Lien Archives - Page 9 of 9 - Florida Construction Legal Updates

Owners undertaking a construction project are always concerned about construction liens from subcontractors, sub-subcontractors, and suppliers that preserved their lien rights by serving a notice to owner in accordance with Florida’s Lien Law (Florida Statutes Chapter 713) (“Lienors”). One way an owner alleviates this concern is by requiring the contractor to obtain a payment bond so that its property is exempt from construction liens from Lienors. See Fla. Stat. §713.23. However, payment bonds do not protect the owner’s property from the general contractor’s lien.

Unfortunately, payment bonds are not always feasible or economical. While the contractor procures the payment bond, it is the owner that pays the premium for the bond. Sometimes an owner does not want to or is not in a position to pay this premium, which could be substantial depending on the cost of the project. In these circumstances, the owner’s property is subject to construction liens from Lienors. Anyone involved in construction knows that it is very difficult to construct a project without there being some form of a payment dispute involving Lienors.

When an owner receives a lien, or if it presumes a lien could be forthcoming from a Lienor, the owner should serve a request for a sworn statement of account BEFORE the lienor forecloses on its lien. Florida Statute §713.16 provides in material part:

“(2) The owner may serve in writing a demand of any lienor for a written statement under oath of his or her account showing the nature of the labor or services performed and to be performed, if any, the materials furnished, the materials to be furnished, if known, the amount paid on account to date, the amount due, and the amount to become due, if known, as of the date of the statement by the lienor…The failure or refusal to furnish the statement under oath within 30 days after the demand, or the furnishing of a false or fraudulent statement, deprives the person so failing or refusing to furnish such statement of his or her lien….

(3) A request for sworn statement of account must be in substantially the following form:

REQUEST FOR SWORN STATEMENT OF ACCOUNT

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.

To: (Lienor’s name and address)

The undersigned hereby demands a written statement under oath of his or her account showing the nature of the labor or services performed and to be performed, if any, the materials furnished, the materials to be furnished, if known, the amount paid on account to date, the amount due, and the amount to become due, if known, as of the date of the statement for the improvement of real property identified as (property description) .”

Besides getting verification as to how much the Lienor swears they are owed as of the date of the sworn statement of account, importantly, a Lienor that does not timely provide this sworn statement of account within thirty days could be deprived of its lien. In other words, this tool allows an owner to catch an unsuspecting Lienor (or even the contractor if served on the contractor) off guard that neglects to treat this request for a sworn statement of account seriously. The loss of a construction lien to a Lienor is a huge loss!

The owner is not limited to serving only one request for a sworn statement of account. The law simply provides that if the owner serves more than one request on the same Lienor “and none of the information regarding the account has changed since the lienor’s last response to a demand, the failure or refusal to furnish such statement does not deprive the lienor of his or her lien.” Fla. Stat. 713.23. For this reason, there is nothing wrong with an owner serving a request for a sworn statement to those Lienors that served a notice to owner at some point or points during the course of the construction project, and in most cases, this is very good practice. While the owner could technically serve one upon its receipt of each of the contractor’s applications for payment, this could be an administrative burden and not always practical. (There are other methods an owner can utilize to ensure it is protected from liens from Lienors by requiring the contractor as a condition precedent to payment to provide releases of lien through the date of the application for payment from those entities that served a notice to owner.) With that said, an owner should certaintly take advantage of this tool by serving a request for sworn statement of account upon immediately receiving a lien and before the Lienor forecloses on the lien. Ideally, before the owner tenders final payment, it should serve the sworn statement of account to Lienors to best protect its interests.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

Most contractors are well aware that construction liens are creatures of statute and must be recorded no later than 90 days after their final furnishing (i.e., last day) of labor, services, or materials. Fla.Stat. §713.08(5). However, what constitutes final furnishing and what amounts should be or should not be included in the lien (“lienable amounts”) are factors that should require the assistance of an attorney as they are not as clear cut under the law as one may prefer. These are critical factors for the preservation of a lien claim that should not be lost or treated in a haphazard manner.

Recently, in April 2011, the Second District in Sam Rodgers, Inc. v. Chmura, 2011 WL 156546 (2d DCA 2011), examined these very factors in a dispute over an increase in price to a custom home. In this case, after the slab was poured and the roof dried in, the purchaser did not make the next two construction draw payments. This nonpayment prompted the contractor to stop work mid-construction and timely record a lien for the unpaid work. However, after the lien was recorded, the contractor performed additional work on the unfinished house that it argued was necessary to protect the structure of the house from the weather, vandals, and animals. The contractor then recorded an amended claim of lien more than 90 days after it originally stopped work to include these costs, which also included costs for property taxes and insurance for the property.

These facts raise three interesting issues that are considerations whenever a lien is recorded. First, when is the contractor’s final furnishing date—is it the date it originally stopped work due to nonpayment or the date it finished performing the added work to ensure the house was protected from the elements? If the final furnishing date is the date it originally stopped work, then the contractor’s amended lien was untimely filed and moot. Second, can the contractor lien for the added work as well as the costs of taxes and insurance on the property? If it could not, then does this rise up to the level of declaring the lien fraudulent and unenforceable?

Final Furnishing Date

The appellate court found that the added work extended the final furnishing date since the work was contemplated by the contract and necessary. In reaching this holding, the Court expressed: “The test for whether work constitutes a ‘final furnishing’ is whether the work was done in good faith, within a reasonable time, pursuant to the terms of the contract, and whether it was necessary to a finished job.” Sam Rodgers, Inc. at *4. With that being said, the court confirmed that repair work, warranty work, corrective or punchlist work, or work incidental to a completed contract do not extend the final furnishing date. Id. Because the added work extended the final furnishing date, the amended lien was timely recorded.

Whether the work was done in good faith, within a reasonable time, pursuant to the terms of the contract, and necessary to a finished job are all factors that are analyzed on a case-by-case basis. There is no easy brightline standard. Importantly, these are also the same factors to determine when to include change order or extra-contractual work in the lien amount. See In Re American Fabricators, Inc., 197 B.R. 987 (M.D.Fla. 1996).

The bottom line is that contractors should err on the side of being conservative when determining their final furnishing date. I generally prefer to arrive at that final furnishing date on the last date the contractor was doing base contract work, not change order, punchlist, or warranty-related work, and that there is documentation to support that date, whether a timesheet, daily report, manpower report, or application for payment.

In many situations, the final furnishing date can be readily determined and supported. In other circumstances, in requires more thought and strategy, such as this case where the contractor stopped work and then restarted work to preserve the property, or when the contractor is performing disputed change order work.

What Amounts to Include in the Lien (“Lienable Amounts”)

The appellate court held that the added work was properly included in the lien as it was done within the scope of the contract; however, the costs incurred for taxes and insurance were not properly included because they were either not required by the construction contract or related to maintenance and not the improvement of the property. See Parc Cent. Aventura E. Condo. V. Victoria Grp. Services, LLC, 54 So.3d 532 (3d DCA 2011) (cleaning and maintenance services were not lienable because purpose of Florida’s Lien Law is to protect those that have provided labor, services, or materials done for the improvement or permanent benefit of the property.)

What to include or exclude in the lien amount is a hot topic and important because a defense that an owner of the liened property will raise is that the lien is a fraudulent lienand, therefore, should be deemed unenforceable. A fraudulent lien is essentially one filed in bad faith. It is a lien that is willfully exaggerated, willfully includes amounts for work not performed, or was prepared with gross negligence. See Fla. Stat. 713.31(2).

What specific amounts or items that render the entire lien fraudulent and unenforceable are really decided on a case-by-case basis. The appellate court in this case found the taxes and insurance were minor items that were not included in bad faith. However, it is important to understand and know what amounts are being included in the lien. Similar to the final furnishing date, I always err on the side of being conservative and want to know the categories of items being included in the lien, specifically if the items do not fall under base contract work. Just because an item or cost is excluded in the lien amount does not mean there isn’t another legal theory or avenue to pursue to recover those costs.

Category Archives: Lien

OWNERS DON’T FORGET ABOUT SERVING A REQUEST FOR SWORN STATEMENT OF ACCOUNT

THE FINAL FURNISHING DATE AND LIENABLE AMOUNTS FOR CONSTRUCTION LIENS: DECIDED ON A CASE-BY-CASE BASIS