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.