Construction is back! Economists say Florida’s economic recovery is still on track with job growth outpacing the nation. The construction sector led South Florida’s job growth and is expected to continue to boost the payroll ranks as more than 175 condominium projects with more than 24,000 units are being added in Miami-Dade and Broward. Most are said to be east of I-95 near the ocean or in downtown Miami, but permits also are being pulled in the Village for new homes and renovations to existing homes and for commercial projects. Construction trucks and vans can be seen everywhere in the Village.
With all this construction activity, I am contacted frequently with questions on construction law, contracts and construction liens. I am often asked, “What do I do now that a lien has been recorded against my property by a contractor, subcontractor or supplier?” It is universally agreed in the construction industry and legal community that the construction lien law in Florida is complicated, confusing and filled with technicalities that cause problems for owners, developers, contractors, subcontractors, suppliers and even lawyers. To understand construction liens and how to deal with them, you must have an understanding as to why the construction lien laws exist and who can file one against a property.
CONSTRUCTION LIEN LAWS
Construction lien laws are the creation of our Florida legislature and thus are found in our state statutes. Generally, Florida statutes provide that a contractor, subcontractor or material supplier who provides labor work supplies or materials for the improvement of Florida real property, has a right to place a lien on that property for the value of the materials, labor or work provided.
In this context, one in direct contract or “privity” with the owner is referred to as a contractor, and one not in direct contract with the owner is most often considered a subcontractor, sub-subcontractor or supplier. This right to lien is in addition to any other claim or remedy, like breach of contract or unjust enrichment, but as you will learn further below, such a construction lien can be a powerful tool in favor of the “lienor,” the party who files the lien.
The basic purpose of the construction lien laws is to protect payment to those businesses and persons who have improved property (real estate) by providing labor or materials, but have yet to be paid. The construction lien law also protects owners and developers of real property by requiring contractors to follow certain requirements about providing information to the owner as construction starts, progresses and finishes, especially upon written request by the owner and before payment or progress payments are made to the contractor.
Additionally, subcontractors and suppliers perhaps not known to the owner or developer are required to provide notice of their involvement in the construction project and their possible lien to the owner, thereby allowing owners to take action to prevent double payment to both a contractor and subcontractor, material supplier or laborer for all or part of the same services or materials, even when the contractor and subcontractor or supplier are not in direct contract.
Unfortunately, the parties involved often do not follow the law, resulting in legal disputes. Frequent examples of this include when a contractor, subcontractor or material supplier waive their lien rights by not closely following the requirements of the lien laws or an owner paying the contractor upon request for a subcontractor’s work or for materials delivered by a supplier, but a lien is filed anyway because that subcontractor or supplier is not paid by the contractor.
A lien is an official notice intended to be recorded in the public records of your county placing the world on notice of the claim of the lienor and creates an encumbrance or cloud on the title to the property until it is paid or dismissed, but it does not last forever. The lienor must pursue the lien by filing a lawsuit within one year of the recording of the lien or the lien will automatically expire.
The lien does give the successful lienor the power and right to foreclose on your property, unlike a regular creditor. Also, a prevailing party in a lien action is entitled to an award of attorney’s fees. So, the lien’s existence with the added threat of a generous award of attorney’s fees can tip the settlement negotiating balance in favor of the lienor. With the use of a procedural exception, this one-year statute of limitation can be shortened to 60 days, forcing the lienor to get busy sooner and pay to hire a lawyer to sue or give up on the lien.
If your property is liened, but you have no need or desire to refinance or sell your property, you have the one option (of several options) of doing nothing, to “wait and see” if the lienor files a lawsuit in a timely fashion. If not, the lien will expire and cease to be an encumbrance or cloud on the title to the property. Property owners concerned about clouds on title can exempt their property from liens prior to materials being delivered or work being performed by obtaining a bond. These are called payment bonds or conditional payment bonds. The lien bond substitutes for the property as security for the payment of a potential lienor. If the project is bonded, the lienor has a claim against the bond for the value of the work or the materials provided to improve the property, and not against the property itself. Owners and developers can also transfer liens to bonds after a lien is recorded.
I have provided you with a glimpse into the basics of why the Florida’s construction lien laws exist, who can file one against a property and some simple options to think about when dealing with liens, like bonds. The notices and requirements I mention here are numerous and complicated, certainly too lengthy to elaborate in this article. What you need to take from this column is that what you should or can do in any particular factual setting or scenario involving a construction project must be analyzed by someone who knows and understands construction law and construction practice. Do not be “penny wise and pound foolish!” Seek professional help when dealing with construction law, construction contracts, bonds and liens before you create or fail to avoid an expensive legal problem.
By the way, the Village currently allows citizens and contractors to apply online for a certain limited category of permits. Visit the Village website, in particular the Department of Building and Planning for more information.
Jeff Cutler is a Pinecrest native and a former two-term Village councilmember. He is a Coral Gables lawyer with expertise in business and construction law. To contact Cutler, call 305-446-0100 or email him at JCutler@delacruzcutler.com.