Condo Law – What to know about Construction Liens
Mr. Andrew Cuevas, Esq., is the President of Cuevas, Garcia & Torres, P.A., and Vantage Property Title Company, and oversees the Community Association Law Division of the law firm as well as the Real Estate Transactions practice (including title insurance services) of the law firm and Vantage Property Title Company. If you have any questions regarding this article or any other questions, you can contact Mr. Cuevas at (305) 461-9500 or at [email protected]. If you are interested in reading previous newsletters, please visit www.cuevaslaw.com, select the icon for Newsletters, and then choose the area of law you are interested in.
Perhaps one of the most misunderstood and unused provisions of the Florida Statutes is that pertaining to construction liens. (Florida Statutes Chapter 713). Construction liens can be at times one of the biggest traps for the condominium association because unless the association is careful, it can be faced with liens against all units and possibly pay twice for materials and labor. This article is to provide a general overview to the association manager and association board members as to the issues related to construction lien law, but is not to be considered as a full explanation all of the complexities of the construction lien statute and how it relates to the Condominium Act.
The following are examples of who has lien rights against the association for unpaid bills:
1) An architect, landscape architect, interior designer, engineer, or surveyor and mapper, engaged by anyone to perform services in connection with the condominium property in an amount exceeding $2,500. (F.S.§713.03)
2) Any materialman (supplier), laborer, or contractor, engaged by the association, who furnishes materials, or performs labor or services in connection with the condominium property in any amount. (F.S.§713.05)
3) Any materialman, laborer, subcontractor, or sub-subcontractor, engaged by anyone, who furnishes materials, or performs labor or services in connection with the condominium property where the underlying project cost exceeds $2,500. (F.S.§713.06)
The Condominium Act does limit in some part the ability of contractors to file liens against the entire property, but this limitation applies when a contractor provides services to an individual unit owner and unless there is consent by all other unit owners the contractors ability to file a lien, is solely against the individual unit. However, labor performed on or materials furnished to the common elements is usually deemed to be performed or furnished with the express consent of each unit owner and may be the basis for the filing of a lien against all condominium parcels in the proportions for which the owners are liable for common expenses. [F.S.§718.121(2)]
An issue frequently faced by the association is that it cannot always be certain if the contractor hired by the association actually is paying its materialmen, laborers, or subcontractors promptly, and in full. Furthermore, how can the association actually know which materialmen, laborers, or subcontractors are actually hired by a contractor, subcontractor, or sub-subcontractor of the contractor, and how much they might be owed?
Notice of Commencement – The construction lien statute requires that before actually commencing to improve any real property or recommencing completion of any improvement after default or abandonment (but not more than 90 days before), for which the direct contract exceeds $2,500, the association must:
(1) Record a notice of commencement in the clerk’s office;
(2) Either post a certified copy thereof or a plain copy thereof with a notarized statement that the original has been filed for recording, in a weather-protected conspicuous place on the front of the site of the improvement; and
(3) File with the issuing authority prior to the first inspection either a certified copy of the recorded notice of commencement or a notarized statement that the notice of commencement has been filed for recording, along with a copy of it. The certified copy of the notice of commencement must contain the name and address of the owner, the name and address of the contractor, the location or address of the property being improved, the nature of the work to be performed, and certain other information as required by statute.
The building permitting authority cannot perform or approve any subsequent inspections until the certified copy is received by them. [F.S.§713.135(21)(d)]. The intent of these provisions is to provide anyone and everyone who might be furnishing materials, or performing labor or services, as to the nature of the project, the contractor involved, and the entity who arranged for the improvement project. This information is the basis of the Notice to Owner (discussed below) filed by those parties not in direct contractual privity with the association.
If the improvement project is not actually commenced within 90 days after the recording, the notice is void. In any event, the notice is void after one year from the date of recording unless a greater expiration date is specified in the notice form.
Notice to Owner – If materialmen or subcontractors not in privity with the association desire to pursue their lien rights a Notice to Owner would be delivered to the association. The notice to owner must be served either before commencing, or not later than 45 days from commencing, to furnish services or materials, but in any event before the owner has disbursed the final payment to the contractor. It is only after service of this notice to owner that the materialman or subcontractor not in privity can record his claim of lien, and the failure to serve the notice to owner is a complete defense to an attempted enforcement of a lien.
Partial Payments to Contractor – When any partial payment (not the final payment) becomes due to the contractor on the direct contract, the following steps must be followed:
(1) If any lienor has served the notice to owner at or before the time payment is due the contractor, the association must pay the sum then due to each such noticing lienor. Except with written consent of the contractor, before paying any money directly to any lienor except the contractor or any laborer, the association shall give the contractor at least 10 days’ written notice of their intention to do so, and the amount the association proposes to pay each lienor. If the amount then due the contractor is insufficient to pay all bills of lienors giving notice, the association must prorate the amount then due under the direct contract. Lienors receiving money under this provision must execute, on behalf of the association, a partial release of lien to the extent of the payment received. Any such payment to a lienor should not surprise the contractor, since the contractor would have also received a copy of the notice to owner directly from the lienor, and in any event the contractor has no choice in the matter. The association is under no obligation to any lienor, except laborers, from whom it has not received a notice to owner at or before the time of making the payment.
(2) If no lienors have served notice, or if there are funds remaining on the payment due under the direct contractor after payment to the lienors giving notice, the contractor can be paid. The association may require, and, in such event the contractor shall furnish as a prerequisite to requiring payment to himself, an affidavit. It is strongly advised that the association require and obtain this affidavit, thereby permitting it to make certain decisions with regard to other outstanding bills. For example, if the affidavit recites any outstanding bills for labor, services, or materials, the owner may pay the bills in full direct to the person or firm to which they are due if the balance due on the direct contract at the time the affidavit is given is sufficient to pay the bills and shall deduct the amounts so paid from the balance of the payment due the contractor.
Final Payment to Contractor – The most important steps in the process are those to be taken in connection with the final payment due the contractor on the direct contract. The contractor must furnish, and the association cannot make the final payment, until receipt of a final payment affidavit stating, if that be the fact, that all lienors under his direct contract who have timely served notice to the owner or the owner and the contractor, have been paid in full or, if the fact be otherwise, showing the name of each lienor who has not been paid in full and the amount due or to become due each for labor, services, or materials furnished. Although the statute doesn’t require, it is good practice to have the contractor also include on his affidavit the date of the commencement of the furnishing of labor, services, or materials for each such unpaid lienor.
If the contractor’s affidavit recites any outstanding bills for labor, services, or materials, the association may, after giving the contractor at least 10 days’ written notice, pay such bills in full direct to the person or firm to which they are due, if the balance due on the direct contract at the time the affidavit is given is sufficient to pay them and lienors giving notice, and shall deduct the amounts so paid from the balance due the contractor. Lienors who have not served notice, and whose notice time has expired, regardless of whether or not they are listed in the contractor’s affidavit, shall not be paid by the association or by any other person except the person with whom the lienor has a contract.
If the balance due is not sufficient to pay in full all lienors listed in the affidavit and entitled to payment from the association and other lienors giving notice, the association shall pay no money to anyone until such time as the contractor has furnished the association with the difference. However, if the contractor fails to furnish the difference within 10 days from delivery of the affidavit or notice from the association to the contractor to furnish the affidavit, the association shall determine the amount due each lienor and shall disburse to them the amounts due from the association on the direct contract.
The statute specifically gives the association the right to rely on the contractor’s affidavit given in making the final payment, unless there are lienors giving notice who are not listed in the affidavit.
Upon the rendering of any payment under this section to lienors or the contractor, the association should obtain either a partial release of lien or full release of lien, whichever is appropriate. When the final payment has become due to the contractor and the association fails to withhold certain payments as required by Statute, the property improved is subject to the full amount of all valid liens of which the association has notice at the time the contractor furnishes his affidavit.
This article is solely a partial explanation of the construction lien law and issues to be addressed by the association. The association should consult with its legal counsel to obtain explanations of all issues related to construction lien law and the steps that should be taken to avoid surprise obligations.