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Construction Liens

Under Florida’s construction lien law (Chapter 713, Part 1, Florida Statutes), certain persons or entities furnishing labor, materials, equipment, services or any other lienable services (“Work”) to privately owned real property have lien rights.[1] The classes of persons or entities entitled to a lien are listed in the statute and are limited to the following:

  • Contractor;
  • Subcontractor;
  • Sub-subcontractor;
  • Laborer;
  • Material supplier to the Owner, Contractor, Subcontractor, or Sub-subcontractor; and
  • “Professional” lienors as defined in the statute.

Persons or entities that fall outside of these defined classes do not have lien rights.

If the Work is lienable, lienors must satisfy certain prerequisites in order to have an enforceable lien. What constitutes lienable Work is defined in the statute and includes any other services that permanently improve the property. One requirement is the timely service of a Notice to Owner (“NTO”) upon either the owner or contractor, or both, depending upon which level the lienor is situated. Service of the NTO may be accomplished by any of the methods set forth in the statute, such as actual delivery, registered or certified mail, or posting at the jobsite if other methods are not available to ensure timely service. Failure to serve or timely serve the NTO, if required, is a complete defense to an action for lien enforcement under chapter 713. It should be noted that the contractor, lienors who furnish services or materials for subdivision improvements, laborers, and professional lienors are not required to serve a NTO in order to perfect their lien rights.

Another important document under the lien law is a release of lien, which may be either partial or final, and should be substantially in the forms set forth in the statute. If the owner fails to ensure payment by the contractor to lower-tiered subcontractors and suppliers who have timely served a NTO (i.e., by getting releases of lien), the owner may be required to pay them in accordance with the lien law even though the owner has already paid the contractor for the Services!

When faced with a lien claim, parties which are adverse to it should initially determine whether the lien has been perfected:

  • If required, was the NTO timely served within 45 days?
  • Was the lien timely recorded in the public records of the county where the project is located within 90 days of the final furnishing of the Work.
  • Was the lien served on the owner (and contractor as applicable) either before, or within 15 days after, recording the lien?
  • Was the lien action commenced within one year of the lienor’s final furnishing of the Work?

If the lien has been otherwise perfected, but an action has not yet been commenced, the owner (or other interested party such as the contractor) has two options available under lien law to initially challenge the lien. A notice of contest may be filed in the public records which  shortens the time for the lienor to foreclose its lien from one year to 60 days. This has no immediate effect on the lien, but does force the lienor to take action much sooner or lose its right to enforce the lien. Another option is to file what is known as a “show cause” action against the lienor. If the lienor fails to properly respond (or “show cause”) within 20 days of service of the action, the lien is subject to mandatory discharge. In practice, this is usually done by filing a lien foreclosure counterclaim to the owner’s “show cause” action. The effect of this statute is absolute. If the lienor fails to file its lien enforcement action within 20 days, a court has no discretion and must discharge the lien.

Another way to challenge a lien is where the lien is statutorily “fraudulent”. This not only provides a complete defense to the lien, but also gives rise to a statutory cause of action by the owner (or other interested party) against the lienor for damages caused by the fraudulent lien. As such, it may be used as leverage with the lienor to promptly discharge the lien or settle the claim early on for a nominal amount to avoid potential liability for a fraudulent lien including having to pay the other side’s attorney’s fees and costs.

Another way of dealing with a lien is to remove it from the property by posting security. The owner (or anyone else having an interest in the property upon which the lien is imposed) can transfer the lien to security by posting a cash bond or surety bond with the clerk of court where the lien is recorded. Because the lien is removed from the property, the lienor would file an action against the bond in lieu of a foreclosure action against the property. A claim on a transfer bond must be filed within one year of the recording of the lien, unless the bond was recorded after the action was filed in which case the lienor has one year from the date of transfer. Under the statute, unless the time period is otherwise shortened by operation of law (i.e., by a notice of contest), an action filed in the same county or circuit court within one year of the transfer to recover against the security is deemed to relate back to the date of filing the original lien action. As a practical matter, if the lienor has already filed a lien foreclosure action, the lienor would simply amend the lawsuit to bring an action against the bond in place of the property.

There are additional statutory remedies available to an owner. The owner may elect to pay a lienor by giving notice and deduct the amount paid from the balance due the contractor. In order to do so, the owner must serve notice on the contractor of its intention to pay the lienor directly, and may then do so ten days later. If the payment due is insufficient to pay the amount due all lienors giving notice, the owner is required to prorate the amount due under the direct contract among the lienors giving notice. When a payment is due the contractor, except final payment, the owner may require the contractor, as a condition of payment, to provide an affidavit on any payment made or to be made by the contractor under the direct contract with the owner.

Subject to the total amount fixed by the direct contract, the owner is required to pay lienors (liens) in the following order: (1) laborers; (2) all persons other than contractor; and (3) the contractor. Further, the owner must pay all liens in a given class first in their full amounts before any liens are allowed for a subsequent class.

If any affidavit given by the contractor shows amounts outstanding for Work furnished, the owner may pay all such amounts directly and deduct the amounts from the balance due the contractor if the balance due is sufficient.  However, the owner is not required to make payment to any lienor, appearing on an affidavit or otherwise, which did not timely serve a NTO, if required. At the time final payment is due, the contractor is required to give the owner a final payment affidavit. The owner has a right to rely on the affidavit in making final payment to the contractor. However, if the affidavit omits lienors who have given notice, the owner may pay such lienors and those listed in the affidavit in accordance with the statute and is thereafter discharged of any further responsibility under the direct contract except to pay the contractor any remaining balance due.

Until receiving the affidavit, the owner is required to retain the final payment due the contractor. If the owner fails to do so, the owner’s property will be subject to the full amount of all valid liens which the owner has notice of at the time the affidavit is furnished. If the affidavit reflects any unpaid bills for services, the owner may pay such bills in full after giving the contractor at least ten days’ notice, if the balance due the contractor under the direct contract is sufficient. If the balance is insufficient for the owner to pay all listed lienors who are entitled to payment and other lienors giving notice, the owner is not permitted to make payment to anyone until the contractor has furnished the owner with the difference. However, the owner may thereafter determine the amount due each lienor and pay it from the balance of the direct contract in the order set forth in the statute if the contractor fails to pay the owner the difference within ten days from furnishing the final payment affidavit or from notice by the owner to furnish it.

Unlike the contractor and those working under it, the rights of a lienor providing professional services attach upon the recording of its lien. Unless otherwise stated in the notice of commencement, it remains valid for a period of one year from recording. However, where a notice of commencement has been recorded previously and is still open, the lien of the contractor or any lienor in privity with the owner or of any lienor not in privity with the owner attaches and takes priority as of the date of the recording of the notice. If a notice of commencement is not recorded (or has expired by the time a lien is recorded), the lien takes priority as of the date it is recorded.

The lien priority date is important since a properly filed foreclosure action extinguishes all inferior interests in the property. Upon foreclosure, the lienor takes title to the property subject to any superior interests. The lienor should name and serve, along with the owner, all parties with§ an inferior interest in the property to extinguish such interest. A lien that has been continued longer than one year (or sixty days if shortened by a notice of contest) due to a foreclosure action is not enforceable against creditors or subsequent purchasers for valuable consideration and without notice unless the lienor records a lis pendens when the action is filed.

The fee simple owner of the property is an indispensable party to a lien foreclosure action. However, a tenant—which does not hold legal title to the property—does hold an equitable interest (tenancy) in the property and should be named to extinguish such interest.  Where the lienor has contracted directly with the tenant, the landlord’s interest may not be subject to foreclosure for the improvements. A lienor should also include any other parties over whom the lienor has a superior interest. Other than where the contractor is the claimant seeking to foreclose its lien or has been named by another lienor because it has a competing lien on the property, the contractor is not otherwise an indispensable party to lien foreclosure proceedings. Neither is the owner once a lien has been transferred to security if the owner is not in privity with the lienor or a principal on the bond.

Where a construction lender is involved, the lienor may also have certain remedies against the lender under the lien statute. A lienor may have a direct right of action against a lender who fails to provide timely notice of its intention to cease funding the construction loan, or to change the designation of loan proceeds. Under the statute, “[t]he lender is liable to the contractor to the extent /of the actual value of the materials and direct labor costs furnished by the contractor plus 15 percent for overhead and profit, and all other costs from the date on which notice of the lender’s decision should have been served on the contractor and the date on which notice of the lender’s decision is served on the contractor.” Where the lender improperly makes loan disbursements contrary to their prior designation, “the lender is liable to the contractor to the extent of any such disbursements or to the extent of the actual value of the materials and direct labor costs furnished by the contractor plus 15 percent for overhead and profit, and all other costs, whichever is less.” It should be noted that, unlike in a lien foreclosure action, there are no prevailing party attorney’s fees in an action against the lender. Also, the statute cannot be used to delay or hinder foreclosure of the lender’s mortgage lien.

[1]  The law does not permit enforcement of liens on public property.

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