The notice of commencement is important for purposes of construction lien priority. Stock Bldg. Supply of Florida, Inc. v. Soares Da Costa Const. Services, LLC, 76 So.3d 313, 317 (Fla. 3d DCA 2011) (“[A] notice of commencement serves to determine the priority of liens under the Construction Lien Law.”). A lien relates back in time to the date the notice of commencement was recorded assuming the notice of commencement is still in effect when the lien is recorded (or an amended noticed of commencement is recorded). Lien priority is very important and the reason why a contractor should always want to ensure there is an effective notice of commencement in place rather than an expired notice of commencement.
For the same reasons why a contractor wants to ensure there is an effective notice of commencement, there are times an owner wants to terminate a notice of commencement. An owner may want to terminate the potential priority of a construction lien. For instance, say the owner is refinancing or obtaining a construction loan in the midst of construction. A lender will want to ensure its mortgage maintains first priority and certainly priority over a potential construction lien. Otherwise, why would a lender finance the construction if it does not maintain first priority. It generally will not. Thus, an owner needs to terminate the notice of commencement so that the closing occurs on the loan and the mortgage recorded before a new notice of commencement is recorded and construction continues.
Florida Statute s. 713.132 allows an owner to statutorily terminate the effectiveness of a notice of commencement by recording a notice of termination. It is a statutory procedure that must be followed and it is important that an owner and contractor seek the assistance of counsel in following this procedure. The statute contains in relevant part:
(3) An owner may not record a notice of termination except after completion of construction, or after construction ceases before completion and all lienors have been paid in full or pro rata in accordance with s. 713.06(4). If an owner or a contractor, by fraud or collusion, knowingly makes any fraudulent statement or affidavit in a notice of termination or any accompanying affidavit, the owner and the contractor, or either of them, as the case may be, is liable to any lienor who suffers damages as a result of the filing of the fraudulent notice of termination; and any such lienor has a right of action for damages occasioned thereby.
(4) A notice of termination is effective to terminate the notice of commencement at the later of 30 days after recording of the notice of termination or the date stated in the notice of termination as the date on which the notice of commencement is terminated, if the notice of termination has been served pursuant to paragraph (1)(f) on the contractor and on each lienor who has a direct contract with the owner or who has served a notice to owner.
“If a notice of termination of a notice of commencement is recorded as a result of the cessation of construction, a new notice of commencement must be recorded before completion of the improvement may be recommenced.” Stock Bldg. Supply of Florida, 76 So.3d at 317-18.
From a lienor’s perspective, it is important that they understand that when a new notice of commencement is recorded, the lienor must re-serve any required notices to preserve lien or bond rights (such as a notice to owner or notice of intent to look to the contractor’s bond). Stock Bldg. Supply of Florida, 76 So.3d at 318 (when owner recorded new notice of commencement, the project began anew and lienor was required to re-serve notices under Florida’s Construction Lien Law).
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.