LIEN RIGHTS FOR SPECIALLY FABRICATED MATERIALS

Posted on June 6, 2014November 8, 2024 by Edward Garber

Specially fabricated materials are those materials that are specially manufactured, designed, or fabricated for a particular project and are not materials that can be universally used on all projects. Specially fabricated materials have been described as those materials “not generally suited for nor readily adaptable to use in a like improvement.” Odolite Industries, Inc. v. Millman Const. Co., Inc., 501 So.2d 655, 656 (Fla. 3d DCA 1987) (quotation omitted). For instance, the Florida Supreme Court in Stunkel v. Gazebo Landscaping Design, Inc., 660 So.2d 623, 625 n.2 (Fla. 1995), noted that trees the owner specifically selected for a project were not specially fabricated because they could be used on other projects; whereas, in Lehigh Structural Steel Co. v. Joseph Langer, Inc., 43 So.2d 335, 338 (Fla. 1949), the Court noted that structural steel fabricated for a specific building was specially fabricated materials. (Notably, furnishing specially fabricated materials does not include “design work, submittals, or the like preliminary to actual fabrication of the materials.” Fla. Stat. s. 713.01(13).)

Preserving lien rights under Florida’s Lien Law for specially fabricated materials is different than other materials (or non-specially fabricated materials).

Because specially fabricated materials are specifically fabricated for a particular project, these materials do NOT have to be actually incorporated into the project for the supplier / fabricator to have lien rights. Aquatic Management, Inc. v. Paramount Engineering, Inc., 977 So.2d 600 (Fla. 4^th DCA 2007). If the materials are not specially fabricated, the materials do need to be actually incorporated into the project. Id. This is a major difference.

And, because specially fabricated materials do not have to be actually incorporated for a supplier / fabricator to have lien rights for those materials, a notice to owner / intent to look to the payment bond (if there is a payment bond) needs to be served within 45 days from the start of actual fabrication and NOT from when the materials are actually delivered to the job site (since the materials do not actually have to be delivered and incorporated for lien rights for these materials). See Odolite Industries, 501 So.2d at 656; Fla. Stat. 713.01(13). This means that a supplier of specially fabricated materials not in privity with the contractor needs to absolutely serve its notice to owner immediately and no later than 45 days from when fabrication begins.

Also, if the supplier / fabricator is owed money: “Materials specially fabricated at a place other than the site of the improvement for incorporation but not so incorporated and the contract price or value thereof shall be separately stated in the claim of lien.” Fla. Stat. s. 713.08(1)(c).

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.

PRESERVING CONSTRUCTION LIEN RIGHTS BY SERVING A NOTICE TO OWNER

Posted on April 23, 2013November 8, 2024 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/

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

Posted on October 9, 2011November 8, 2024 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.