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Articles Posted in Construction lien

The Florida Construction Lien Law is a statutory device which enables lienors, particularly those who do not have a contract directly with the owner, to protect their rights to payment for work performed on a project. The Construction Lien Law, found in Chapter 713 of the Florida Statutes, provides lienors with the right to look to the improved property as security to ensure payment. A secondary purpose is to protect an owner from liens against its property.

The Florida Construction Lien Law is complex, and the consequences of not complying with its provisions can be dire. Through this series of blog articles, my colleague Nicholas Siegfried and I will address issues both common and unusual in an attempt to clarify what is otherwise considered by some to be a confusing statute.

Thumbnail image for lien-law-book.jpgWe begin this series by focusing on the Notice of Commencement, which is a “notice” that the owner is required to record, pursuant to the lien law. The purpose of the Notice of Commencement is to provide the lienor with the current names and addresses of the owner and contractor, so that the lienor could properly mail a Notice to Owner. It also may control the date the lien attaches. A properly recorded lien relates back to the date the Notice of Commencement was recorded and may affect the priority of intervening interests.

The Notice of Commencement provides lienors with valuable information in order for a lienor to comply with the Lien Law. Information which must be in the Notice of Commencement includes: 1) a description of the property; 2) a general description of the improvement; 3) the name and address of the owner and contractor; 4) the name and address of the surety or lender, as applicable; and 5) the expiration date.

An owner who fails to record a Notice of Commencement does so at its own peril, as they may not be aware of all prospective lienors who have served Notices to Owner. Although the failure to serve a Notice to Owner does not excuse a prospective lienor from serving a Notice to Owner on the owner, they may not be required to serve a Notice to Owner on the contractor.

A Notice of Commencement is void if the construction of the improvement is not begun in ninety days. Furthermore, in order for liens to “relate back” to a Notice of Commencement it must be re-recorded after the first year.

An owner/developer needs to understand the purpose and requirements of a Notice to Owner prior to beginning their project, and a lienor should always obtain a copy of the Notice of Commencement prior to commencing construction.

Our construction law attorneys are available for consultations regarding any questions pertaining to Notices of Commencement.

A recent ruling by the Fourth District Court of Appeal serves as an important reminder for general contractors and construction firms which are contracted by tenants for improvements to leased property. The court upheld the lower court’s decision that found that the contractor could not assert a claim of lien against the landlord when the tenant defaulted on its construction contract. For the landlord’s perspective on this ruling and related changes to Florida’s lien law, click here to read the article by Fern Musselwhite in our real estate blog.

In its ruling, the court specifically placed the burden on the general contractor, MHB Construction Services, to understand the landlord’s prohibition against liens and protect itself by binding the landlord under its construction contract with the tenant.

The appellate panel noted in its decision that the Notice of Commencement filed by the landlord/lessor does not provide the contractor with the right to lien the property of the landlord who is not party to the contractor-lessee contract for the improvements. 4th DCA photo.jpg Also noted in the decision were the facts that the landlord’s lease and its properly recorded Notice of Lien Prohibition expressly prohibited claims of lien for improvements made by the tenant, the lease required advance written consent for the improvements by the landlord, and the lease did not require that the improvements be made by the tenant.

The court also was not swayed by the arguments by MHB Construction that a $10,000 reimbursement by the landlord towards the tenant’s improvements constituted an unfair scheme by the landlord to avoid liens and use the tenant as a strawman for the improvements. The court found in its ruling that the $10,000 amounted to less than 10 percent of the total costs of the improvements and was contingent on the tenant receiving a final release from MHB.

The contractor in this case is now unable to assert a lien against the landlord and, additionally, must pay the landlord’s attorney fees in the matter. Ultimately, it has learned a very expensive lesson about the importance of contractually ensuring its right to a claim of lien against the landlord/lessor in construction contracts with a lessee tenant.

Our South Florida construction law attorneys work closely with our clients to help ensure that their lien rights are soundly protected in all of their contracts with tenants, landlords and owners. We write about important cases and matters affecting the construction industry in this blog, and we encourage industry followers to submit their e-mail address in the subscription box at the top of the column on the right in order to automatically receive all of our future articles.

A recent ruling by the Fifth District Court of Appeal which reversed the trial court’s decision serves as a reminder that the Florida courts can find liens to be fraudulent even when they are filed based on a good faith belief that money is owed. The court’s ruling is a reminder to contractors to carefully review the amounts included in a claim of lien so as not to include amounts which are not lienable (or which may not be lienable) under Florida law, as they will not necessarily avoid a fraudulent lien based upon a “good faith belief” that amounts were lienable.

The appellate ruling came in the appeal by Daniel Medellin and Susan Medellin of a ruling that contractor UBuildIt had not filed a fraudulent lien against their property because the company had reason to believe that it was entitled to more than $28,000 under the terms of its construction consulting contract with the Medellins. In its initial ruling, the trial court interpreted that under chapter 713 of the Florida Statutes, it was precluded from finding UBuildIt’s claim of lien to be fraudulent because the company had a good faith belief that it was owed money by the Medellins.

The appellate panel found that in section 713.31(2)(b), the statute provides “that neither a good faith dispute as to the amount owed nor a minor mistake is sufficient to support a finding that a lien is fraudulent. iStock_000011161523Medium.jpg This is quite different from the trial court’s ruling that a good faith dispute as to the amount owed, or a minor mistake, necessarily requires a finding that the lien is not fraudulent.”

In its ruling, the appellate judges agreed with the appellants that UBuildIt did not perform labor or services constituting an improvement on their property that would give it the right to file a lien. Instead, its lien was based on breach of contract and lost profits, which are not a proper basis for a lien. The panel agreed with the Medellins that the trial court could conclude that the lien was willfully exaggerated because the lienor included claims that were not lienable, notwithstanding the lienor’s good faith belief that it was entitled to payment. The court reversed the parts of the final judgment denying the Medellins’ claims for fraudulent lien, slander of title, and attorney’s fees. It directed the trial court to reevaluate, on remand, its ruling on the slander of title claim in light of the fact that the lien was not based on lienable services, and to determine the amount of attorney’s fees to award to the Medellins.

Our attorneys will continue to write about important court decisions and legal issues impacting the construction industry in Florida, and we encourage industry followers to submit their e-mail address in the subscription box on the right in order to automatically receive all of our future articles.

lien-law-book.jpg The 10th edition of “The Florida Construction Lien Law, an Overview” by the firm’s Steven M. Siegfried and Nicholas D. Siegfried has now been published and become available. Originally published in 1986 to provide lienors in Florida with important information to comply with the state’s complicated lien statute, the book has become a valuable resource for all of the participants in the construction process, including lenders, owners, design professionals, contractors, subcontractors, suppliers and attorneys. It includes a complete copy of the Florida lien statute and all of the forms that are needed to comply with the lien law.

The book is priced at $90, and orders can be placed via e-mail at info@siegfriedlaw.com or by calling us at 1-800-737-1390.

In today’s real estate market, contractors must be very cautious and proactive in order to effectively assert and assure their lien rights. There are several potential loopholes in Florida law between the state’s Lis Pendens Statute and Construction Lien Law, and the South Florida construction law attorneys at our firm believe that there is one specific discrepancy between the statutes that has the potential to be particularly troublesome for contractors.

Here’s a common example that illustrates this problematic grey area for construction firms:

Under Florida’s lien law, a contractor must record its claim of lien within 90 days of its last day of work, and it has one year in which to file suit to enforce that claim of lien. Let’s say a contractor is performing work on a project where the lender files a foreclosure suit and lis pendens. If the contractor has not recorded its claim of lien as of the date of the recording of the notice of lis pendens and does not intervene in the foreclosure suit to enforce its claim of lien within 30 days of the bank’s recording of the lis pendens, the contractor, potentially, could be forever barred from enforcing its claim of lien based on Section 48.23, Florida Statutes. Since it is entirely possible that a lender could file a lawsuit to foreclose its mortgage and record a lis pendens without any actual notice to the contractors working on the property, this has the potential to be a very serious legal challenge for contractors performing work in the current market. Section 48.23, Florida Statutes states in pertinent part:

Except for the interest of persons in possession or easements of use, the recording of such notice of lis pendens, provided that during the pendency of the proceeding it has not expired pursuant to subsection (2) or been withdrawn or discharged, constitutes a bar to the enforcement against the property described in the notice of all interests and liens, including, but not limited to, federal tax liens and levies, unrecorded at the time of recording the notice unless the holder of any such unrecorded interest or lien intervenes in such proceedings within 30 days after the recording of the notice. If the holder of any such unrecorded interest or lien does not intervene in the proceedings and if such proceedings are prosecuted to a judicial sale of the property described in the notice, the property shall be forever discharged from all such unrecorded interests and liens.

iStock_000011161523Medium.jpgGenerally, a lienor recording a claim of lien will not do a title search of the property until it files its foreclosure action. The lienor has one year from the date of recording its claim of lien to file its foreclosure action. Consequently, a lender can file a foreclosure action and record a lis pendens, and the lienor will have no actual knowledge of the lis pendens until a title search is performed at the time of the filing of the lawsuit. If the lis pendens was recorded more than 30 days before, it appears that Section 48.23 of the Florida Statutes could bar the enforcement of the lienor’s claim of lien.

This application of Section 48.23, Florida Statutes can be detrimental to contractors, subcontractors and other lienors as defined in Chapter 713 who are working to improve the property that is secured by the mortgage, which, arguably, benefits the lender. The lienors may not have reason to know that the lender has started foreclosure proceedings and, pursuant to the Construction Lien Law, the lienors may still be within their rights to record a claim of lien even after a lis pendens is recorded.

There is little case law dealing with the interplay between these two important statutes. Accordingly, lienors working on projects in this uncertain economic climate should make every effort to keep a close and careful eye on the financial and legal status of the project, and they should act quickly to record their claim of lien as soon as appropriate after non-payment. In addition, it is vital for the lienors to work with a qualified and experienced construction industry attorney and perform title searches on the property in order to determine whether a lender (or other lienor) has recorded a lis pendens that could impact their ability to foreclose their claim of lien.

Our lawyers who focus on construction law matters in South Florida will continue to write about important legal and financial issues for the industry in the state, and we encourage industry members to submit their e-mail address using the box on the right in order to automatically receive all of our future blog posts.

A recent appellate ruling reversed the trial court’s decision and cleared the president of a carpentry company from individual liability after the lower court found that he had filed a fraudulent claim of lien. The ruling has the potential to affect many other cases in which the courts determine that a claim of lien is fraudulent and, as a result, statutory damages are awarded.

In the case of Bruce Tansey Custom Carpentry, Inc. v. Goodman, Edmond B. Tansey, as president of the carpentry company, contracted with Goodman and subsequently filed a claim of lien and an amended claim of lien against Goodman. In its final judgment, the trial court determined that the contracting parties were Gary W. Goodman, Jennifer Goodman, Edmond B. Tansey, individually, and Bruce Tansey Construction, which was the fictitious name of Edmond B. Tansey at the time that the contracts were executed.

The trial court found that Tansey’s claim of lien and amended claim of lien were fraudulent, and that Edmond B. Tansey, individually, and Bruce Tansey Custom Carpentry, Inc. were both liable to the Goodmans for statutory damages. The Florida Second District Court of Appeals reversed the ruling that Tansey was individually liable on the grounds that the complaint and amended complaint did not allege individual liability and, even if the complaints had alleged that Tansey was individually liable, the evidence did not support individual liability because Custom Carpentry was the lienor and Tansey signed the liens as president of Custom Carpentry. The appellate ruling also found that neither the original lien nor the amended lien stated or implied that Tansey, individually, was the lienor.

The attorneys who focus on construction law in South Florida at our firm as well as others throughout the state will be sure to reference this decision whenever questions arise about individual liability in cases where the court finds that a claim of lien is fraudulent. Our firm will continue to monitor and share information about important court decisions for the Florida construction industry in this blog, and we encourage industry members to submit their e-mail address in the box on the right in order to subscribe to the blog and automatically receive all of our future posts.

A recent decision by the First District Court of Appeals represents a potentially significant boon for the scores of contractors and other lienors that turn to the courts to seek payment for their work under the terms of a construction contract. In the case of Whitehead v. Tyndall Federal Credit Union the appellate court reversed the lower court’s decision and found that Florida law required the credit union to notify the contractor of its decision to stop advancing funds while the contractor continued work on a construction project.

In Whitehead, the contractor (Whitehead) entered into a contract with a developer for the construction of a home. Disputes arose between the contractor and the developer. Consequently, the developer advised the contractor that no further draws would be disbursed to the contractor. However, having not been formally terminated, the contractor continued to work.

The contractor was terminated approximately one month after being advised by the developer that it would not receive further disbursement. It was not compensated for the work it performed between informal and formal termination, and the bank did not disburse any money for its benefit. Approximately one month after termination, the developer hired a completion contractor. Upon the completion contractor completing its work, the bank disbursed the remaining construction loan funds to the completion contractor.

In Whitehead’s lawsuit seeking payment for its work on the project, it named the credit union as a party defendant, alleging violation of Fla. Stat. 713.3471 based upon the lender’s failure to notify the company of its decision to cease disbursing funds. In the case, the lower court entered final summary judgment in favor of the lender, finding that the credit union had not decided to discontinue disbursement of the construction loan, as it eventually disbursed the entire construction loan when it issued payments to the contractor that was hired to complete the project. The appellate court reversed the ruling and stated in its judgment that Florida statutes required that once a construction lender “knows that it will stop advancing funds to a contractor or any other lienor, the lender has a duty to notify the contractor of its decision.” In reaching its decision, the court concluded that “the obvious purpose of [Fla. Stat. 713.3471] is to prevent exactly what occurred here: the unjust termination of payments to a contractor who continues work, without any notice from the lender that payments will be terminated.”

The construction law attorneys in South Florida at our firm and throughout the state will certainly reference this decision in other cases involving lenders which terminated payments to contractors and other lienors without advance notice. We will continue to write about court decisions such as this that have important implications for the construction industry in Florida, and we encourage industry members to subscribe to our blog by adding their e-mail address in the box on the right in order to automatically receive all of our future posts.

A recent construction lien claim and appeal that we handled on behalf of Miami-based CDC Builders, Inc. against developer Riviera Almeria, LLC led to a reversal of the lower court’s decision that would have discharged CDC’s construction liens over two stalled Coral Gables custom home projects. The appellate court’s ruling in the case overruled the trial court’s interpretation and application of Chapter 713 of the Florida Statutes wherein the trial court incorrectly discharged and invalidated CDC’s construction liens against the developers due to the trial court’s finding that the contractor’s interim payment requests were inaccurate.

The appellate ruling, which has significant implications for many other contractor lawsuits and construction liens, was the subject of a report in the Thursday, December 9, edition of the Daily Business Review. The article quoted 3rd District Court of Appeal Chief Judge Juan Ramirez who wrote that the Miami-Dade Circuit Court’s ruling in this case would have “a deleterious impact . . . on the construction industry as a whole. If we agree with the trial court, the purpose of liens would be undercut. Liens could be subject to attack for inaccuracies or simple mathematical errors. That was not what the Florida Legislature intended when it enacted the construction lien law.”

The article further explains:

“Miami-Dade Circuit Judge Gill Freeman granted the developer’s motion for partial summary judgment and discharged the lien, ruling that CDC had wrongly filed false interim payment applications because it had withheld subcontractor money.

The 3rd DCA panel ruled that Freeman should not have discharged the lien because CDC was adhering to its contract with Riviera.

‘Not only was CDC Builders allowed to withhold a retainage, it was contractually required to do so,’ Ramirez wrote.

The opinion also pointed to state law, which ‘does not prevent any person from withholding any payment, or any part of a payment . . . if there is a bona fide dispute regarding the amount due.’

The court added that ‘to agree with the trial court’s application of the statute would mean that otherwise valid liens would violate the lien law.'”

We were very pleased to have helped our client prevail in this appeal, and we believe the reversal of the trial court’s decision in this case is going to have a positive impact for many of the contractors which have filed construction lien claims in the state. The South Florida construction law attorneys at our firm will continue to write about important cases and rulings in the state’s courts, and we encourage those who are interested in our analysis and insights to add their e-mail address to the subscription box at the top of the column on the right in order to automatically receive all of our future blog posts.

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