared unenforceable. Under section 713.31 of Florida Statutes, fraudulent liens are those that:

(1) willfully exaggerate the amount of the claim; (2) willfully include a claim for services not performed or supplies and materials not delivered upon the property; or (3) are compiled with such willful and gross  negligence as to amount to a willful exaggeration.

What this means is that liens can only be asserted to recover the reasonable value of the lienor’s labor, services, or materials. Other costs, such as lost profits, are non-lienable items. So if a contractor files a lien for $100,000, including overhead, profit, and overtime, on a contract for just $80,000, he exposes himself to a claim of fraudulently filing a lien.

To avoid including unauthorized amounts in a lien remember the work must be performed (i) in good faith; (ii) within a reasonable time; (iii) pursuant to the terms of the contract; and (iv) is necessary to finish the job.  Additionally, a lienor cannot claim that it performed work on the property above and beyond what, in fact, was done. For example, imagine a contractor is hired to build an addition for $60,000 and the owner terminates the contractor when the project is only 50% finished.  The contractor can’t automatically lien for half the contract amount or $30,000.  He can only lien for the amount of work which he actually has completed and which is currently due. And he surely cannot lien for the full contract price.

Oftentimes, there is a legitimate dispute concerning whether the lienor has completed the work for which the lien is being asserted. And when there is a good faith dispute, there is no willful exaggeration defeating an otherwise valid lien. When a hotel owner terminated its architect at the schematics stage resulting in the architect recording its lien because it believed it had actually completed work through the design and later stage of the project, there was no fraudulent lien because the architect and owner were in a good faith dispute as to the completion of the work and the amount due.  Moreover, as evidence of good faith, the architect showed he had consulted with his lawyer before filing his lien and had relied on the lawyer’s advice. He could use a good faith argument to counter the fraudulent lien claim raised by the hotel owner.

Florida’s construction lien law is very helpful for contractors seeking to get paid.  However, filing proper liens is critical to keep the process from backfiring on the contractor and having a lien declared fraudulent.

Contractor Files Fraudulent Lien But Still Comes Out Ahead

Earlier this year, the appellate court handed down a decision that surprised a lot of construction folks.

A homeowner and his contractor weren’t seeing eye to eye any longer so the owner stopped paying the contractor. In turn, the contractor ceased work, recorded a lien and filed suit to enforce his lien, for breach of contract and for unjust enrichment. The owner counterclaimed for fraudulent lien. At the trial that followed, the judge concluded that the contractor’s claim of lien “was compiled with such willful and gross negligence that it amounted to a willful exaggeration and shall be deemed a fraudulent lien.” Pretty damning but the court still ruled in the contractor’s favor on its other claims. And having determined that the contractor prevailed on the significant issues of the case, the court went on to deny the homeowner’s claims for attorney’s fees and costs incurred as a result of the fraudulent lien.

Not surprisingly, the homeowner appealed, arguing that the significant issue test shouldn’t apply given the fraudulent lien. The court disagreed, finding that the 2007 amendment to the fraudulent lien statute which included a prevailing party standard, applied to this case. It was no longer enough to just win on a fraudulent lien issue, you had to be the prevailing party in the case as a whole to also be awarded your incurred legal fees and costs, and that was not the case for the homeowner in this matter. It was actually the contractor who prevailed on the significant issues.

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.

A more drastic method for shortening the deadlines 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.

What Does it Mean to Have Lien Bonded Off?

A lien secures your right to be paid for any improvement you have made to real property or materials you have furnished for that purpose. The lien places a hold, called an encumbrance, on that property (or in some cases on a lease on the property) in an amount equal to the value of the improvements you provided.

When you have a lien, the legal process allows you to foreclose, which means to file a legal action to take the property or a share of its value for nonpayment.  The court will determine whose position is correct in the case, and, if you are in the right, how much your lien is worth. If the court rules in your favor as the lienor, the property would be auctioned in a foreclosure sale. People would show up to bid on the property. And at that sale, you would be able to use credit in the amount of your lien toward buying the property yourself.

But maybe you just want money not a property to contend with. And that’s where bonding off your lien comes into play.  In Florida, there’s a process to take a lien that exists on a property, remove it from that property, and place it on another security. That’s called “bonding off the lien.”  Sometimes a contractor or owner, or even a subcontractor, has a contractual obligation to keep the property free and clear of liens. Any liens would be required to be bonded off.

If the property has no equity to pay you, maybe because the property has a large mortgage on it, you’re in a tough spot. But not if your lien is bonded off to another security. You can go after that security, instead of the property which may be encumbered by other liens or mortgages.

Here are a few instances in which bonding off could happen:

• A lender may require the property be kept free and clear of liens. If someone places a lien, it must be bonded off.
• If you do work on leased space, most leases state that the property must be kept free of liens. If someone does work and liens the property, the landlord will likely require the tenant to bond that lien off the property.

• Prime or subcontract terms. Say an owner has a contract with a general contractor. The general contractor has a contract with the subcontractor, and there’s a payment dispute between them, so the subcontractor asserts a lien on the property. The owner may have a contract provision stating that the general contractor must remove liens from the property – bond them off.

Now let’s explore how it’s done:

• The person bonding off the lien must post collateral of roughly 150 percent of the lien amount.
• It’s not straight dollar-for-dollar collateral because the extra amount is needed to cover anticipated legal fees, costs, and interest.
• That collateral will be in the form of either a surety bond or cash to the county clerk, who effectively holds the money.

While it’s a good thing if your lien is bonded off – as it provides a more secure path to payment – you should still be prepared for a fight. If someone has gone to the time and expense to bond off your lien, they probably don’t want to pay you. Typically, you will have to file a lawsuit to foreclose on the lien that has been transferred. The process is the same, but it ends with the clerk who has actual dollars to secure your lien.  In many instances, a better result.

The Transfer of a Lien

A recorded lien tells the world that you have an interest in someone’s property. But that doesn’t stop the property owner from transferring the lien to some other form of security, such as a bond or cash. This way, the owner can sell or mortgage the property. If that happens, however, you as the lien holder only have one year to enforce your lien and recover against the substituted security. Wait too long and you could lose your lien.

Knowledge is king in every undertaking and it is no different when it comes to Florida Lien Law. Keeping up to date with legislative changes, critical court decisions, and current construction lien law is something construction executives and design professionals must do regularly to remain effective managers as they work hard to turn concepts into drawings and blueprints into well-built projects. Where it now has become common to believe that any discovered deficiency must be the result of someone else’s acts or omissions, the idea of avoiding potential risks is today more important than ever.

Published by the construction lawyers at The Barthet Firm in Miami, TheLienZone.com is a collection of Florida Lien Law alerts and articles, many reprinted from their initial publication in industry journals. It provides information helpful to contractors, subcontractors, material suppliers, architects, engineers and anyone else dealing with a mechanics lien issue, construction contracts, or construction bonds, especially in South Florida.

Managing job site discrepancies and those unavoidable change orders while correctly interpreting construction contract terms can provide an edge – something much appreciated in this always competitive business. This is but one step in that process.

How Can You Remove a Claim of Lien

Owners are always eager to cancel any recorded liens. What a lot of contractors don’t know is that there are actually legal ways in which a lien can be extinguished.

Notice of Contest of Lien

One way to accomplish this is to serve a Notice of Contest of Lien. Specifically, the lien 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 automatically discharge a lien on 60th day without any intervention of the court.

Filing Suit to Show Cause

A more drastic method for shortening the limitation period associated with 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 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.

All pretty harsh results – lienors should not assume that their liens will remain in place for a year when confronted by either a Notice of Contest of Lien or a suit to show cause why a lien should be enforced. Ignoring these filings would be a big mistake. Get them in the hands of your construction law expert for advice.

Shortening time & enforcing a lien

A savvy contractor or subcontractor is generally familiar with the steps necessary to properly obtain and record a construction lien. However, most lienors do not know that a statute exists which, if properly exercised, could have their liens discharged and cancelled in twenty days.

Florida Statute § 713.21(4) provides that:

A lien properly perfected under this chapter may be discharged by any of the following methods:

(4) By an order of the circuit court of the county where the property is located, as provided in this subsection. Upon filing a complaint therefor by any interested party the clerk shall issue a summons to the lienor to show cause within 20 days why his or her lien should not be enforced by action or vacated and canceled of record. Upon failure of the lienor to show cause why his or her lien should not be enforced or the lienor’s failure to commence such action before the return date of the summons the court shall forthwith order cancellation of the lien.

What Liens Does This Rule Apply to?

This applies to all liens properly filed of record – regardless of whether or not the underlying lien itself is valid. Therefore, the owner of the property, or any other person who is deemed to be an “interested party,” can arrange to have a summons issued to the lienor to show cause why the lien should not be enforced. Failure to show cause within the 20 day period will result in a discharge of the lienor’s lien. There is no allowance or an extension of time provided because of excusable neglect or failure to diligently respond.

A recent case arising out of Florida’s First District illustrates application of the statute, and holds that, for the most part, a showing of “good cause” means that the lienor must show that it is in the process of foreclosing the lien. In that case, a contractor filed a claim of lien against a property. The property owners then filed a petition with the court pursuant to Florida Statute § 713.21(4) for an order to show cause and argued that the lien was fraudulent. A summons to show cause was issued directing the lienor to show cause why the lien should not be discharged. The lienor advised the court that it was preparing a suit to enforce its lien, and the court in turn ordered the lienor to file the suit within 20 days from the date of the show cause summons. When the trial court granted an untimely motion for reconsideration filed by the lienor (i.e., a motion filed after the 20 day period expired), the property owner appealed. The appellate court ruled in favor of the property owner. It stated that the lienor “had 20 days from [the date of the summons] in which to either file an action to foreclose its lien or show cause why enforcement should not be commenced.” The court continued by stating that “[a]bsent informing the court that a lienor has already taken steps to foreclose its lien, rarely does a circumstance rise to the level of ‘good cause’ to avoid the mandatory 20-dy time limit.”

One can argue that strict application of this statute is unfair to unsophisticated lienors who do not have the ability to ramp up a foreclosure proceeding in 20 days. But that argument will apparently fall on deaf ears. The moral is that lienors must act promptly when served with a summons to show cause or run the very real risk that their liens will be discharged.

Three ways your lien rights may be shortened

Liens are critical to contractors. Without them contractors could lose an important tool to collect monies owed. But it would be a mistake to assume that your lien rights can’t be modified once your lien is filed. There are at least three ways your lien rights may be shortened.

The owner terminates the notice of commencement

Owners may do this for several reasons. The two most common involve the replacement of the contractor or the re-financing of the project. When an owner terminates the notice of commencement, and you receive a notice pursuant to Florida Statutes Chapter 713, you only have 30 days (not 90 days) from the day of termination to record your lien on the property. If you don’t record your lien during those 30 days, then your lien right for any amount outstanding for the work done before the owner terminates the notice of commencement will expire, and you will no longer have those lien rights.

Here is a pro tip for you if you get the termination of a notice of commencement. Know that you need to be paid any amount that is outstanding including your retainage before the 30-day period expires so that you don’t lien.  You should send a new notice to owner for the period of time once you recommence the work so there is no doubt whatsoever that you have lien rights not only for the old work but for the new work as well.

Notice of contest of lien

As you know, the rule is that you have one year from the recording date of the claim of lien to file your lawsuit to foreclose on that lien. That period is shortened down from one year to a substantially shorter period when you receive a notice of contest of lien.  Notice of contest of lien is a document that you receive via certified mail and it reduces the time you have to file a lawsuit down to 60 days. Upon the filing of a notice of contest of lien, a lienor must file a lawsuit to foreclose on the lien within 60 days. Don’t do so and your lien will expire.

20-days summons to show cause

Another way that your lien rights may be shortened is through a 20-days summons to show cause. This shortens the time you have to take action down to 20 days – even less time for you to engage a lawyer and file a lawsuit to foreclose. If you do not timely foreclose on your lien by the expiration of the 20th day, your lien right will no longer exit.

If you receive any of these documents, be sure to act and act quickly, obtaining the advice of your construction expert.

Three Common Lien Release Issues

We have seen a lot of mistakes folks make when it comes to issuing lien releases. In this article, we are going to discuss the three most common lien release issues and how you should approach each.

What form of partial and final waiver should I use?

The first thing you need to be aware of is where you are in the pecking order of any particular construction project. If you are the general contractor, you are going to be looking for something  different than if you are one of the subcontractors. Generally speaking, you want to give a narrow release when you are receiving a check. When someone is handing you a check for a release, you only release the fewest number of rights possible and you preserve the greatest number of rights. The converse is true if you’re giving a check to somebody. You want them to release anything and everything under the sun, so you don’t have to worry about those things being an issue later in the course of the construction project.

The basic form of release

The basic form of release is the release that’s found in Florida Statutes chapter 713. It is a form of both partial lien release upon progress payment and final waiver upon final payment. It releases contractor or subcontractor lien rights through a certain day for partial releases and through the time specifically stated on final releases. The component parts of the partial release upon progress payment include the amount of money that you’re getting and the through date which is the date through which the release rights are effective. Note that this release form does not cover any retention or labor, services, or material furnished after the through date specified. The final lien release, however, has only one major part, and that is the amount of money you are receiving. The final release form doesn’t have a through date. The most important thing you need to know is that this release form only releases the contractor’s lien rights. It releases no other rights that the contractor may have against you or the property.

Custom form of release

This release looks very different from the basic release form. This form is not found in the statute. The first thing you’ll notice in a custom form of release is that it has a lot more words. You need to read this type of release form carefully because you are giving up on a lot of other things, not just lien rights. The statutory release form only releases your lien rights. This form is releasing anything and everything that you may have as a possible claim. This include delays, change orders, any work done, and it’s all effective prior to and including the through dates. If you are a general contractor, this is the form of release that you should be getting from your subcontractors. With this, every time you give your subcontractors or suppliers a check effective through the through dates, all their rights go away. If you are a subcontractor and you’re receiving a check and having to give a release like this, you need to understand what rights you’re giving away. If you agree to a form of release in your contract, then that’s the form that you are bound to accept during the course of the project. So, if the general contractor or owner attaches a form of release to your contract, or they make a reference to the fact that you agree to use whatever release form they deem fit, you need to review it as you negotiate your contract. Negotiate the form of release just like you negotiate other components of the contract.

Not using a conditional release form when you’re giving a release without receiving a check

You need to condition your release upon payment of money. You can achieve this by issuing what’s called a conditional release whenever you’re giving a release without receiving a check. A conditional release is a release that is expressly conditioned upon payment. It is not effective until you receive the payment that’s recited in the document. A conditional release will say something like, “Notwithstanding anything to the contrary, this waiver and release is conditioned upon and not effective until the undersigned receives paid funds of XXXX.”  You are expected to put whatever amount you’re expecting to receive in the blank space. Statements like this makes the release expressly contingent on actually getting the money.

As a supplier, it is important you only provide releases that are contingent on actually receiving money. Let’s say as an electrical supply house, you provide an unconditional release to the electrician who gives it to the contractor, who gives it to the owner. But you never got your money. You only received an e-mail copy or fax copy of the check you were promised was coming. But that check never arrived. Your options to collect on the debt are severely limited because the release you issued is now effective to all the parties up the chain since they have no reason to know that you didn’t receive your money.

We have a client right now who’s a drywall contractor. He has a contract with a general contractor who has a contract with an owner. He was promised a check and based on his long-time relationship with this contractor, he gave an unconditional release based on the promise of a check which never arrived. We have now been forced to send a letter to the contractor and the owner saying “You have received the release but our client never received consideration for that release. Therefore, the release is void and unenforceable.” We are still waiting to hear back. But they have already funded the contractor based on our client’s release. We are going to be in a tough spot to suggest that the owner didn’t have the right to rely on that release. So, it’s absolutely critical that if you are giving a release without actually getting a check that you make it conditional.

Also, watch out for releases that are titled conditional but are not. Sometimes, we see releases that say conditional partial release and then when you read the document, they’re not conditioned. Conditional releases need to specifically spell out the condition – they’re effective once you receive the money you’re owed. The fact that the title says conditional means nothing if the body of the release does not actually contain conditional language.

Another thing you need to know about a conditional release is that it must correctly indicate the amount of money that you’re expecting to receive. Don’t just put in $10 as the condition. If you do and you receive $10, the condition is satisfied.

As a general contractor, you need to be careful about receiving and paying against conditional releases from subcontractors and suppliers. If the electrician gives you a conditional release and you give the electrician the money, that release is good because you’ve now satisfied the condition in the release. Right? If there is ever an issue, you would say “well, the release is conditioned on receiving $25,000 and here’s the canceled check for $25,00; condition satisfied and the release is good”. Not necessarily.  If the electrician has to also give you a release from his supplier and that supplier’s release is also a conditional release, you don’t have a direct ability to control that condition. You pay the electrician but the electrician may not pay the supply house, then the supplier can put a lien on the job. To avoid this, you have two options. The first one is to ask the subcontractor to fund the supplier or otherwise give you an unconditional release from the supplier. The other one is to issue a joint check.

Using the wrong “Through Date” on your release

This is another big mistake that we see happen all the time. What “through date” should you use? What if the “through date” and the payment amount do not match? The through date is the effective date of the release. It can be signed today but has the through date of 2 months ago.  That means, you can sign the document today and say that the effective through date of this release is April 5th, March 9th or September 1st. You can make it any day you want. Know that the through date is going to control over the payment amount. For example, you are owed $100,000. If you sign a release in exchange for S75,000 and the through date is the end of the month when you’re expecting a $100,000 check but only got $75,000, you just released $100,000 worth of your rights for $75,000. What you need to know is that if the through date and the payment date don’t match, then you need to change one of them or both of them, but you cannot accept it as it is.

Why does the release say $10?

I’m not getting $10 neither am I giving them $10. So, why do I need to have a release that says $10? $10 releases are valid if you receive any type of consideration and sometimes even if you receive no money. For example, you’re a subcontractor on a job, and you have sent your notice to owner only because you’ve signed the contract, but you really haven’t done any work. Now that the owner and the contractor need a release from you, but you haven’t done anything or submitted any bills. In this case, issuing a $10 release at that point is perfectly fine. If you’re expecting a check, however, let’s say it’s $25,000, you must ensure your release says S25,000 and not $10. If you are a contractor and you are giving money and getting a release, you would always like it to say $10. The reason is that you don’t want any argument later. For instance, if the subcontractor comes to your office to pick up the check or you mail it to him or her, and they say “wait, you only sent me $20,000 it should have been $25,000.” If the release said $20,000 or $25,000, that’s the consideration that was given. And if they’re claiming more money, they may have a basis to say that you shorted the payment. However, if the release says $10, and you gave them $20,000, and they want $25,000. You can say “it doesn’t matter because I gave you consideration that you thought was adequate, I said $10 and I gave you a $20,000 check and the through date is the end of the month, we are done!”

If you are a general contractor, you would like to have all your releases to subcontractors and suppliers say $10. But If you are a sub, I would suggest that you scratch out $10 and put the actual amount that you’re expecting to receive on the check.

The only other time we see that a $10 release is acceptable is when a contractor does not want the owner to know what he or she is paying to the subcontractors. So maybe a contractor has a lump sum contract with an owner, and they don’t want the owner to be able to run through all of the releases, and add the amounts and realize that the contractor is charging so much more than he’s actually paying for the work. Some contractors may want all the releases given to them by the subcontractors and supplies to be $10 so that the owner is unable to add up all of the amounts associated with the project. The way to deal with that if you are a subcontractor is to issue two releases. You would give a release that has the correct amount on it and after you get that money, you will give the contractor a subsequent release, and it would say $10 for the same period.

Lien Release Pitfalls

Many folks don’t understand how important it is and why legally it is essential that you read and understand what your lien release says. We’re going to discuss some very specific things you can do to increase your chances of protecting yourself when you exchange your release for payment.

The Legal Significance of a Lien Release

A lien release is a document that releases certain rights. Most of the time, these rights are lien rights but depending on the document itself, they could be more. When we deal with a construction case, one of the first things we do is to look at the releases. The reason is that when we can line up the releases, we can extinguish certain claims through the date of those releases. So, it’s important that you understand what the release is doing when you’re exchanging it for payment. This will ensure you don’t give up more rights than the check that you’re receiving.

In construction, almost every release is called a lien release or a lien waiver. And depending on the language of the document, you may be releasing rights far in excess of just your lien rights. That means if you sign one of those releases characteristically known to have lots of fine print, you are probably releasing rights far in excess of your lien rights. The document probably says that you are releasing any claims for change orders, delays, costs, and many other things. This may not be a problem if you don’t actually have any of those claims, but if you have those claims and you wish to assert them later, when you sign a release with that language, then you’re giving away those rights. Here is a practical example. We had a client who was a contractor and was making partial payments to a subcontractor. The term of the release that the subcontractor was signing every month was a broad release (this releases more than just lien rights).  While the document itself was titled lien release, it was effectively broad, and as a result, that subcontractor was releasing all of his rights every month. When a dispute arose, the first thing we did is to show the subcontractor that he has been releasing all these claims that he thought he now had every month. He signed a release – a good thing for our client, the contractor.

Finally, remember that the perspective that you have on a release is dependent on whether you’re giving a release or getting a release. If you are giving a release in exchange for payment, ensure that you are protected. But if you are expecting a release from somebody, make sure that you get the broadest release possible.

Pitfall #1:  Not Negotiating the Form of Release at the Time of Contract

Florida statutes have a basic form of release, and the law says that no one can make you sign a release form other than the form that’s in the statute. However, what is important to know is that if you sign a contract and that contract says that you will use the form of release prescribed by the owner or the contractor or that the sample form that you’re going to use is part of the contract, then you are bound to use that form. Therefore, when you are negotiating and reviewing your contract don’t skip over the exhibits, you need to look at all of them and make sure that the release that you agree to provide every month is consistent with the release that you’re willing to give. If your contract requires a specific form, then that’s the form you have to use. To avoid this problem, you need to negotiate the form of release you prefer to use at the time of contract. Whenever your contract is silent on the issue, but the contractor demands that you use his form, what do you do? This is called the Golden Rule which says he who has the gold makes the rules. That means you have to make a business decision unfortunately on whether or not you’re going to give up your rights in order to get a check. It’s not that the contractor has the right to demand a release other than the statutory form, it’s just that you have to decide whether you’re going to keep waiting in order to get paid or you’re going to sign the release and work out some compromise. The best way to avoid this in the future is to have an understanding at the beginning of the contract on what the release forms are going to look like.

Pitfall #2:   Having the Wrong Through Date (or no Through Date)

The text above is a sample of a basic release form. This form says that this release is effective for the materials furnished through a date certain. The effective date of this release is the date that’s inserted there. Make sure that the through date in the release matches the amount of money that you’re expecting.

This release also has a spot where you can put in the amount. If you’re expecting a check for $25,000, make sure that the date that you are putting as the through date in the release is the equivalent of the check that you’ll receive. If there is no through date in the release, then the release legally speaking is effective as of the date that you signed it. That means that if you are expecting a check for the work through the end of April and you sign the release in June, but it has no through date, the legal impact of that document is that it’s a release as of June.

Pitfall #3:   Not Using Conditional Release Language

A conditional release is a release with conditional language. Here’s the language for a conditional release “this waiver and release is expressly conditioned upon the undersigned actual receipt of the above referenced amount in paid funds. Otherwise, this waiver and release is void.” If you are giving a release before you are actually receiving payment, you should use conditional language in your release. It’s also important that when you use conditional language, you don’t use the normal recitation of consideration of $10. Use the amount that you’re actually expecting to receive. So, if you’re giving a release in exchange for $25,000, the release should say $25,000 and not $10. This is because obviously, the condition isn’t receipt of $10, it’s receipt of the $25,000.

Something we hear a lot is that “but I kept the original release, isn’t that enough?” The short answer is no. The fact that you have an original and someone else has a copy (that is, in fact, a true copy and not a forgery) doesn’t give you any leverage. Sometimes people want the originals but legally speaking a copy is as good as the original.

One of the things that we recommend to speed up and increase the use of conditional language is to make a stamp with the conditional language stated above. So that every time you give a release, you can just stamp it and make that release conditional.

Pitfall #4:     Not creating exceptions to the release

The two most common exception that we see are claims for delay or claims for unexcused or not fully approved change orders.

Keep in mind that if you sign a release and that release has a broader language then the standard form that’s in the statute (most releases that people sign are usually broader than the statute), it probably says that you’re releasing claims for cost, expenses, unexecuted change orders or delays. It probably has a long list of items that you’re releasing. If you don’t preserve your claim, you will lose it by signing those types of releases. So, the question is how do you protect yourself. Here’s a sentence you can use. You can add to the documents, and you can handwrite it or make a stamp that says “Notwithstanding the foregoing this waiver and release specifically excludes _______. (This is where you’re going to insert what you don’t want to release)

The next thing to remember is that you have to do it month after month. If you do it in the first month but forget to do it in the second month and you sign a release. That releases everything from that date back. You’ve lost those rights. So, you need to make sure that if you have exceptions to the release that you carry them forward month after month.

Impact of Punch List on Lien Time Frame

Contractors are regularly called back at the end of each job to address a punch list of items not quite done to the owner’s satisfaction or not yet fully completed. Generally these are more touch up tasks than substantive work.

When an electrician wasn’t paid, it filed its claim of lien on the 95th day after it had last worked on the job site, believing that since it had gone back on day 94 to tackle some final punch list items the time frame for its filing would be extended. The owner cried foul, saying the claim was filed late. The court agreed.

Corrective work is not last work

The time periods in which a claimant must give notice and file its claim are strictly interpreted. The electrician argued that its cutoff date should be extended to account for the work done to actually activate certain circuits and to complete several punch list items. But his arguments fell on deaf ears. Florida’s courts have made clear for some time that remedial or corrective work does not extend the time for filing a claim. Such work is merely incidental to a completed contract and is not considered material.

This electrician had to file his claim within 90 days of last doing work, not last being at the jobsite.

Punch List Work Not Last Work

A sprinkler contractor submitted its final pay application through a sworn statement, noting that no additional work was required on the project and that 100% of its work was completed. Ninety four days later when it wasn’t paid, it served its Notice of Non-Payment with the project surety. In the lawsuit that followed, the surety moved for summary judgment against the sprinkler company alleging late notice. The circuit court agreed, as did the District Court of Appeal.

Corrective Work Doesn’t Extend Deadlines

The 90-day period in which a claimant must give notice to a payment bond surety on a statutory bond claim is strictly interpreted. The sprinkler company argued that its cut off date should be extended to account for the work done to attend the final inspection, to actually activate the fire protection system, and to complete several punch list work items. But Florida’s courts have made clear, for some time now, that remedial or corrective work does not extend the time for filing a claim. Such work is merely incidental to a completed contract and is considered unsubstantial.

Not only did the sprinkler company wait four days too long, it also couldn’t overcome its own earlier affirmative statements that all its work was completed.

What is a Statement of Account?

An owner or general contractor may not know where the plumber or electrician on a job is obtaining his materials and whether monies being paid are getting to appropriate suppliers. But this mystery can be easily solved. As any construction attorney knows, the lien law actually allows you to obtain this information. Just ask. The owner or general contractor can simply serve a formal request on any lienor through a sworn statement of account.

Show me the information

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. The demand must prominently display the following (or similar) advice: 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 construction lien claim. Strict compliance is required.

The Statement of Account

A Statement of Account must be in writing, given under oath and contain:

No ifs, buts or maybes on this. Fail or refuse to furnish the Statement within 30 days after the demand or provide a false or fraudulent statement and you will lose your lien. Period.

Left Out of a Contractor’s Final Payment Affidavit

A contractor’s final payment affidavit is a critical document. Without filing it, a contractor will not be able to enforce its lien rights. The affidavit has to list all lienholders under the contractor’s control and note whether those lienholders have been paid in full, and if not, the amount still due.

An equally important step in pursuing a lien is timely service of a notice to owner and a recent case illustrated how the two, the contractor’s affidavit and the notice to owner, are interrelated. The case held that if no notice to owner is filed by a particular supplier or subcontractor, then a contractor need not include that supplier or subcontractor in his final payment affidavit. As importantly, leaving them out of the affidavit would not invalidate any subsequent lien filed by the contractor. The Court went on to say that even a negligent failure to include these folks in the contractor’s final affidavit wouldn’t be fatal, as long as the owner wasn’t prejudiced.

Knowledge is king in every undertaking and it is no different when it comes to Florida Lien Law. Keeping up to date with legislative changes, critical court decisions, and current construction lien law is something construction executives and design professionals must do regularly to remain effective managers as they work hard to turn concepts into drawings and blueprints into well-built projects. Where it now has become common to believe that any discovered deficiency must be the result of someone else’s acts or omissions, the idea of avoiding potential risks is today more important than ever.

Managing job site discrepancies and those unavoidable change orders while correctly interpreting construction contract terms can provide an edge – something much appreciated in this always competitive business. This is but one step in that process.