There are instances where the owner of a construction project terminates its general contractor prior to the completion of the project. There are instances where the owner suspends the work prior to the completion of the project, meaning there is a cessation in the construction. And, there are instances where the project is simply abandoned. I have been involved in all instances, and the owner’s reasons vary…from an owner claiming a termination for default, termination for convenience, or a suspension or abandonment due to the market or financial factors. Regardless of the owner’s reasoning, at some point—hopefully—the owner will want to resume or, more properly stated, recommence construction and complete the project.
Based on the length of the cessation, when the owner finally recommences construction, oftentimes the right approach is for the owner to strictly comply with the recommencement procedure set forth in Florida Statute s. 713.07(4):
If construction ceases or the direct contract is terminated before completion and the owner desires to recommence construction, he or she [1] may pay all lienors in full or pro rata in accordance with s. 713.06(4) prior to recommencement in which event all liens for the recommenced construction shall take priority from such recommencement; or [2] the owner may record an affidavit in the clerk’s office stating his or her intention to recommence construction and that all lienors giving notice have been paid in full except those listed therein as not having been so paid in which event 30 days after such recording, the rights of any person acquiring any interest, lien, or encumbrance on said property or of any lienor on the recommenced construction shall be paramount to any lien on the prior construction unless such prior lienor records a claim of lien within said 30-day period. A copy of said affidavit shall be served on each lienor named therein. Before recommencing, the owner shall record and post a notice of commencement for the recommenced construction, as provided in s. 713.13. [Per Florida Statute s. 713.13(5)(a), if an owner changes contractors, the owner must record either a new notice of commencement or notice of recommencement.]
Under this statute, when the owner wants to recommence construction, the owner has two options.
First, the owner can pay all lienors in full or pro rata pursuant to Florida Statute s. 713.06(4), which lists the priority of payments to lienors. I like the idea of getting final releases or a release through the date of payment with no carve-out (for retainage or otherwise).
Second, the owner can record an affidavit stating his/her intention to recommence construction and that all lienors giving notice (the contractor and those that served a notice to owner) have been paid in full except those specifically listed. Thirty days after the affidavit is recorded, the rights of any person that acquires an interest in the property or liens the property is superior to any lien on the prior construction (before construction ceased) unless such lienor records a claim of lien within the 30-day window. If the lienor already recorded a lien, the lienor would need to re-record the lien within this 30-day window to preserve its lien priority (although, importantly, the re-filing does not extend the one year period for the lienor to foreclose on its lien). See Foy v. Mangum, 528 So.2d 1331 (Fla. 5th DCA 1988) (re-filing the lien ensures the lienor has priority over lienors performing recommenced work, but it does not delay the lienor’s requirement to timely foreclose the original recorded lien). Any lienor identified in the affidavit would get served with a copy of the affidavit.
The owner also records a new notice of commencement / notice of recommencement for the recommenced work where any liens relating to the recommenced work would relate back, from a lien priority standpoint, to this notice of commencement.
A value to the owner complying with this procedure is that it can apply the remaining contract balance to the recommenced work and if the funds are expended the total amount the owner will be liable for liens recorded before the cessation could be reduced or eliminated (i.e., the proper payments defense). See Alton Towers, Inc. v. Coplan Pipe & Supply Co., 262 So.2d 671 (Fla. 1972) (if owner complies with the recommencement procedure, the owner’s liability is limited to original direct contract price, thus where completion costs exceeded defaulting contractor’s direct contract amount, supplier was not entitled to recover from owner).
If you are an owner or contractor involved in a ceased project, or a project where construction will be recommencing, it is in your interests to engage legal counsel familiar with the recommencement procedure. It is important that you understand construction lien priority, how the recommencement can impact lien priority, and the owner’s potential liability if it properly complies with the recommencement procedure.
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.