Mike Freed is a Jacksonville attorney. He wrote this column for the Jacksonville Bar Association’s ‘Bar Bulletin.”
Effective Oct. 11 for some and Jan.1for others, the most recent amendments to Florida’s construction lien statute — Florida Statutes Chapter 713 — went into effect. Contractors, subcontractors, suppliers, construction professionals and project owners (together with those who advise them) need to be aware of these changes. As amorphous as Florida’s lien statute and the cases interpreting it have been, it’s worth revisiting the lien statute as a whole to put the most recent amendments in context.
Florida’s Statute In A Nutshell
Florida law provides that a contractor, subcontractor, material supplier or construction professional, such as an architect, engineer, surveyor or interior designer, (a/k/a a “lienor”) who provides labor, services or material for improvements to private real property has a lien on that property for the value of the provided labor services, or materials. This is to “protect those who have provided labor and materials for the improvement of real property.” WMS Construction, Inc. v. Palm Springs Mile Associates, Ltd., 762 So.2d 973, 974-75 (Fla. 3d DCA 2000).
It bears noting that, while the lien laws provide an important protection for those in the construction industry, the failure to preserve a lien does not deprive the would-be lienor of other avenues of redress for non-payment, such as a breach of contract claim; it simply extinguishes the lien as security for payment. This, however, is critical where the property is the only asset available for collecting payment.
On the other hand, merely filing a claim of lien does not establish the lienor’s right to payment. It provides security for payment. But the lienor ultimately must establish its entitlement to payment.
Publicly owned property cannot be liened (Florida Statutes § 255.05). Instead, public jobs, such as schools, courthouses and recreation centers, must be bonded. The bond protects the would-be lienor who — instead of a lien — has a claim against the bond, and it protects the property owner (the applicable governmental body), which is not exposed to encumbrances on title or, worse still, a foreclosure action.
Private owners also can insulate their property from liens by obtaining from a surety a construction bond. Such a bond replaces the property itself as security for the payment of lienors.
If a project is not bonded, would-be lienors must adhere strictly to Florida’s lien law to preserve their lien rights. The process to accomplish this, although not overly complicated, can be a trap for the unwary.
This article provides a non-exhaustive overview of the process. (Unfortunately, like many areas of the law, statutory details and exceptions to the general rules are many.) In most cases, perfecting a lien is a three-step process requiring (i) a formal notice to the project’s owner; (ii) recording a claim of lien; and ultimately, if necessary (iii) filing a lawsuit to foreclose the lien.
The “Notice to Owner” informs the project owner that the notifying party is providing labor or materials to the project. That the owner already has actual knowledge that the party is working on the project does not excuse the failure to serve a Notice to Owner. The notice must be in the form provided in Florida Statutes § 713.06(2)(c). To be effective, it must be served (certified mail is the preferred means) on the owner. If the lienor does not have a contract directly with the owner’s general contractor, then the notice also must be served on the general contractor. The notice must be served within the earlier of (a) 45 days of the lienor first providing labor or materials to the project or (b) before the owner makes final payment in reliance on the general contractor’s final payment affidavit.
Notices to Owner are not required for persons or companies (a) with direct contracts with the owner; (b) making horizontal subdivision improvements; or (c) providing professional services such as architectural drawings, surveys or interior designs.
A lienor who is not timely paid may lien the property to secure payment if the lienor timely served a Notice to Owner or qualifies for one of the above exceptions to this requirement.
To do so, a “Claim of Lien” in the proper form must be recorded and served. Like the Notice to Owner, Florida law provides a form Claim of Lien that must be utilized (Florida Statutes § 713.08(3)). The Claim of Lien must not only be served in the same way as the Notice to Owner, but also must be recorded in the county where the project is located.
This must be done within 90 days of the lienor’s last furnishing of labor, services or materials in performance of its contract. Lienors should be conservative in making this calculation, counting from when the lienor’s work was substantially complete, rather than from when the lienor later performed punch-list or warranty work.
At this point, the lien is “perfected.” If the lienor does not receive final payment within one year after recording the lien, it must file a lawsuit to foreclose the lien. Failing to do so extinguishes the lien and the lienor’s security for payment.
What’s New
The vast majority of the 2003 changes to Florida’s construction lien statute reflect clarifications that have developed through caselaw. Those changes are summarized below.
Recognizing the cumbersomeness and confusion of the lien statute, the legislature amended the statute to require that certain warnings be provided essentially so the project owner (who may not be versed in the lien statute) is aware of the significance of certain documents and the consequences of certain actions.
A. Mandatory Provisions for Direct Contracts. Any contract directly between a contractor and an owner for single or multiple family dwellings up to and including four units must contain certain prescribed language — 14 lines of text to be exact — in no less than 18-point, capitalized boldfaced type. The prescribed language can be found at Florida Statutes § 713.015. Essentially, it advises the owner about how the lien laws operate and the consequences to the owner of not ensuring that lienors are paid. The warning concludes “FLORIDA’S CONSTRUCTION LIEN LAW IS COMPLEX AND IT IS RECOMMENDED THAT WHENEVER A SPECIFIC PROBLEM ARISES, YOU CONSULT AN ATTORNEY.”
B. Notices to Owner. Likewise, the required form Notice to Owner now requires boldface warnings to the owner including, among other things, “WARNING! FLORIDA’S CONSTRUCTION LIEN LAW ALLOWS SOME UNPAID CONTRACTORS, SUBCONTRCTORS, AND MATERIAL SUPPLIERS TO FILE LIENS AGAINST YOUR PROPERTY EVEN IF YOU HAVE MADE PAYMENT IN FULL.”
C. Claims of Lien. The Claim of Lien itself also must now contain language explaining generally to the owner the impact of the claim and the process for contesting it.
Other Changes
A. Contractor’s Final Payment Affidavit. The Florida lien statute (§ 716.06) now provides a prescribed form of “Contractor’s Final Payment Affidavit.” This is the document that the general contractor must provide to the owner before final payment from the owner becomes due. It recites, among other things, the name and address of any subcontractors or suppliers who remain to be paid by the general contractor. Based on the provision of such information, the owner, after proper notice, can pay such subcontractors or suppliers directly the amount due them.
B. Criminal Consequences. Florida Statutes § 713.345 establishes criminal penalties for knowingly misapplying funds received as payment on a construction project. Effective October 1, 2003, a “permissive inference” of a knowing misapplication is created when (i) a valid lien is recorded for labor, services or materials; (ii) the person ordering the labor, services or materials received sufficient funds to pay for them, but failed for 45 days or more to pay the provider of the labor, services or materials; unless (iii) there is a good faith dispute regarding the amount due.
C. Unlicensed Contractors. Section 713.02(7) makes invalid a lien of any unlicensed contractor or subcontractor. The recent amendments clarify that the required licensing is that prescribed by Florida Statutes Chapter 489 — the qualifying agent statute. Simply failing to have an occupational license does not, for purposes of this statute, make the contractor or subcontractor unlicensed or a lien invalid.
Wrap-Up
Hopefully it this has provided for those who practice in this area, a heads-up on, or reminder of, the recent amendments. For those who avoid the lien statute like the plague, (if you suffered through this article) hopefully you now have a general understanding of how the lien laws operate.