Construction Liens? Hire an Experienced Construction Lawyer
Florida Construction Liens Law is a complex array of processes and documentation which creates a number of potential pitfalls for owners and contractors alike. Best navigated by a construction lawyer, lien law is rooted in Part 1 of Florida Statute 713 and consists of 47 sections and nearly 30,000 words. Due to the labyrinthian size and nature of construction lien law, it is essential that all parties approach each project with the assistance of an experienced construction lawyer.
What is a Construction Lien?
A construction lien, formerly known as a mechanics lien, is a legal recourse that contractors may use to ensure they eventually get paid for the work they complete on a construction project. Construction liens allow for a contractor to place a financial hold on an owner’s property for delinquent payments.
The need for the construction lien comes from the existence of a chain of payments that begins with the owner of a property. The owner of a property contract (and eventually pays) a general contractor who, in turn, pays subcontractors to conduct the work in a project. The chain of payments includes many “outsiders” to the original owner/general contractor agreement. These outsiders are any subcontractor, sub-subcontractor, laborer or material-man who does not have a direct contract with the owner or general contractor. These outsiders, however, are stakeholders in the chain of payments as they typically are not paid until the entity that contracted them is paid. Once paid, a paid entity pays the entity below it. To create accountability at the top of the chain of payments, construction lien law uses the concept of privity to allow outsiders to lay claim to amounts due by directly placing a legal hold on the money due against the owner of the property.
The Concept of Privity
Construction lien law allows for certain outsiders within the chain of payments to enforce subcontracts directly with the owner of a property as though they were in a direct contract with the owner. Usually, in other industries, there is no privity between parties that do not have a direct contractual relationship. In the construction realm this is different. Florida construction law stipulates a specific procedure by which privity is established between a property owner and different classes of subcontractors. The procedure includes several documents including the following key construction-industry specific documents required before, during and potentially after services and materials are furnished by a subcontractor or materialman.
Prior to construction
Notice of Commencement
This is a document displayed by the owner on the property on which improvements are being made. It identifies the property and the owner. A separate Notice of Commencement or NOC is required for each type of work for which a permit is required. Typically NOCs will remain in place for up to a year after a project is completed. Any party serving notices to the owner may do so by simply responding to the contact information on the NOC.
“A construction lien, formerly known as a mechanics lien, is a legal recourse that contractors may use to ensure they eventually get paid for the work they complete on a construction project.”
Notice to Owner
In the development of any real property in the State of Florida, subcontractors must first establish privity with the owner prior to furnishing their goods or services. The document by which they do this is a Notice to Owner or NTO. “Subs”, laborers and materials suppliers must reveal their existence via this document in a timely manner. The owner once served this notice within 45 days of a subcontractor’s work having commenced, is considered to have agreed to the hiring of such subcontractors and, in most cases, becomes ultimately responsible for payments to them.
Waiver and Release of Lien
Construction lien law allows only for liens to be placed up to the value of unpaid work for which payment is delinquent. This means that as payment is progressively made to subcontractors and material-man, the potential lien amount decreases. At each step in this billing progression, a waiver and release of lien document is produced to show that the subcontractor has received partial pay for furnished services or goods, and therefore relinquishes a claim to the amount already paid. For example, a subcontractor is delivering $200,000 worth of services and is paid for $50,000. That subcontractor will create a Waiver and Release of Lien document relinquishing the $50,000 and showing that a potential lien can now only be placed for $150,000 on the property.
Claim of Lien
Should there be a failure to pay at any point in the payment chain, most unpaid subcontractors who have completed all required paperwork to date are entitled to place a lien on the property for the amount due. In order to do so, the lienor must state nine essential items on a notarized Claim of Lien:
- Identity of the lienor
- Identity of its direct customer
- The name of the improved property as it appears on the NOC
- The owner of the property as their name appears on the NOC
- The type of work provided by the lienor
- The value of the work provided to date
- The amount unpaid
- The first date work was furnished
- The last date work was furnished
Florida’s construction lien law is complex and document-intensive. It is highly recommended that all parties from the owner to individual subcontractors retain the services of an experienced construction attorney. Here are some legal pitfalls to look out for when dealing with construction liens.
Gross misstatements by contractors may affect the validity of the lien. This is especially true in the construction industry where work records are often poorly kept. In general, contractors have up to 90 days after the last day on which they furnished their service or equipment to place a lien. An experienced construction attorney would investigate and challenge claims made late in this period if it appears that they are inconsistent with the evidence of what had actually occurred during the course of the project.
Not all members of the chain of contracts are permitted to place liens on a property. Downstream manufacturers, for example, are not included. This means a producer of equipment (say the sprinkler heads for a fire suppression system) would not be covered – through the material-man providing the equipment to the installer and the installer herself would be. An experienced construction lawyer would be prepared to challenge the validity of a lienor based on whether they established privity with an owner and whether they are sufficiently upstream in the chain of contracts to warrant the right to place a lien.
Lien Amount Exaggerations
Subcontractors very often inflate the value of their work beyond what it may be worth. This may be done intentionally (and fraudulently) or it may be done in a good faith effort to value the work according to an inflated sense of worth to the project. Either way, an experienced construction law attorney will be able to identify whether the demanded amount for a given good or service is a reasonable charge.
Pay if Paid Clauses
These clauses manipulate the chain of contracts making it very difficult for a lien to be placed. This is done by using language that states that a person is “unpaid” only if their direct customer has been paid. This creates a situation in which a subcontractor is considered not unpaid and therefore a lien cannot be placed. Using such language in a contract allows owners and general contractors to in theory never pay and never face a construction lien. It is important to note that the involvement early on of an experienced construction attorney can forewarn contractors of such language and protect their best interests.
South Florida Law, PLLC is an experienced construction law firm that understands the nuances and pitfalls of construction line law. We advise owners, general contractors and subcontractors alike in making decisions and managing their role within a project in a way that protects their commercial interests. Are you preparing to participate in a construction project either as an owner, general contractor, subcontractor or materials supplier? Contact South Florida law today for a free consultation on (954) 900-8885 or via our contact form.