DON’T FORGET TO TIMELY FORECLOSE THE CONSTRUCITON LIEN IN COURT!

Posted on May 22, 2014May 22, 2014 by Edward Garber

A Notice of Contest of Lien under Florida Statute s. 713.22 is a vehicle that will shorten the statute of limitations for a lienor to foreclose on a recorded construction lien from one year to 60 days from the date the lien is contested. A copy of a Notice of Contest of Lien is identified below. An unwary lienor that fails to timely foreclose on its claim of lien in court will be deprived of its lien rights!

The recent decision in Snell v. Mott’s Contracting Services, Inc., 39 Fla. L. Weekly D1053a (Fla. 2d DCA), illustrates such an unwary lienor. In this case, a contractor recorded a claim of lien on a residential project. The owner then filed a lawsuit against the contractor and the contractor moved to dismiss or stay the action based on an arbitration provision in the contract. The owner then filed a Notice of Contest of Lien to shorten the contractor’s statute of limitations to foreclose on the lien to 60 days. The contractor, however, never moved to foreclose its lien in court; the court compelled the dispute to arbitration.

The contractor prevailed in arbitration and the arbitrator found that the contractor was the prevailing party under Florida Statute s. 713.29 that entitles a prevailing party in a lien action to its attorney’s fees (i.e., a party that prevails on the significant issues in the action).

However, the two issues on appeal were: (1) whether the contractor could be entitled to its attorney’s fees under s. 713.29 when it failed to timely foreclose on its lien in court after it received the Notice of Contest of Lien and (2) whether the arbitrator, absent express agreement of the parties, had authority to determine entitlement to attorney’s fees.

As it pertains to the first issue, the Second District found that because the contractor failed to comply with s. 713.22 by foreclosing on its lien in court within 60 days after the lien was contested, the contractor was not entitled to attorney’s fees pursuant to s. 713.29. Stated simpler, the contractor was not entitled to attorney’s fees because it no longer had lien rights since it failed to timely foreclose on its lien in court within 60 days after the lien was contested by the owner.

As it pertains to the second issue, the Second District found that an arbitrator has no authority / jurisdiction to determine a party’s entitlement to attorney’s fees unless the parties to the arbitration expressly waive the right to have a court determine entitlement.

This cases raises a few important points:

Even if there is an arbitration provision in a contract, it is still imperative that a lien foreclose action be filed in court! File the lien action and simultaneously move to stay the lien foreclosure action pending the arbitration.

If you receive a Notice of Contest of Lien, do not forget that it operates to shorten the statute of limitations to foreclose on the lien to 60 days. Otherwise, the lien will not be enforceable.

If you want an arbitrator to determine the entitlement to attorney’s fees, it is good practice to ensure that the parties to arbitration expressly agree to grant the arbitrator this authority and waive the court’s authority to determine entitlement.

NOTICE OF CONTEST OF LIEN

To: (Name and address of lienor)

You are notified that the undersigned contests the claim of lien filed by you on ___, (year) , and recorded in ___ Book ___, Page ___, of the public records of ___ County, Florida, and that the time within which you may file suit to enforce your lien is limited to 60 days from the date of service of this notice. This ___ day of ___, (year) .

Signed: (Owner or Attorney)

For more information on Notice of Contests of Lien, please see: https://floridaconstru.wpengine.com/oh-no-a-lien-is-recorded-what-are-some-of-my-options/.

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.

OH NO! A LIEN IS RECORDED! WHAT ARE SOME OF MY OPTIONS?

Posted on April 11, 2014April 11, 2014 by Edward Garber

You are an owner and a construction lien is recorded on your property. Or, you are a general contractor required to indemnify the owner for construction liens and a subcontractor you are in a dispute with records a construction lien (or one of the subcontractor’s suppliers or subcontractors records a lien). What are your options (other than paying the lienor in consideration of a satisfaction of lien) to extinguish the lien or transfer that lien to another form of security other than the real property?

(1) Notice of Contest of Lien – This is an efficient, cost effective strategy that I oftentimes prefer to use to truly determine whether a lienor (entity that recorded lien) actually intends on foreclosing on the lien. Recording a Notice of Contest of Lien pursuant to Florida Statute s. 713.22 shortens the statute of limitations to foreclose on the lien to 60 days after service of the Notice; if the lienor neglects to do so, the lien is extinguished. (A construction lien is otherwise good for one year from its recording.) Section 713.22 provides that an owner or an owner’s attorney can record a Notice of Contest of Lien in the official records (same official records where the lien is recorded). The Notice is a statutory form (see form below). Once it is recorded, the clerk serves it on the lienor at the address in the lien putting the lienor on notice that it must foreclose within 60 days. Notably, because the statute says an owner or owner’s attorney should record this, if representing the general contractor, I typically suggest that the general contractor get the owner to sign the Notice (or, get the owner’s permission that it is acceptable for the general contractor to sign as a representative for purposes of the Notice).

(2) Filing a Lawsuit to Show Cause – Another approach to shorten a lienor’s statute of limitation to foreclose on the lien is to file a complaint pursuant to Florida Statute s. 713.21 where the clerk issues a special summons “to the lienor to show cause within 20 days why his or her lien should not be enforced by action or vacated and canceled of record.” Fla. Stat. s. 713.21. Any interested party can file this lawsuit and the lawsuit is typically accompanied with a fraudulent lien claim against the lienor. When a lienor receives this lawsuit, it MUST foreclose on its lien within 20 days from service or else its lien should be discharged by the court. However, this requires drafting of the lawsuit and the special show cause summons, filing the lawsuit, and serving the lawsuit, so it certainly is not as cost effective as the first option. Also, sometimes, by the time the lawsuit is drafted, filed, and served, the 20 day show cause period would be pretty close to the expiration of the 60 days if the Notice of Contest of Lien was recorded. Every situation is different and there are circumstances where filing this lawsuit is a more attractive option than recording the Notice of Contest of Lien.

(3) Transferring the Lien to Alternative Security such as a Lien Transfer Bond – Sometimes, an owner needs the lien off of its property immediately and wants the lien transferred from the real property to alternative security such as a lien transfer bond. This is done pursuant to Florida Statute s. 713.24 where cash or a surety bond is posted with the court “in an amount equal to the amount demanded in such claim of lien, plus interest thereon at the legal rate for 3 years, plus $1,000 or 25 percent of the amount demanded in the claim of lien, whichever is greater, to apply on any attorney’s fees and court costs that may be taxed in any proceeding to enforce said lien.” Fla.Stat. s. 713.24. Typically, no one wants to post and tie up cash in the amount of the lien, plus 3 years of interest, plus another 25% of that lien amount to cover potential fees/costs. And, obtaining a surety bond is not always easy without posting collateral or cash to the surety, etc., so that the surety’s risk in posting the bond in the event the lienor prevails is mitigated. Now, a lien can be transferred to a lien transfer bond at any time including during the pendency of a lawsuit. For example, let’s say you elect option (1) or (2) above and the lienor does timely foreclose on the lien; the option of transferring the lien is still available. The major difference is that if a lien foreclosure lawsuit is underway and the lien transferred to a bond (or cash), the lienor has one year from the date of the transfer to amend its lawsuit to assert a claim against the bond. If the lien is transferred before the lien foreclosure lawsuit, then the one year to foreclose on the lien from the date the lien is recorded still applies.

An attorney should be consulted to assist you to determine the best option and strategy for you if a lien is recorded based on your circumstances.

NOTICE OF CONTEST OF LIEN

To: (Name and address of lienor)

Signed: (Owner or Attorney)

LEGAL COMPLEXITIES WHEN THERE IS A FAILED PROJECT

Posted on November 28, 2013November 28, 2013 by Edward Garber

Iberiabank v. Coconut 41, LLC, 2013 WL 6061833 (M.D.Fla. 2013) is a new case involving a failed mixed-use master development (subdivision) that illustrates some of the complexities when a construction project goes bad. It is a great case discussing aspects of Florida’s Lien Law (such as liens for subdivision improvements, single claim of lien, fraudulent liens) that are important for all construction participants. It is also a great case that discusses an unjust enrichment claim for unpaid work and a slander of title claim due to a fraudulently recorded lien. While the facts and issues are lengthy, there are numerous take-aways from this case that should not be ignored and are pointed out at the end of this article.

I. The Failed Development

In this case, a developer purchased approximately 46 acres of land. The land was intended to be developed into a master development. The developer sold approximately 14 acres referred to Development Area 2 to HG Coconut. The developer was responsible for installing the necessary infrastructure outside of Development Area 2 that would be required to develop both the developer’s land and Development Area 2. (This included, among other things, widening a road and sanitary-sewer work.)

To construct the infrastructure, the developer hired a heavy civil contractor. Two contracts were executed. The first contract was for on-site infrastructure improvements to the developer’s land. The second contract was for off-site infrastructure improvements such as the infrastructure improvements needed to develop Development Area 2. (There was no contract between the contractor and HG Coconut, the owner of Development Area 2.)

Because of nonpayment, the contractor recorded a single claim of lien. The lien included Development Area 2 (owned by HG Coconut). Remember, the contractor did not have a contract with the owner of Development Area 2.

II. Claims against HG Coconut – the Owner of Development Area 2 – and HG Coconut’s Claims against the Contractor

The contractor filed a lawsuit and asserted an unjust enrichment claim and lien foreclosure claim against HG Coconut–the owner of Development Area 2. HG Coconut asserted a fraudulent lien claim and slander of title claim against the contractor.

A. Unjust Enrichment

The contractor contended that it benefited HG Coconut (a party it did not have a contract with) through infrastructure work it performed that provided value to Development Area 2. HG Coconut argued that the unjust enrichment claim should be barred because the contractor’s work was incomplete—it did not finish all of its work. The Middle District dismissed this argument equating recovery under an unjust enrichment theory to that of recovery when a contractor substantially performs. When a contractor substantially performs / completes its work, it is entitled to the full contract price minus the owner’s right to recover damages due to the contractor’s failure to render full performance. Since the contractor substantially completed its work subject to the unjust enrichment claim that provided a benefit to Development Area 2, the Middle District held that the contractor was entitled to the fair market value of the work minus HG Coconut’s offset for the remaining work.

B. Lien Foreclosure and Fraudulent Lien

The contractor argued that it was not paid for work performed under its off-site contract (the infrastructure work outside of developer’s land that was also needed to develop HG Coconut’s Development Area 2). HG Coconut asserted an affirmative claim against the contractor arguing that the contractor recorded a fraudulent lien.

The Middle District entered judgment against the contractor on its lien foreclosure claim. The fraudulent lien claim asserted by HG Coconut establishes the problems under Florida’s Lien Law with the contractor recording a lien that included Development Area 2.

Contractor’s performing subdivision improvements are entitled to certain protections under Florida’s Lien Law. Florida Statute s. 713.04(1) provides:

“Any lienor who, regardless of privity, performs services or furnishes material to real property for the purpose of making it suitable as the site for the construction of an improvement or improvements shall be entitled to a lien on the real property for any money that is owed to her or him for her or his services or materials furnished in accordance with her or his contract and the direct contract. The total amount of liens allowed under this section shall not exceed the amount of the direct contract under which the lienor furnishes labor, materials, or services. The work of making real property suitable as the site of an improvement shall include but shall not be limited to the grading, leveling, excavating, and filling of land, including the furnishing of fill soil; the grading and paving of streets, curbs, and sidewalks; the construction of ditches and other area drainage facilities; the laying of pipes and conduits for water, gas, electric, sewage, and drainage purposes; and the construction of canals and shall also include the altering, repairing, and redoing of all these things. When the services or materials are placed on land dedicated to public use and are furnished under contract with the owner of the abutting land, the cost of the services and materials, if unpaid, may be the basis for a lien upon the abutting land. When the services or materials are placed upon land under contract with the owner of the land who subsequently dedicates parts of the land to public use, the person furnishing the services or materials placed upon the dedicated land shall be entitled to a lien upon the land abutting the dedicated land for the unpaid cost of the services and materials placed upon the dedicated land, or in the case of improvements that serve or benefit real property that is divided by the improvements, to a lien upon each abutting part for the equitable part of the full amount due and owing. If the part of the cost to be borne by each parcel of the land subject to the same lien is not specified in the contract, it shall be prorated equitably among the parcels served or benefited. No lien under this section shall be acquired until a claim of lien is recorded. No notice of commencement shall be filed for liens under this section. No lienor shall be required to serve a notice to owner for liens under this section.”

However, just because a contractor performing subdivision improvements has certain lien rights, does not mean it can record a fraudulent lien. A fraudulent lien is defined in Florida Statute s. 713.31(2)(a):

“Any lien asserted under this part in which the lienor has willfully exaggerated the amount for which such lien is claimed or in which the lienor has willfully included a claim for work not performed upon or materials not furnished for the property upon which he or she seeks to impress such lien or in which the lienor has compiled his or her claim with such willful and gross negligence as to amount to a willful exaggeration shall be deemed a fraudulent lien.”

If a lien is deemed fraudulent, it is unenforceable. Fla.Stat. s. 713.31(2)(b). Additionally, an owner (or contractor, subcontractor, etc. that suffers damage from a fraudulent lien) can assert a claim for damages against the lienor for recording the fraudulent lien:

“An owner against whose interest in real property a fraudulent lien is filed, or any contractor, subcontractor, or sub-subcontractor who suffers damages as a result of the filing of the fraudulent lien, shall have a right of action for damages occasioned thereby. The action may be instituted independently of any other action, or in connection with a summons to show cause under s. 713.21, or as a counterclaim or cross-claim to any action to enforce or to determine the validity of the lien. The prevailing party in an action under this paragraph may recover reasonable attorney’s fees and costs. If the lienor who files a fraudulent lien is not the prevailing party, the lienor shall be liable to the owner or the defrauded party who prevails in an action under this subsection in damages, which shall include court costs, clerk’s fees, a reasonable attorney’s fee and costs for services in securing the discharge of the lien, the amount of any premium for a bond given to obtain the discharge of the lien, interest on any money deposited for the purpose of discharging the lien, and punitive damages in an amount not exceeding the difference between the amount claimed by the lienor to be due or to become due and the amount actually due or to become due.”

Fla.Stat. 713.31(2)(c).

A lien will be fraudulent if it contains willfully exaggerated amounts which can include liening for amounts that are NOT properly lienable. See Coconut 41, supra, at *15. This is why it is imperative to consult an attorney before recording a claim of lien! Not spending the due diligence in advising an attorney of the facts and the accounting comprising the amount you want to lien for can result in a fraudulent lien. Also, because a fraudulent lien contains a willful exaggeration of amounts, the lienor’s consultation with its lawyer is a factor a court can consider to determine that there was no willful exaggeration. Id. “[A] lienor can rely on consultation with counsel prior to filing the claim of lien as evidence of good faith only in the event of a full and complete disclosure of the pertinent facts to the attorney from whom the advice is sought before the lienor acts on the advice. Consultation with an attorney is not entitled to any legal weight if the contractor did not disclose all pertinent facts to the attorney.” Id. quoting Sharrard v. Ligon, 892 So.2d 1092, 1097 (Fla. 2d DCA 2004). Notably, this means that if a lienor is using this defense to counteract a fraudulent lien claim /defense, certain discussions with counsel must be waived to establish the consultation and advice to show the lien and amount was recorded and compiled in good faith.

Here, the contractor recorded a single claim of lien that included Development Area 2. However, the entire lien amount did NOT pertain to infrastructure improving Development Area 2.

The Middle District pointed out that a single claim of lien was not proper because the property liened was owned by different owners. Florida Statute s. 713.09 discusses the concept of a single claim of lien:

“A lienor is required to record only one claim of lien covering his or her entire demand against the real property when the amount demanded is for labor or services or material furnished for more than one improvement under the same direct contract. The single claim of lien is sufficient even though the improvement is for one or more improvements located on separate lots, parcels, or tracts of land. If materials to be used on one or more improvements on separate lots, parcels, or tracts of land under one direct contract are delivered by a lienor to a place designated by the person with whom the materialman contracted, other than the site of the improvement, the delivery to the place designated is prima facie evidence of delivery to the site of the improvement and incorporation in the improvement. The single claim of lien may be limited to a part of multiple lots, parcels, or tracts of land and their improvements or may cover all of the lots, parcels, or tracts of land and improvements. In each claim of lien under this section, the owner under the direct contract must be the same person for all lots, parcels, or tracts of land against which a single claim of lien is recorded.”

For this reason, the Middle District found that the lien was willfully exaggerated. In other words, the contractor acknowledged that of its approximate $195,000 lien, the pro-rata share for work done on Development Area 2 was only approximately $61,000; thus, there was an exaggeration of over $100,000 in the lien that covered Development Area 2. “The Claim of Lien was for the total amount owing for offsite work even though Westwind Contracting knew that only a substantially lesser amount was apportionable to HG Coconut.” Coconut 41, supra, at *16. Although the contractor tried to counteract the fraudulent lien by testifying that it provided its counsel with certain information, there was no testimony that it advised counsel that the lien it wanted recorded included land owned by someone other than the entity that hired it.

Now, even though the lien was deemed unenforceable, HG Coconut still needed to prove its damages due to the fraudulent lien. The Middle District, however, found that HG Coconut failed to prove such damages. Remember, the damages are included in Section 713.21: “court costs, clerk’s fees, a reasonable attorney’s fee and costs for services in securing the discharge of the lien, the amount of any premium for a bond given to obtain the discharge of the lien, interest on any money deposited for the purpose of discharging the lien, and punitive damages in an amount not exceeding the difference between the amount claimed by the lienor to be due or to become due and the amount actually due or to become due.” HG Coconut did NOT put any evidence of the court costs, reasonable attorneys’ fees, bond premium, or punitive damages.

C. Slander of Title

In addition to asserting an affirmative claim for fraudulent lien, HG Coconut also asserted a claim against the contractor for slander of title based on the lien. This is a common claim when a party believes a lien was improperly recorded against their property. The elements of slander of title in Florida are: 1) a falsehood, 2) that has been published or communicated to a third party, 3) the defendant knew or should have known the falsehood would result in inducing others not to deal with the plaintiff, 4) the falsehood does result in others not dealing with the plaintiff, and 5) actual and/or special damages (inclusive of attorneys’ fees) are proximately caused by the falsehood. Coconut 41, supra, at *17 quoting McAllister v. Breakers Seville Ass’n, Inc., 981 So.2d 566, 574 (Fla. 4th DCA 2008). However, even if all of the elements above are proven, a defense to slander of title is good faith. Coconut 41, supra, at *18. This defense is important because good faith raises a privilege and shifts the burden to the plaintiff asserting the claim to prove actual malice in order to recover under a slander of title theory of liability. Id. quoting McAllister v. Breakers Seville Ass’n, Inc., 981 So.2d 566, 574 (Fla. 4th DCA 2008).

Here, the court did not need to delve into whether there was actual malice because HG Coconut did not prove the elements of slander of title. In particular, there was no evidence that the lien caused or induced anyone not to deal with HG Coconut or that the contractor should have known the lien would have that effect. Further, there was no evidence that HG Coconut incurred any actual and/or special damages caused by the lien. While HG Coconut clearly incurred attorneys’ fees, it did not put on any evidence as to the amount of fees it incurred.

III. Important Take-Aways

Below are important points to take-away from this case:

Unjust enrichment is a claim that can be asserted if a contractor is not in contractual privity with the owner of the land and work was knowingly performed that conferred a benefit to the owner’s land
An owner can offset damages in an unjust enrichment claim by asserting as a defense that the work was incomplete/ the contractor failed to fully perform its work
A notice to owner is not required for subdivision improvements
If a lien for subdivision improvements includes multiple parcels of land, it shall be prorated among the parcels (if not otherwise stated in the contract)
A single claim of lien can cover different land/ parcels if the owner is the same person
If there are multiple contracts, there should be separate liens for each contract (even if with the same owner)
A fraudulent lien includes a willful exaggeration and can include amounts not properly lienable
A party asserting a fraudulent lien needs to present evidence of its damages: attorneys’ fees, court costs, bond transfer costs, punitive damages, etc. to be entitled to damages due to the fraudulent lien
Consultation will a lawyer is a defense to a fraudulent lien but all of the important communications with the lawyer regarding the formation and compilation of the lien must be waived and must come into evidence to establish the good faith basis of the lien and lien amount
Slander of title is a difficult claim to prove based on a construction lien; the plaintiff must show defendant knew the lien would result in third parties not dealing with the plaintiff and, in fact, third parties did not deal with plaintiff because of the lien
A plaintiff in a slander of title action must prove its actual and/or special damages and special damages can include attorneys’ fees
A defendant in a slander of title action should assert good faith as a defense which would shift the burden to the plaintiff to prove actual malice

For more information on fraudulent liens and slander of title, please see: https://floridaconstru.wpengine.com/owners-defending-a-lien-especially-a-patently-fraudulent-lien/

For more information on liens and lienable items/ amounts, please see: https://floridaconstru.wpengine.com/the-final-furnishing-date-and-lienable-amounts-for-construction-liens-decided-on-a-case-by-case-basis/

For more information on unjust enrichment theories, please see: https://floridaconstru.wpengine.com/subcontractors-and-unjust-enrichment-claims/

and

https://floridaconstru.wpengine.com/the-reality-when-the-construction-lender-forecloses/

MAKE SURE CONSTRUCTION LIENS ARE PROPERLY PREPARED AND DO NOT CONTAIN ERRORS

Posted on September 29, 2013September 29, 2013 by Edward Garber

If a construction lien is improperly filed or contains errors, an owner will try to capitalize on the improper filing or errors in order to get the lien discharged from his property. This is what an owner should do, although he should not lose sight over the difference between a ministerial error in the lien that you do not bank your entire defense on versus a truly substantive error under Florida’s Lien Law that could give the owner leverage in the dispute (e.g., not recording the claim of lien within 90 days from final furnishing, a subcontractor/supplier not serving a notice to owner, a lien from an unlicensed contractor, or a lien that includes improper amounts for nonlienable items).

The recent case of Premier Finishes, Inc. v. Maggirias, 2013 WL 5338052 (Fla. 2d DCA 2013), illustrates an error in a lien (that appears ministerial at first glance) that resulted in the lien being discharged by the trial court. However, although not discussed in the opinion, this case addresses much more than an error in a lien, but an interesting licensing issue.

In this case, a contractor was engaged to build a house. The contractor entered into the contract under a fictitious name. However, from reviewing the case, it does not appear that the fictitious name was a registered fictitious name, nor does it appear that the fictitious name was registered as a licensed contractor. Rather, it was simply an acronym used by the licensed contractor.

A payment dispute arose when the owner terminated the contractor, and the contractor recorded a claim of lien and moved to foreclose the lien. However, the lien was recorded and lawsuit initiated by the contractor and not the fictitious name that entered into the contract. The owner argued that the contractor was not a proper lienor and therefore the lien should be discharged because it was not the entity that actually entered into the contract. The trial court agreed.

On appeal through a petition for a writ of certiorari, the Second District reversed for two main reasons.

First, the Court held that a contract entered into under a fictitious name is enforceable (even if that fictitious name is not properly registered). See Fla. Stat. 869.09(9). The Court explained: “[I]f Premier Finishes [contractor] was the real entity using the fictitious name when entering into the contract, it is the actual party to the contract or the contractor…and is entitled to proceed with a claim of lien against the Owner.” Premier Finishes, 2013 WL 5338052 at *3.

Second, under Florida’s Lien Law, a ministerial error does not invalidate a lien unless the owner can show he was prejudiced by the error. See Fla. Stat. 713.08(4). The owner will have to show how he was adversely affected / prejudiced by the error, which would require an evidentiary hearing and can be quite challenging to prove.

Now, what is interesting about this case is whether there was any argument that the lien should be unenforceable because the fictitious entity that signed the contract was an unlicensed contractor (assuming this is the case). Under Florida Statute s. 489.128, contracts entered into by an unlicensed contractor are unenforceable in law or in equity by the unlicensed contractor. Thus, an unlicensed contractor cannot properly lien. Instead of the focus being on the error in the lien due to the lien being recorded by the contractor instead of the fictitious entity, the argument could center on the fact that the contract was entered into by an unlicensed contractor and, therefore, the contract and corresponding lien are not enforceable. Perhaps, the owner plans on raising this argument to establish prejudice.

While the contractor can certainly raise arguments to address the fact that the fictitious name is properly licensed since the contractor that owns the fictitious name is properly licensed, a contractor that is required to be licensed by the state (e.g., general contractor, mechanical contractor, electrical contractor, plumbing contractor, etc.) is technically supposed to register and identify the fictitious name it is doing business under. See Fla. Stat. 489.119. Although, notably, there is an older case, Martin Daytona Corp. v. Strickland Const. Services, 881 So.2d 686 (Fla. 5th DCA 2004), that held that a subcontractor’s failure to obtain a license under its fictitious name did not render the contract unenforceable. However, this case was decided under a previous version of Florida Statute s. 489.128 and, importantly, the current version of this statute likely would not have applied to this case since the subcontractor (a mason) is not required to obtain a state license like a general contractor. It is uncertain how this case would be decided under current law.

The key is to double check your liens to ensure they are accurate and do not contain errors. Naturally, it is always a good thing to work with an attorney to prepare your lien so that if you know that if an error will likely exist you can game plan accordingly. For example, if you entered into contracts in the name of an unregistered fictitious name, the decision in Premier Finishes can support your argument that the fictitious name would not render the contract or lien unenforceable especially if the fictious name is used by a properly licensed contractor. Also, contractors needs to be sure they maintain proper licenses to remove any argument that the contract or lien is unenforceable. Keep in mind that under the law, a contract with an unlicensed contractor is unenforceable one-way by the unlicensed contractor; the other party to the contract can still seek recourse.

CONDO ASSOCIATIONS AND CONSTRUCTION LIENS

Posted on September 20, 2013September 20, 2013 by Edward Garber

Condominium associations hire contractors for capital improvements and repair / restoration work to common elements (painting, balcony/concrete/stucco restoration or repairs, etc.). When a condominium association hires a contractor to provide labor, services, or materials to the condominium, it needs to understand that nonpayment can lead to the contractor liening–recording a construction lien–the condominium units in the condominium.

Florida Statute s. 718.121(2) maintains: “Labor performed on or materials furnished to the common elements are not the basis for a lien on the common elements, but if authorized by the association, the labor or materials are deemed to be performed or furnished with the express consent of each unit owner and may be the basis for the filing of a lien against all condominium parcels in the proportions for which the owners are liable for common expenses.”

Furthermore, s. 718.121(3) maintains: “If a lien against two or more condominium parcels becomes effective, each owner may relieve his or her condominium parcel of the lien by exercising any of the rights of a property owner under Chapter 713 [Florida’s Lien Law], or by payment of the proportionate amount attributable to his or her condominium parcel. Upon payment, the lienor shall release the lien of record for that condominium parcel.”

Now, what does this mean? First, it means that when an association hires a contractor to perform construction-related work, the work is deemed authorized by all unit owners. Second, it means that because all unit owners are deemed to consent to the work, the contractor, if unpaid, can lien each condominium parcel / unit. Third, it means that the lien against each unit will be in the proportionate amount that the owner is liable for common expenses. And, last, it means that each owner has options to discharge the lien from his/her condominium unit- the owner can pay his/her proportionate share to discharge the lien or the owner can transfer the lien to a bond or other security.

If a contractor is not paid by the association and elects to lien and move forward with a lien foreclosure lawsuit, the contractor is not required to sue each individual owner. Rather, the contractor can simply sue the association since the association is deemed to represent the unit owners’ interests. See Trintec Construction, Inc. v. Countryside Village Condominium Association, Inc., 992 So.2d 277 (Fla. 3d DCA 2008) (finding that unpaid roofing contractor that filed lien foreclosure action against association was not required to join all of the unit owners in the action); Four Jay’s Construction, Inc. v. Marina at the Bluffs Condominium Association, Inc., 846 So.2d 555 (Fla. 4th DCA 2003) (finding that balcony contractor properly sued the association in breach of contract action as a class representative on behalf of the owners).

Contractors that are hired by associations need to understand their lien rights in the event of nonpayment. And, associations that hire contractors need to understand their options in the event they are involved in a payment dispute with a contractor so that owners can be best advised.

LIEN TRANSFER BONDS AND VENUE

Posted on August 12, 2013August 12, 2013 by Edward Garber

The Fourth District Court of Appeals in Attaway Electric, Inc. v. Kelsey Construction, Inc., 38 Fla. L. Weekly D1693a (Fla. 4th DCA 2013) recently ruled that an action on a lien transfer bond (posted pursuant to Fla. Stat. s. 713.24 in the county where the project is located and lien recorded) needs to be initiated in the county where the bond is recorded. This means that even if there is a contract between the parties that requires a different venue outside of where the lien transfer bond is posted, that venue provision will not be enforced so that an action as to the lien transfer bond and an action under the contract can both be brought in the same county, i.e., where the lien transfer bond is posted.
In Attaway Electric, a subcontractor recorded liens for alleged nonpayment on Broward County projects with the same general contractor. The liens were transferred to lien transfer bonds by the general contractor. The subcontractor moved to foreclose the liens in Broward County and also sued the general contractor for breach of contract. The general contractor then moved to transfer venue to Orange County pursuant to a forum selection provision in the subcontract. The trial court granted the motion and transferred venue. The Fourth District, however, reversed finding that an action on a lien transfer bond must be brought in the county where it is recorded and “contract claims involving the same matters should be brought in the same place to avoid inconsistent rulings.” Attaway Electric.

This recent decision is important because contractors that want to obtain the benefit of a forum selection provision in a subcontract probably need to have a payment bond and ensure in the subcontract that the forum selection provision covers claims as to the payment bond surety. If there is no payment bond, specifically for a private project, a subcontractor can lien the private project for monies owed. If the general contractor (or even perhaps the owner) then transfers the lien to a lien transfer bond, the subcontractor will be able to foreclose the lien as to the lien transfer bond in the county where the bond is recorded as well as pursue a breach of contract claim against the contractor in the same county, even if the subcontract contains a forum selection provision with a different venue.

PRESERVING CONSTRUCTION LIEN RIGHTS BY SERVING A NOTICE TO OWNER

Posted on April 23, 2013April 23, 2013 by Edward Garber

Entities such as subcontractors and suppliers that are not in privity of contract with the owner are required to serve a notice to owner in order to perfect their construction lien rights. See Fla. Stat. 713.06. Not timely serving a notice to owner can be fatal to a lien foreclosure action by an entity that is not in privity of contract with an owner.

The case of Marble Unlimited, Inc. v. Weston Real Estate Investment Corp., 38 Fla. L. Weekly D686b (4th DCA 2013) discusses notices to owners. In this case, a marble contractor contracted directly with the owner to install granite countertops in condominium units. (Due to the privity of contract, a notice to owner was not required.) The owner, at some point during construction, transferred its ownership of condominium units to a related entity. The issue was whether the marble contractor should have served a notice to owner on the “new” owner of the condominium units. The Fourth District said NO!, i.e., this would simply “allow corporate owners to play a shell game with ownership and frustrate the valid claims of contractors who complete work on real property.” Marble Unlimited.

Importantly, the Fourth District discussed cases when there is common ownership between the owner and the contractor. For example, let’s assume an owner and contractor, although maintain separate corporate names, have a common identity. The contractor then hires a subcontractor. In this situation, there is an argument that the subcontractor does not need to serve a notice to owner on the owner because no prejudice would exist to the owner that should be aware of the subcontractor based on its common identify with the entity that hired the subcontractor. See Marble Unlimited discussing Aetna Cas. & Surety Co. v. Buck, 594 So.2d 280 (Fla. 1992) and Boux v. East Hillsborough Apartments, Inc., 218 So.2d 202 (Fla. 2d DCA 1969).

In an abundance of caution, an entity not in privity with an owner should serve a notice to owner to preserve its lien rights as a matter of course, even when the owner and general contractor share a common identity / ownership. The entity should know prior to performing work whether they will have payment bond or lien rights in the event of nonpayment, and undertake actions to ensure they are preserving their rights from the get-go.

For more information on Notice to Owner, please see: https://floridaconstru.wpengine.com/contractors-and-suppliers-do-not-neglect-the-notice-requirements-in-floridas-lien-law/

FURTHER CONFUSION TO RECOVERING ATTORNEYS’ FEES IN A LIEN ACTION

Posted on November 23, 2012November 23, 2012 by Edward Garber

Recovering attorneys’ fees in a lien action is becoming more and more convoluted. Recent caselaw has made it more challenging for a party prevailing in a lien action to recover their attorneys’ fees. Now, the test to recover attorneys’ fees is the “significant issues test,” i.e., which party prevailed on the significant issues in the case. In other words, a party could win the lien action yet still not be entitled to recover their attorneys’ fees. Plus, the determination of the significant issues is in the discretion of the judge, meaning it is very difficult to predict whether a party will recover any attorney fees even if they prevail on the lien action.

The case of GMPF Framing, LLC v. Villages at Lake Lily Associates, LLC, 100 So.3d 243 (Fla. 5th DCA 2012), illustrates the challenges in recovering attorneys’ fees. In this case, a lienor recorded a claim of lien and filed a lien foreclosure action. However, instead of just suing to foreclose the lien, the lienor also sued for unjust enrichment and for an equitable lien (both counts which are difficult counts for a lienor / contractor to prevail on against an owner). The owner prevailed on the lien claim and the trial court awarded the owner attorneys’ fees. However, on appeal, the Fifth District Court of appeal reversed because it was undetermined which party won on the significant issues because the equitable lien and unjust enrichment claims remained pending even though the trial court discharged the lien. In particular, the Fifth District found that it is possible that the lienor could prevail on these remaining counts and be deemed the prevailing party by prevailing on the significant issues in the case.

This decision complicates how attorneys’ fees are awarded in a lien action and, to that end, which party will be deemed the prevailing party. A lien action is a statutory action that statutorily entitles a party to prevailing party attorneys‘ fees. See Fla.Stat. s. 713.29. The other counts in this lawsuit (unjust enrichment and equitable lien) have no statutory or contractual basis for attorneys‘ fees. Thus, they really should not factor in as to which party won on the significant issues of the lien action–the action that entitles a party to attorneys‘ fees. Unfortunately, this is not how the GMPF Framing Court ruled (nor does it appear to be how other Florida appellate courts will rule), which may have the undesirable effect of motivating lienors to sue on otherwise improper liens by simply coupling their lien claim with another claim and hope they are still able to prevail on the significant issues even if the lien claim is discharged.

TRANSFERRING A LIEN TO A LIEN TRANSFER BOND DURING A LIEN FORECLOSURE LAWSUIT

Posted on May 18, 2012May 18, 2012 by Edward Garber

When a construction lien is recorded, the lien can be transferred to a lien transfer bond (thereby removing the encumbrance or cloud on the property caused by the lien). The procedure to transfer a lien to a lien transfer bond is statutory in nature and governed under Florida Statute §713.24.

A lien does not necessarily have to be transferred to a bond immediately after the lien is recorded. Rather, an owner (or other person with interest in the property) can transfer the lien to a bond after the entity or person that recorded the lien (referred to as the “lienor”) files a lien foreclosure lawsuit. In this circumstance, it is important for the lienor to know that they must amend their lien foreclosure action to assert a claim against the lien transfer bond; otherwise, the lienor will essentially lose its lien rights. The lienor will not be able to foreclose the lien as to the property (because it was transferred to a bond) and the lienor will not be able to pursue its claim against the lien transfer bond.

This is exactly what happened in The Cool Guys, LLC d/b/a Paragon Indoor Air Quality v. Jomar Properties, LLC, 2012 WL 716084 (Fla. 4th DCA 2012). In this case, the lienor recorded a construction lien and filed a lien foreclosure lawsuit. While the lawsuit was pending, the owner transferred the lien to a lien transfer bond. Under Florida Statute §713.24, if a lien is transferred to a bond during the pendency of a lien foreclosure lawsuit, the lienor must commence an action against the lien transfer bond within 1 year after the transfer. The lienor in this case, however, did not amend its lawsuit to assert a claim against the lien transfer bond until two years after it was transferred. The owner moved for summary judgment arguing that the lienor could no longer assert a claim against the bond because it waited more than one year after the lien was transferred to the bond to assert its claim on the bond. The trial court agreed which was affirmed by Florida’s Fourth District Court of Appeal. Thus, the lienor was neither able to foreclose its lien on the property or the bond.

Therefore, as an owner, it is important to know that a construction lien recorded on your property can be transferred to a lien transfer bond immediately or during the course of a lien foreclosure lawsuit. As the lienor moving to forclose the lien, it is important to know that when a lien is transferred to a lien transfer bond, the recourse is against the bond and not the real property.

CONTRACTORS AND SUPPLIERS-DO NOT NEGLECT THE NOTICE REQUIREMENTS IN FLORIDA’S LIEN LAW

Posted on October 9, 2011October 9, 2011 by Edward Garber

Oftentimes, subcontractors, suppliers, and sub-subcontractors rely on companies to serve the statutory notices that are prerequisites to preserving a lien or bond claim under Florida’s Lien Law in the event of nonpayment. However, if these notices are not served in accordance with Florida’s Lien Law, the outcome could be injurious to the subcontractor, supplier, or sub-subcontractor. Stated differently, the outcome could mean a loss of lien or bond rights which may be the only true leverage the party has to secure payment.

The case of Stock Building Supply, Inc. v. Soares Da Costa Construction Services, LLC, 36 Fla. L. Weekly D2200a (Fla. 3d DCA 2011), illustrates the absolute importance of complying with the notice requirements in Florida’s Lien Law.

In this case, an owner hired a contractor to build a condominium. The contractor subcontracted with a structural shell subcontractor which, interestingly, held a 40% ownership interest in the contractor. The subcontractor engaged a supplier to provide rebar to the project. The contractor also engaged the same supplier to provide certain materials to the project. To graphically illustrate:

Contractor –> Shell Subcontractor –> Supplier

and

Contractor –> Supplier

Originally, there was no payment bond on the project. Therefore, once the supplier was engaged to provide materials, it served a statutory notice to owner on the contractor and the owner stating that it was supplying materials under an order given by the subcontractor. It served a second notice to owner on the contractor and owner stating it was supplying materials under an order given by contractor. (Notably, Florida Statute §713.06 requires lienors not in privity of contract with the owner to serve a notice to owner on the owner no later than 45 days after commencing services. The notice should also be served on anyone up the chain to the owner the lienor is not in privity of contract with, i.e., the sub-subcontractor or supplier to the subcontractor should serve the notice on the contractor too. This is a mandatory statutory notice if there is not a payment bond in place.)

Shortly after construction commenced, there was a funding problem that led to a halt in construction. The supplier recorded 2 claims of lien for nonpayment: one for nonpayment by the subcontractor and the other for nonpayment by the contractor.

The owner then paid the supplier and had the liens satisfied and recorded a notice of termination of the initial notice of commencement which is a procedure under Florida’s Lien Law that allows an owner to terminate a notice of commencement that accurately states that all lienors were paid in full. After the notice of commencement was terminated by law, the owner recorded a new notice of commencement that attached a payment bond, meaning the owner’s property was now exempt from all liens except that of the general contractor it hired. (One of the main reasons an owner would terminate a notice of commencement and record a new notice of commencement is so a construction lender financing construction can record a mortgage and maintain a first priority encumbrance on the property in the event the owner did not repay the loan.)

Once construction restarted, the supplier continued supplying rebar to the structural shell subcontractor. The supplier also continued to supply building materials to the contractor. However, for whatever reason, the company the supplier hired to serve the statutory notices served only one statutory notice to contractor stating that the supplier was supplying building materials under an order given by the contractor. Unlike the notice to owner mentioned above, when there is a payment bond in place, lienors not in privity of contract with the contractor must serve a notice on the contractor stating that they intend to look to the contractor’s payment bond for payment. In other words, the supplier was required to serve a notice on the contractor that it was supplying materials under an order given by the subcontractor, but it really wasn’t required to serve the same notice for the supplies it was providing under an order given by the contractor.

The point or objective of the notices is so the owner, in a situation without a payment bond, and a contractor, in a situation with a payment bond, know specifically who is performing work on the project to ensure these entities get paid. The reason why a contractor doesn’t need to serve a notice to owner (when there is no bond) or a subcontractor doesn’t need to serve a notice on the contractor (when there is a payment bond) is because the owner or contractor in these situations know the entities it hired to ensure these entities get paid.

Although the contractor paid the structural shell subcontractor for the rebar, the subcontractor did not pay the supplier. The supplier then served a notice of nonpayment on the payment bond surety (another prerequisite to suing on a general contractor’s payment bond) and filed suit.

The main issue in this case was whether the supplier had properly preserved a payment bond claim for the rebar it supplied to the subcontractor that it was not paid for by virtue of its neglect in serving the proper notice on the contractor that it was supplying rebar under an order given by the subcontractor. The trial court concluded that the supplier could NOT pursue a payment bond claim because it failed to serve this notice. The Third District affirmed the trial court on this issue essentially holding that because lien and bond claims are creatures of statute, the supplier’s failure to comply with the lien law by serving this initial notice was fatal to its bond claim for rebar materials it supplied to subcontractor.

Unfortunately for the supplier, this is a hypertechnical argument that killed its claim against the payment bond for materials it supplied under the order given by the structural shell subcontractor. This ruling, however, does not seem to make sense in light of the specific facts of the case. Again, the whole point of the notice is so the contractor in this situation knows that the supplier is supplying rebar to the subcontractor and that it will look to the payment bond if it is not paid so that the contractor can affirmatively ensure the supplier gets paid. First, the contractor knew the supplier was supplying rebar because before the owner terminated the notice of commencement, the supplier was supplying the same rebar and the contractor was made aware of same. Second, after the owner recorded a new notice of commencement with a payment bond, the supplier served a notice on the contractor (although it was not legally required to do so) that it was serving materials to the contractor per an order given by the contractor. Well, at this point in time, the contractor had continued knowledge the supplier was still involved in the project and still supplying materials, even though there may have been oversight in that another notice was not also provided by supplier for the materials it was providing under an order given by the subcontractor. And, last, the subcontractor owned 40% of the contractor, thus, how could contractor not know that its minority owner was still utilizing and ordering rebar? The Third District did not get into this, but I believe this fact is important because it would seem to impute some knowledge on the contractor under this fact pattern that the subcontractor was still utilizing the supplier, which just so happened to an identical supplier that contractor was utilizing and ordering materials from. Thus, where was the prejudice to the contractor??

Regardless of the equities of the Third District’s decision, the morale remains that it is absolutely critical to comply with Florida’s Lien Law, as in many circumstances, oversight or neglect will not be tolerated!! Do not let this happen to you!

In this case, the supplier used an outside company to serve the required statutory notices and it was uncertain why the outside company did not serve the required notice on the contractor that supplier would look to the bond for protection if it was not paid for materials supplied to the subcontractor, especially when it served the unnecessary notice for materials being supplied directly to contractor. The supplier or outside company’s oversight, whatever the case may be, resulted in a loss of its payment bond claim.

To prevent this from happening, it is always a good idea to utilize an attorney on the front end to ensure the proper notices are being served. An attorney understanding construction will ask: 1) is it a private project or publicly funded project; 2) do you have a copy of the notice of commencement (to see whether there is or is not a payment bond in place); 3) who hired you; and 4) when did you first start commencing services. In the event of nonpayment, the attorney will ask the follow-up questions: 5) when was your last day on the job and 6) how much are you owed and how did you arrive at this specific amount (e.g., retainage owed, contractual work owed, change order work owed, does this include delay-related damages or lost profit, etc.) in order to ensure the lien or payment bond claim comports with Florida’s Lien Law.