The Construction Lien Law, formerly known as the Mechanic’s Lien Law, has served as a source of confusion to owners, contractors, suppliers and materialman that seek to enforce its provisions. As outlined in Chapter 713, Florida Statutes, the Construction Lien Law established the ground rules for enforcing a construction lien on real property. The lien law authorizes those that furnish labor and material to improve real property as well as those that perform professional services, such as architects, landscape architects, engineers, interior designers, land surveyors and mappers to file a lien as security for payment. By following the Construction Lien Law, owners also benefit by being assured that the total payments made to the general contractor will not exceed the original price.
This article will discuss certain basic issues relating to the operation and enforcement of the Construction Lien Law.
What Property Can Be Liened?
Liens can only attach to private property. Federal, state, county and municipal property is exempt from the operation of the Construction Lien Law. Frequently, contractors that perform “tenant improvements” may lien property to the extent of the landlord’s interest. However, the landlord may exempt his property interest from liens if the lease entered into between the landlord and tenant prohibits such liability. The exemption is evidenced, by a Notice, recorded in the public records of the county where the property is located. Accordingly, contractors performing tenant improvements should first ascertain whether such an exemption has been recorded by the landlord.
When Must the Lien Be Recorded?
A Claim of Lien must be recorded within ninety (90) days from the date the lienor last furnished labor or materials to the project. It is significant to note that returning to a project to perform inconsequential work, such as minor punchlist type repairs, may not extend the ninety (90) days from the last date that meaningful work was performed.
A copy of the Claim of Lien must be served on the owner within fifteen (15) days from the date it is recorded. Thereafter, a lienor must file a lawsuit to foreclose the Claim of Lien within one (1) year from the date it is recorded unless a “Notice of Contest of Lien” is served on the lienor by the owner. A “Notice of Contest” shortens the statute of limitations to sixty (60) days after it is recorded. If a lienor fails to file a lawsuit within one (1) year of filing a Claim of Lien or sixty (60) days from recording a Notice of Contest, the Claim of Lien is subject to dismissal.
It is significant to note that the Construction Lien Law prohibits a lienor from waiving its right to file a lien in advance of performing the work or furnishing materials to improve real property.
Licensing Requirements
The Construction Lien Law only permits a licensed contractor, subcontractor or sub-subcontractor to lien property. Upon receipt of a Claim of Lien, the owner should ascertain whether the lienor was properly licensed to perform work. Confirmation can be acquired by contacting the appropriate licensing authority, such as the Florida Construction Industry Licensing Board. If not licensed, the lien can be declared invalid and unenforceable.
Notice to Owner
A “Notice to Owner” is a document furnished by any person that is not in privity of contract with the owner. This document advises the owner as to the identity of all persons that have furnished labor and material to improve his property. The owner can protect himself from paying twice for improvements to his property by requiring a contractor to furnish releases of lien from all persons that served Notices to Owner or alternatively, by requiring the general contractor to submit a partial payment affidavit. A partial payment affidavit will certify to the owner that all potential lienors have been paid to the extent payments have been made by the owner to contractor.
A Notice to Owner must be served on the owner within forty-five (45) days from the date that the lienor first furnished labor and/or materials to the project. Failure to provide a Notice to Owner will preclude that particular lienor from placing a lien on the owner’s property. Upon receipt of a Claim of Lien, check your records to ascertain whether a Notice to Owner has been furnished to you. If a Notice to Owner has not been furnished or if it was filed in excess of forty-five (45) days from the date a lienor first furnished labor and material to the project, then the Claim of Lien may be subject to attack.
Notice of Commencement
A Notice of Commencement is a recorded statement executed by the owner. The Notice of Commencement identifies the name and address of the owner and requires that all persons that furnish labor and materials to send a Notice to Owner. By recording a Notice of Commencement, the owner can require the general contractor to supply releases of lien from all persons that have served a “Notice to Owner.” Construction must be commenced within ninety (90) days from the date that the Notice of Commencement had been recorded. The Notice of Commencement is effective for one (1) year after it is recorded unless otherwise provided in the Notice.
To the extent that a recorded Notice of Commencement is not posted on the job site by the owner, the municipal building department that issued a building permit, may not approve the first inspection which occurs seven (7) days after the building permit is issued. In the event a construction loan exists, a lender must, prior to disbursement of any construction funds to the contractor, record a Notice of Commencement with the clerk’s office. The failure of a lender to record a Notice of Commencement renders the lender liable to the owner for all damages sustained by the owner as a result of the failure to record it. Liability may result to the owner if construction funds are disbursed to the contractor and a subcontractor is owed money. If a Notice of Commencement was recorded, the lender and owner would have received a “Notice to Owner” from that subcontractor. Consequently, the lender would not have disbursed funds to the contractor without first acquiring a release of lien from the subcontractor. Absent a Notice of Commencement, the owner may end up paying twice for the same work; once to the contractor and thereafter to the subcontractor to satisfy its Claim of Lien.
Practical Tips to Avoid Problems Pursuant to the Construction Lien Law
Owners can protect their property from liens by requesting the general contractor to furnish proof that all laborers, materialmen and suppliers have been paid. Requiring the general contractor to furnish partial and final releases of lien to the owner will prevent those persons from placing liens on the owner’s property because of non-payment by the general contractor. For each request for payment, the contractor should be required to issue a sworn certification to the owner which states as follows:
No known construction, supplier, subcontractor or materialmen’s liens are outstanding at the date of this requisition, that all due and payable bills with respect to the work have been paid to date or are included in the current application, and, except, for such bills not paid but so included, there is no known basis for the filing of any liens on the work, that such liens from all subcontractors, suppliers and materialmen have been obtained in such form as to constitute an effective waiver of the lien under the laws of the State of Florida.”
The foregoing provision should be included in each request for payment submitted by a contractor. This certification will provide some assurance to the owner that potential lienors have been paid.
Additionally, 713.16 (2), Florida Statutes provides a mechanism to assist owners in discovering the amounts owed to lienors. By the owner serving the lienor with a “Demand For Sworn Statement of Account” a lienor is required to provide a sworn statement as to the following:
- the nature of labor and services performed;
- the nature of labor and service to be performed;
- a description of materials furnished;
- the amount paid on account to date;
- the amount due;
- the amount to become due.
The failure of a lienor to respond in thirty (30) days after demand, or should the response be false, the lienor will be deprived of his lien rights.
Similarly, a lienor may request information and documents from the owner such as payment bonds, direct contracts with others for improvements to the property. Should the owner fail to respond within thirty (30) days, attorney’s fees will not be recoverable should the owner prevail against the lienor in a suit to foreclose a Claim Of Lien.
When the contractor requests final payment, including retainage, a Final Contractor’s Affidavit must be submitted. The Final Contractor’s Affidavit lists all money due to potential lienors that have not been paid. At that point, the owner may elect to demand in writing that the contractor pay the outstanding sums due or alternatively, pay the listed subcontractor a pro-rata portion (based upon the remaining contract balance) within ten (10) days from the date that the owner serves his written demand for payment to the contractor.
Conclusion
The Construction Lien Law is confusing and requires careful consideration when pursuing enforcement of a lien and paying those that furnish labor and materials to improve real property. As required by Chapter 713, Florida Statutes, timetables established for recording the Notice of Commencement, serving Notices to Owner, recording and foreclosing on a Claim of Lien must be followed for a lien may be declared invalid. By following the Construction Lien Law, owners can be assured that upon completion of construction and payment of the contract price, your property will be free and clear of all liens.