Tag Archives: lien

TIMELY AND PROPERLY ASSERT AFFIRMATIVE DEFENSES AND UNDERSTAND STATUTORY CONDITIONS PRECEDENT

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A recent case serves as a reminder to TIMELY and PROPERLY assert affirmative defenses and to understand statutory conditions precedent to construction lien claims. Failing to do one or the other could be severely detrimental to the position you want to take in a dispute, whether it is a lien foreclosure dispute, or any other dispute.

In Scherf v. Tom Krips Construction, Inc., 2024 WL 3297592 (Fla. 4th DCA 2024), the president of a construction company and his wife were building a residence. They orally accepted the proposal from the concrete shell contractor and asked for invoices to be submitted to the president’s construction company.  No written contract was memorialized.  The president and his wife did not pay the concrete shell contractor and the contractor recorded a lien and sued to foreclose on the lien.   Years later (the case had been stayed because the president and his wife filed for bankruptcy and the shell contractor had to get leave of the automatic bankruptcy stay to pursue the lien foreclosure), the shell contractor moved for summary judgment.  The president and his wife moved for leave to file an amended answer and affirmative defenses. They claimed the oral contract was with the construction company and the shell contractor was required to serve a Notice to Owner under Florida Statute s. 713.06. Alternatively, they argued that if the oral contract was with the president and his wife, the shell contractor was required to serve a Final Contractor’s Payment Affidavit at least 5 days before filing its lien foreclosure claim, and did not, as required by s. 713.06.

Due to the length of time that had gone from the filing of the lawsuit to the motion for leave to amend to add affirmative defenses, the trial court denied the motion for leave and granted summary judgment in favor of the shell contractor. The trial court noted that had the defense on the final contractor’s payment affidavit been raised from the onset, the shell contractor could have cured the issue where, now, it was non-curable. In other words, granting the amendment would be prejudicial to the shell contractor:

In the years leading up to the motion for leave to amend, the [president and his wife] had consistently taken the position thatthey were not parties to the Construction Agreement, that the contract was with [the president’s construction company], and that[the shell contractor] had failed to serve the required notice to owner upon them. In their proposed amended answer, the[president and his wife] changed their position by adding the alternative argument that [the shell contractor] had failed to serve acontractor’s affidavit, which would only come into play if [the shell contractor’s] contract was with the [president and his wife].

Allowing the amendment would have prejudiced [the shell contractor] because the statute of limitations had run on the lien foreclosure claim, so it was too late to cure the notice problem. [The shell contractor] was required to file the foreclosure actionwithin one year of recording its claim of lien. [The shell contractor] recorded its claim of lien on February 8, 2016, and filed itsoriginal complaint on April 27, 2016. Before filing for bankruptcy, the [president and his wife] challenged the original complaint,but did not raise [the shell contractor’s] failure to provide the contractor’s affidavit. Had the issue regarding the contractor’s affidavit been raised at that time, [the shell contractor] would have had over seven months to cure a failure to serve the affidavit.

Scherf, supra, at *3-4 (internal citations omitted).

In affirming the trial court, the appellate court relied on precedent where leave to amend was denied “to assert a defect that could have been cured by the opposing party had it been raised earlier in the litigation.” Scherf, supra, at *4.  In other words, the proposed amendment came too late and would have prejudiced the shell contractor due to the statute of limitations that the shell contractor could have cured (under existing precedent) had the president and his wife’s amendment come much earlier.

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.

OWNER CAN’T PURSUE STATUTORY SHOW CAUSE COMPLAINT TO CANCEL LIEN… FAIR OUTCOME?

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If there is a payment dispute with a construction lienor — could be a contractor, a subcontractor, or supplier – it is possible, and more than likely, a construction lien may get recorded against real property. This scenario is not uncommon as the lien is the mechanism for the lienor to collateralize their claimed nonpayment.  Now, in reality, it does not take much money to record a lien. A lienor should utilize a lawyer to prepare their liens, but maybe they prepare liens in-house.  Regardless, the recording of the lien is a nominal cost and the clerk that dockets and records the lien does NOT analyze the merits of the lien.  That is not what the clerk is there to do; nor do you really want them the delve into the factual merits.

Well, what if a lien is facially invalid, meaning that the lien, on its face, includes information that demonstrates it is NOT properly perfected.  Or what if the lienor failed to properly preserve or perfect its lien rights before recording the lien. This happens!  Naturally, an owner of the real property wants the lien removed from the property. The owner does not want the encumbrance.

The owner could transfer the lien to a lien transfer bond under Florida’s Lien Law, but that is easier said than done. And this does not discharge the lien; it just removes the lien from the property to the security of the bond.

The owner could pay the lienor to record a satisfaction of lien but then the lienor wins by improperly leveraging its payment dispute with an invalid lien. (Frankly, sometimes this makes sense irrespective of the perceived “win.”)

The owner could record a notice of contest of lien under Florida’s Lien Law to shorten the lienor’s time period to foreclose on the lien from one year to sixty days.  This is generally the approach I suggest because if the lienor does foreclose within the sixty days there is the strong chance the lienor was always going to foreclose on the lien so why not bring the dispute to the head sooner than later.

Then, there is a statutory procedure under Florida’s Lien Law (Florida Statute s. 713.21(4)) oftentimes referred to as the “order to show cause” complaint where the lienor is given 20 days to show cause why its lien should not be enforced or cancelled of record (which is done by timely foreclosing the lien within 20 days after service of the summons):

By an order of the circuit court of the county where the property is located, as provided in this subsection. Upon filing a complaint by any interested party the clerk shall issue a summons to the lienor to show cause within 20 days after service of the summons 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 order cancellation of the lien.

An owner may do this because the owner has its own claims against the lienor. Or the owner may want to force the lienor to “make a move” or else lose the lien if the lienor does not timely foreclose. Strategically, it is an approach owners do pursue in certain contexts.

Unfortunately, a recent case adds uncertainty to the strategic value of this approach, or at least how the order to show cause complaint is pled.

In Calixte v. Coastal Building Contractors, LLC, 2024 WL 1896114 (Fla. 4th DCA 2024), an owner filed an order to show cause complaint against a lienor under Florida Statute s. 713.21.  The owner alleged the lienor was required to serve a notice to owner, and did not, and therefore its lien should be cancelled for being invalid. The lienor, which was required to file its lien foreclosure counterclaim within 20 days, did not. That should have been it. But it was not.  The lienor argued that s. 713.21 does not apply because the owner alleged that the lien was not properly perfected when it alleged the lienor failed to serve its notice to owner. The lienor made this argument because s. 713.21 is prefaced, “A lien properly perfected under this chapter may be discharged, or released in whole or in part, by and of the following methods…[(4) through the order to show cause complaint].”  In other words, because the owner alleged the lien was not properly perfected, the order to show cause complaint was not an option.  Sadly, the appellate court agreed: “As the complaint in this case specifically alleged [the lienor] had failed to perfect its lien by serving a “notice to owner” and therefore had no lien rights, [owners] could not avail themselves of this special statutory procedure authorized by section 713.21.” Calixte, supra, at *2.

This ruling, quite frankly, is unjust and somewhat ridiculous.  Here is why.  The lienor is still foreclosing the lien. Thus, the lienor does not agree its lien is not properly perfected.  The lienor believes it is properly perfected because it is still pursuing its lien foreclosure. Next, if you read s. 713.21, it talks about other procedures to discharge a lien including a satisfaction of lien, by a judgment, or by the lienor failing to timely foreclose the lien. These options are subject to the exact same prefatory language, “A lien properly perfected under this chapter may be discharged, or released…”  If the show cause complaint is not an option because of this prefatory language, what about these other standard options?  And lastly, this leaves the owner that disputes the merits of a lien with really only two options if it believes a lien is not properly perfected: (1) the notice of contest of lien (my preferred option), and (2) transferring a lien to a lien transfer bond, which does not discharge the lien but simply transfers the lien from the real property to the security of the bond. Meanwhile, the encumbrance created by the lien still exists simply because the owner implemented a statutory procedure on a lien the owner did not think was properly perfected, yet the lienor disagreed.   And here is what the case does not discuss.  What if the owner did not allege the lien was not properly perfected? But in reality it was not. In that context would the statutory procedure apply because if pursuing this option there is no value to allege the lien is not properly perfected in light of this ruling.

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.

DON’T IGNORE A NOTICE OF CONTEST OF LIEN

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A recent case, Jon M. Hall Company, LLC v. Canoe Creek Investments, LLC, 49 Fla.L.Weekly D812a (Fla. 2d DCA 2024), demonstrates four important things when it comes to liens:

  1. An owner can shorten the time period to foreclose on the lien, whether against the real property or a lien transfer bond, to 60 days by recording a notice of contest of lien;
  2. An owner can transfer a lien to a lien transfer bond during litigation;
  3. An owner can record a notice of contest of lien to force the lienor to amend its lawsuit to sue the lien transfer bond surety within 60 days; and
  4. A contractors’ failure to amend its lawsuit to sue the lien transfer bond within 60 days will extinguish its rights to pursue a claim against the lien transfer bond, and will otherwise extinguish the lien, fairly or unfairly.

Here are the key facts in Jon M. Hall Company:

  • 4/14/22 – Contractor recorded claim of lien for $825,639.46
  • 5/17/22 – Owner transferred Contractor’s claim of lien to a lien transfer bond
  • 5/20/22 – Owner recorded a notice of contest of Contractor’s claim of lien
  • Late May 2022 – Contractor recorded amended claim of lien for $1,837,516.76
  • 6/14/22 – Contractor filed lawsuit against Owner including a lien foreclosure as to its amended claim of lien. Contractor did not sure the lien transfer bond surety
  • 7/1/22 – Owner transferred Contractor’s amended claim of lien to a lien transfer bond
  • 7/1/22 – Owner recorded a notice of contest of Contractor’s amended claim of lien
  • Contractor did not amend its lien foreclosure lawsuit to sue the lien transfer bond within 60 days
  • 12/19/22 – Owner moved for partial summary judgment on Contractor’s lien foreclosure lawsuit. “[Owner] asserted that transferring to bond and recorded notices of contest as to both [Contractor’s] Original Claim of Lien and Amended Claim of Lien had shortened the time for [Contractor] to bring action against the bond. [Contractor] had failed to timely do so, thereby resulting in automatic extinguishment of the lien as a matter of law.”
  • Trial court granted Owner’s motion for partial summary judgment holding that “[Owner’s] transfer and recording of the notice of context as to the Amended Claim of Lien during the litigation shortened the time for [Contractor] to bring a claim against the bond to sixty days, and [Contractor’s] failure to timely do so extinguished its lien automatically as a matter of law.”

The Contractor moved for a petition for a writ of certiorari to quash the trial court’s order that held its lien was extinguished as a matter of law.

A lienor has one year under Florida Statute Section 713.22 to foreclose on a claim of lien. This time period may be shortened to 60 days by an owner recording a notice of context of lien under Florida Statute Section 713.24.  The notice of contest statute provides, “[t]he lien of any lienor upon whom such notice is served and who fails to institute a suit to enforce his or her lien within 60 days after service of such notice shall be extinguished automatically.”

Separately, under Florida Statute 713.24, a lien against real property can be transferred to the security of a lien transfer bond which removes the collateral of the lien from the real property to the lien transfer bond.

Construing Florida Statutes 713.22 and 713.24 together, “under the plain statutory language, where a lien is transferred to a bond during litigation, and the owner records a notice of contest, the lienor has “60 days” “within which to commence an action to enforce any claim of lien or claim against a bond,” or else the “lien . . . shall be extinguished automatically.” Jon M. Hall Company, supra (internal citations omitted).

Here, it is true that [Contractor’s] Original Claim of Lien was recorded, transferred, and noticed for contest before the litigation commenced. However, before the June 2022 lawsuit, [Contractor] also recorded an Amended Claim of Lien, more than doubling the amount claimed. [Contractor] thereafter filed its complaint, expressly acknowledging and seeking to recover on the higher Amended Claim of Lien. Two weeks later, [Owner] transferred the Amended Claim of Lien to the bond and recorded its notice of contest thereof, just as it had with the original one.

Thus, after [Contractor] commenced litigation on its Amended Claim of Lien, [Owner’s] actions in transferring the Amended Claim of Lien to bond under section 713.24 and then recording its notice of contest of the Amended Claim of Lien under section 713.22(2) operated to shorten the time period for [Contractor] to bring an action against the surety on the bond to sixty days. 

***

On that question, the statutory language is quite clear: after [Contractor] “commenced” this “proceeding to enforce a lien” expressly seeking to recover on its Amended Claim of Lien, “during such proceeding, the lien [wa]s transferred” by Owner.  When [Owner], as the owner of the property, recorded its notice of contest of the transferred Amended Claim of Lien, that “shorten[ed] the time . . . within which to commence an action to enforce any claim of lien or claim against a bond or other security.”  Contractors failure to seek to claim against the bond within sixty days thereafter caused its lien to “be extinguished automatically” by operation of law. 

***

[Contractor] also asserts that both of [Owner’s] notices of contest of lien were invalid because they were recorded after [Owner] had already transferred the claims of lien to bond. But [Contractor] has not cited, nor have we found, any support for this claim. Indeed, the only case Hall cites for this proposition involved the same order of events, without suggesting there was anything improper about it. 

Jon M. Hall Company, supra (internal citations omitted).

Look, when it comes to claims of lien, do yourself a favor.  Use a construction lawyer.  Use a lawyer that understands liens, and importantly, Florida’s Lien Law.  I cannot emphasize these points enough.  If you don’t, you can get caught with gotcha tactics or crazy nuances under Florida’s Lien Law.  I don’t necessary agree with the holding in this case.  Regardless, when receiving a notice of contest of lien, you need to respect the implications and make sure rights are immediately preserved.  Otherwise, you get caught in the scenario here where a lienor had a $1.8 Million lien extinguished. OUCH!!!

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.

QUICK NOTE: OCTOBER 1, 2023 CHANGES TO FLORIDA’S CONSTRUCTION STATUTES

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Effective October 1, 2023, there were changes to Florida’s statutory scheme dealing with construction projects. This includes Florida’s Lien Law. A copy of these changes can be found below which identify additions in blue and deletions with strikethroughs.  No different than before, if you have questions or concerns as to your statutory rights on a construction project, do the prudent thing, consult a construction lawyer.  A construction lawyer can help you understand changes to the applicable statutory scheme or how the statutory scheme pertains to your rights. This is important because you want to make sure you understand statutory changes that apply to your work and rights.

A noteworthy change, bolded in blue below, is that there is now a basis to lien for a contractor performing construction management services “which include scheduling and coordinating construction and preconstruction phases for the construction project, or who provides program management services”:

Fla. Stat. s. 713.01 (8)   “Contractor” means a person other than a materialman or laborer who enters into a contract with the owner of real property for improving it,  or who takes over from a contractor as so defined the entire remaining work under such contract. The term “contractor” includes an architect, landscape architect, or engineer who improves real property pursuant to a design- build contract authorized by s. 489.103(16). The term also includes a licensed general contractor or building contractor, as those terms are defined in s. 489.105(3)(a) and (b), respectively, who provides construction management services, which include scheduling and coordinating preconstruction and construction phases for the construction project, or who provides program management services, which include schedule control, cost control, and coordinating the provision or procurement of planning, design, and construction for the construction project.

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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.

HUH? ACTION ON CONSTRUCTION LIEN “RELATES BACK” DESPITE NOTICE OF CONTEST OF LIEN

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Not every case law you read makes sense. This sentiment goes to the uncertainty and grey area of certain legal issues.  It is, what you call, “the nature of the beast.”  You will read cases that make you say “HUH?!?” This is why you want to work with construction counsel to discuss procedures and pros / cons relative to construction liens.

An example of a case that makes you say “HUH” can be found in Woolems, Inc. v. Catalina Capstone Creations, Inc., 2023 WL 2777506 (Fla. 3d DCA 2023) dealing with a construction lien foreclosure dispute.

Here, a contractor filed a lawsuit against a subcontractor with a summons to show cause why the subcontractor’s construction lien should not be discharged.  This is a specific complaint filed under Florida Statute s. 713.21(4). This statute requires the lienor to essentially foreclose on its construction lien within 20 days after it was served with a “show cause” summons.  The subcontractor filed its answer and counterclaim but did NOT assert a claim to foreclose its construction lien.

Around the time of subcontractor’s answer and counterclaim, the contractor transferred the subcontractor’s lien to an all-cash lien transfer bond in accordance with Florida Statute s. 713.24. Once the lien transfer bond was recorded, the owner recorded a notice of contest of lien under Florida Statute s. 713.22. The notice of contest of lien shortens the limitations period to foreclose on a lien to 60 days.

The subcontractor did NOT timely foreclose its lien against the lien transfer bond and the general contractor moved to have its all-cash lien transfer bond returned, as it should do. The subcontractor filed its lien foreclosure against the lien transfer bond AFTER the 60-day window expired. The trial court, and affirmed by the appellate court, denied the general contractor’s request to have the lien transfer bond returned and allowed the subcontractor to assert its (dilatory) claim against the lien transfer bond claiming it related back in time to the subcontractor’s initial counterclaim.  HUH?!?

ISSUES GIVING RISE TO THE HUH

Here are the issues with this ruling:

  1. The subcontractor should have foreclosed its construction lien with the 20-day time period from receiving the summons to show cause. The case reflected the subcontractor asserted claims, but not the lien foreclosure claim subject to the summons to show cause. (The appeal did not discuss this point for reasons currently unknown.)
  2. Regardless of (1), the lien was transferred to a bond and a notice of contest of lien was recorded shortening the time period to foreclose the lien (as to the bond) to 60 days. There is case law referencing this procedure. Yet, the subcontractor still did not timely assert its claim against the lien transfer bond.
  3. The trial court applied the relation back doctrine which does nothing but completely water down the statutory purpose of a notice of contest of lien (not to mention the summons to show cause complaint).

RECOMMENDATIONS IN LIGHT OF RULING

In light of this ruling, here are my recommendations:

  1. If you are going to transfer a lien to a lien transfer bond, do it from the get-go. Then, record the notice of contest or pursue the summons to show cause complaint.
  2. If filing the summons to show cause complaint, wait for the 20-day time period to expire. If the time period expires, move to have the lien discharged before making the decision to transfer the lien to a lien transfer bond.
  3. If recording a notice of contest of lien, wait for the 60-day time period to expire before taking action.

The reality is that the procedure implemented in this case should have been fine but for the application of the relation back doctrine that makes you say HUH?!?

As mentioned, if dealing with a lien, please make sure to discuss strategic considerations with a construction counsel that can help navigate the process and advise on the pros and cons.

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.

UNPREDICTABLE OPINION REGARDING CONSTRUCTION LIEN (REINSTATEMENT??)

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Here comes the discussion of an appeal I was intimately involved in dealing with a construction lien. See Suntech Plumbing and Mechanical Corp. v. Bella Isla, LLC, 2022 WL 14672765 (Fla. 3d DCA 2022).  Unfortunately, it was a losing result on my end but not a losing result to the issue at-hand.  You should ask what in the world does this mean.  I will tell you.

Here is the fact pattern.  A subcontractor files a construction lien foreclosure lawsuit against an owner for unpaid contract balance.  In the same lawsuit, the subcontractor sues the general contractor for breach of contract and unjust enrichment associated with an approximate three-year delay on a construction project.  The project was scheduled to be completed in 2019.  It was not.  The project was pushed into COVID and into 2022.  (The subcontractor did not sue the general contractor for amounts subject to the lien foreclosure claim.) The general contractor, assuming the defense of the owner, moved to stay the lawsuit pending the outcome of arbitration based on an arbitration provision in the subcontract.  The subcontractor did not dispute the arbitration provision, but argued that arbitration provision should not extend to the owner that was (a) not bound by the subcontract, (b) would not be a party to the arbitration, and (c) the amounts pled against the general contractor did not include the amounts subject of the lien foreclosure lawsuit.  At a minimum, the lawsuit should be stayed, not dismissed. Nevertheless, the trial court dismissed the entire lawsuit in an order that states that it is a final order with language that the lien may be “reinstated” after the outcome of the arbitration (that the owner is not a party to).

This is a big deal.  Construction liens are creatures of statute. And, a construction lien, no different than a mortgage, is only as good as its lien priority.  (The priority of a lien is critical!). Well, there is NO statutory procedure to reinstate a construction lien. None. There is also no authority that even contemplates such a procedure.  Thus, what happens to the priority of the lien and what happens to the corresponding lis pendens?  I have no clue other than the best recourse was to immediately appeal on two fronts: (1) appeal the trial court’s ruling as a final order based on language in the order stating it is a final order, and (2) in an abundance of caution, move for a petition of writ of certiorari due to the irreparable harm posed by the dismissal of a lien foreclosure lawsuit (regardless of the unheard-of reinstatement language).  This is the recourse pursued with the appeals consolidated.  The sentiment was that, at worst case, the appellate court would remand for the lawsuit to be stayed, not dismissed, so as not to impact the integrity (priority) of the lien and lis pendens.  The worst thought was that if the appeal was lost, there was not really a loss in this case because a loss would ultimately mean the lien and lis pendens are still in play where an argument cannot be made otherwise.  Although, honestly, a loss was not really considered here because there is no such thing as reinstating a lien.

Welcome to the unpredictability of the law.

First, the appellate court ruled that the trial court’s order, despite saying it was a final order, was not really a final order subject to an automatic appeal. “Because the trial court’s order of dismissal, however, is neither a final order nor an appealable nonfinal order we lack jurisdiction to consider [subcontractor’s] appeal of the dismissal order.”  See Suntech, supra, at *1.

Second, the appellate court ruled that the reinstatement language did not constitute irreparable harm to support the basis of certiorari relief.

[Subcontractor] alternatively seeks certiorari review of the trial court’s order of dismissal; however, the trial court’s order expressly retained jurisdiction to enforce any arbitration award and to reinstate [subcontractor’s] lien foreclosure claim against [owner] should arbitration not resolve the matter. [Subcontractor] has therefore failed to establish irreparable harm necessitating exercise of our certiorari jurisdiction.

Suntech, supra, at *1.

Ok.  So, the lien (and lis pendens) should remain in effect.  But what about their priority?  How do you reinstate a dismissed construction lien (and how does this effect lien priority)? Why is the lien even dismissed when the owner is not a party to the arbitration and not bound by any arbitration award?  How is a dismissed lien not irreparable harm when the lien serves as the collateral for nonpayment? What happens to the lis pendens? Does this mean that a general contractor can always move to dismiss a lien foreclosure claim from a subcontractor based on an arbitration provision that the owner is not bound to or an arbitration the owner is not a party to?

I don’t know the answers to any of these questions. Do you?  The continued lack of answers prompted a motion for rehearing seeking clarity because the ruling, frankly, benefits no one in the construction industry and extends to buyers, sellers, title companies, etc. You can’t ignore the lien and lis pendens based on the appellate court’s ruling. But how do you treat the lien from a priority standpoint (including the lis pendens) and how the lien gets reinstated is another thing.

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.

 

And, again, welcome to the law! In my view, this is a bad opinion for the construction industry as a whole.  It will be used in the wrong fashion to create a situation where the lien and lis pendens are in some unknown legal purgatory with an undefined outcome.

 

FILING LIEN FORECLOSURE LAWSUIT AFTER SERVING CONTRACTOR’S FINAL PAYMENT AFFIDAVIT

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If you are an unpaid contractor in direct contract with the owner of real property, you should be serving a Contractor’s Final Payment Affidavit prior to foreclosing on your construction lien.  This should extend to any trade contractor hired directly by the owner.  As a matter of course, I recommend any lienor hired directly by the owner that wants to foreclose its lien to serve a Contractor’s Final Payment Affidavit.  For example, if you are a plumbing contractor hired by the owner and want to foreclose your lien, serve the Affidavit.  If you are a swimming pool contractor hired by the owner and want to foreclose your lien, serve the Affidavit.  You get the point.  (If you are not in direct contract with the owner, you do not need to serve the Affidavit, but you need to make sure you timely served your Notice to Owner; when you are in direct contract with the owner, you do not need to serve the Notice to Owner because the owner already knows you exist.)

The Contractor’s Final Payment Affidavit is a statutory form.   I suggest working with counsel to help execute to avoid any doubts with the information to include.  The unpaid amount listed should correspond with the amount in your lien and you want to identify all unpaid lienors (your subcontractors and suppliers) and amounts you believe they are owed.

If you are in direct contract with the owner, serving the Contractor’s Final Payment Affidavit is a condition precedent to foreclosing your lien.  To this point, Florida Statute s. 713.06(3)(d)(4) provides:

The contractor shall have no lien or right of action against the owner for labor, services, or materials furnished under the direct contract while in default for not giving the owner the affidavit; however, the negligent inclusion or omission of any information in the affidavit which has not prejudiced the owner does not constitute a default that operates to defeat an otherwise valid lien. The contractor shall execute the affidavit and deliver it to the owner at least 5 days before instituting an action as a prerequisite to the institution of any action to enforce his or her lien under this chapter, even if the final payment has not become due because the contract is terminated for a reason other than completion and regardless of whether the contractor has any lienors working under him or her or not.

In a recent case, A. Alexis Varela, Inc. d/b/a Varela Construction Group v. Pagio, 47 Fla. L. Weekly D1112b (Fla. 5th DCA 2022), the appeal was based on whether the contractor filed suit one day before it should have filed suit after serving the Contractor’s Final Payment Affidavit.  The Affidavit was served on 5/5/21.  The contractor then filed its lien foreclosure lawsuit on 5/10/21.  The trial could dismissed the lien action claiming the contractor did not properly comply with the 5-day condition precedent because the earliest it could have foreclosed its lien was 5/11/21.  The appellate court reversed.  The plain reading of the statue provides it should be delivered to the owner “at least 5 days before instituting an action.”  The statute does not require the lien foreclosure lawsuit to be filed no earlier than the 6th day and does not specifically preclude the lawsuit from being filed on that 5th day.

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.lien

 

 

LIEN ATTACHES TO LANDLORD’S INTEREST WHEN LANDLORD IS PARTY TO TENANT IMPROVEMENT CONSTRUCTION CONTRACT

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If you are a landlord / lessor, then you want to maximize the protections afforded to you under Florida’s Lien Law in Florida Statute s. 713.10.  These protections are designed to protect your property from liens for improvements performed by your tenant / lessee.  The intent is that if you comply with s. 713.10, then a tenant improvement contractor’s recourse is against the leasehold interest, and NOT against the interest of the real property (or your interest as the landlord / lessor).  Needless to say, it is imperative that a landlord / lessor make efforts to comply with this section when a tenant is performing tenant improvements, even when the landlord is contributing money to those improvements.

Section 713.10 provides in material part:

(1) Except as provided in s. 713.12, a lien under this part shall extend to, and only to, the right, title, and interest of the person who contracts for the improvement as such right, title, and interest exists at the commencement of the improvement or is thereafter acquired in the real property. When an improvement is made by a lessee in accordance with an agreement between such lessee and her or his lessor, the lien shall extend also to the interest of such lessor.

(2)(a) When the lease expressly provides that the interest of the lessor shall not be subject to liens for improvements made by the lessee, the lessee shall notify the contractor making any such improvements of such provision or provisions in the lease, and the knowing or willful failure of the lessee to provide such notice to the contractor shall render the contract between the lessee and the contractor voidable at the option of the contractor.

(b) The interest of the lessor is not subject to liens for improvements made by the lessee when:

      1. The lease, or a short form or a memorandum of the lease that contains the specific language in the lease prohibiting such liability, is recorded in the official records of the county where the premises are located before the recording of a notice of commencement for improvements to the premises and the terms of the lease expressly prohibit such liability; or
      2. The terms of the lease expressly prohibit such liability, and a notice advising that leases for the rental of premises on a parcel of land prohibit such liability has been recorded in the official records of the county in which the parcel of land is located before the recording of a notice of commencement for improvements to the premises, and the notice includes the following:
      3. The name of the lessor.
      4. The legal description of the parcel of land to which the notice applies.
      5. The specific language contained in the various leases prohibiting such liability.
      6. A statement that all or a majority of the leases entered into for premises on the parcel of land expressly prohibit such liability.

The recent case of K.D. Construction of Florida, Inc. v. MDM Retail, Ltd., 2021 WL 5617447 (Fla. 3d DCA 2021) demonstrates the outcome when a landlord does NOT fully comply with Florida Statute s. 713.10.  In this case, the landlord and its tenant entered into a construction agreement with a contractor to perform tenant improvements to a movie theater.  Both the tenant and the landlord were identified as the owner in the contract.  Both were signatories to the contract.  And the contract specified that the contractor agreed it was performing work on behalf of two separate owners, even though the contractor was performing separate scopes of work on behalf of the tenant and the landlord.

A metal stud and drywall subcontractor was not paid for work it performed and recorded a construction lien.  The lien attached to the landlord’s interest in the real property.  The landlord argued that this was improper – the lien should only attach to the leasehold interest under s. 713.10 (and, while not discussed, it seemed like there was a lease that prohibited such liability against the landlord’s property interest).  The trial court agreed with the landlord ruling the lien did not apply to the landlord’s real property interest.

The Third District Court of Appeal reversed the trial court: “[W]e agree with [the subcontractor] that the exception to lien liability for property owners who record a lease which prohibits such liability does not apply under the circumstances presented here [where the lessor is a party and signatory to the contract].”   K.D. Construction, supra, at *2 (string citing numerous cases relating to a landlord’s liability, or lack thereof, for tenant improvements).

Even though the landlord may have dotted certain i’s and crossed certain t’s, it was a party to a construction contract that included obligations as the owner to pay, and certain scopes were performed on behalf of the landlord.  In reality, the landlord would have been better suited not making itself a party to the contract.   Or, at a minimum, the landlord should have had a separate contract for the separate work that was being performed for it so that liens would attach relative to that work, but not all of the work being performed.

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.

 

EQUITABLE LIEN DESIGNED TO PREVENT UNJUST ENRICHMENT

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There are instances where a party does not have construction lien rights but, nevertheless, feels the need to pursue an equitable lien against the real property.

No different than a construction lien, an action to enforce an equitable lien has a one-year limitations period if it arises from the “furnishing of labor, services, or material for the improvement of real property.”  Fla. Stat. s. 95.11(5)(b).  In other words, an equitable lien–not nearly as powerful as a construction lien because a construction lien is recorded in the official public records whereas an equitable lien is not–is tied to an analogous one-year limitations period for those liening for construction improvements.  (Notably, if the equitable lien arises outside of the construction improvement context, the one-year statute of limitations would not apply.  See Gabriji, LLC v. Hollywood East, LLC, 45 Fla. L. Weekly D2251a (Fla. 4th DCA 2020) (one-year statute of limitations period does not apply to all equitable liens such as those that do not arise from furnishing labor, services, or material for the improvement of real property)).

An equitable lien is designed to prevent unjust enrichment when there is no adequate remedy at law although it is a completely separate cause of action than a cause of action for unjust enrichment.  Gabriji, supra.   An equitable lien:

[I]s “ ‘a right granted by a court of equity, arising by reason of the conduct of the parties affected which would entitle one party as a matter of equity to proceed against’ certain property.”  “Such a lien ‘may be declared by a court of equity out of general considerations of right and justice as applied to the relations of the parties and the circumstances of their dealings.’ ” 

Gabriji, supra (internal citations omitted).

However, importantly, there is also law that supports that a claim for an equitable lien must be supported by “evidence of fraud, misrepresentation, or other affirmative deception.”  Wal-Mart Stores, Inc. v. Ewell Industries, Inc., 694 So.2d  756, 757 (Fla. 1st DCA 1997); Gordon v. Flamingo Holding Partnership, 624 So.2d 294, 297 (Fla. 3d DCA 1993).  Such evidence will likely be needed to support an equitable lien in a construction context which is pursued because a party did not properly perfect construction lien or payment bond rights.  An equitable lien may be an appropriate cause of action in certain instances as an argument to pursue recourse for non-payment where the cause of action is designed to foreclose a lien based on equity–not a statute or written instrument.

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.

 

DON’T DO THIS WHEN IT COMES TO CONSTRUCTION LIENS

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When it comes to preparing and recording a construction lien, this case is an example of what NOT TO DO!   I mean it — this exemplifies what NOT TO DO!  It is also a case study of why a party should always work with counsel in preparing a construction lien so that you can avoid the outcome in this case–your lien being deemed fraudulent.

In Witters Contracting Company v. West, 2020 WL 4030845 (Fla. 2d DCA 2020), homeowners hired a contractor to renovate their home under a cost-plus arrangement where the contractor was entitled to a 10% fee on construction costs.  The contract also required extra work to be agreed in writing between the owner and contractor.

During construction a dispute arose.  The contractor texted the owner that it will cancel the permit and record a $100,000 construction lien if the owner did not pay it $30,000.   Shortly thereafter, the contractor’s counsel sent the homeowners a demand for $59,706 with back-up documentation.  Less than a week later, the contractor recorded a construction lien for $75,000.  The owners initiated a lawsuit against the contractor that included a claim for fraudulent lien.  The contractor then amended its construction lien for $87,239.

The trial court found that the contractor’s claim of lien was fraudulent because it was compiled “with such gross negligence as to the amount claims therein to constitute willful exaggerations.”   A trial was held on damages and $87,239 was awarded as punitive damages against the contractor, plus attorney’s fees and costs, all of which were permissible when a lien is deemed to be a fraudulent lien.

Think about it.  The contractor asked for $30,000 under the threat it will record a $100,000 lien.  It then sent a demand letter for $59,706.  Then it recorded a construction lien for $75,000.  Then it amended the construction lien to $87,239.  This was all in a very short time period.  And, this is likely why the lien was deemed to have been compiled with such gross negligence as the contractor, evidently, had no clue what he was owed under the cost-plus contract or, if he did, he went about it incorrectly.  It is possible the contractor was owed something, but the manner in which he went about it created the wrong perception.  It is unclear whether his counsel was involved in preparing the lien or why the lien was different from the amount in the demand letter sent by counsel.  Nevertheless, clearly, this is the perception you want to avoid and why working with counsel in preparing a lien is vital.

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.