Florida construction liens could further erode the Florida housing market values if owners fail to comply with the Florida Construction Lien Law. This letter is written to provide you with some basic information about the Florida Construction Lien Law and and how to protect yourself against paying the contract price twice. Florida Statutes Chapter 713 grants a construction lien, also called a mechanic’s lien, to any person furnishing labor or materials for the improvement of real property.
Under this regulatory scheme, even though you pay your general contractor the full purchase price, if you do not comply with the requirements of the Florida lien law, you may end up paying construction liens filed by unpaid subcontractors and suppliers even though you already paid the general contractor. The Florida construction lien law has the effect of shifting the risk of nonpayment to the owner if the owner fails to comply with the lien law.
The first step to protecting the owner against construction liens in Florida is a written contract with the general contractor that sets forth price, payment and scope of work terms. This is a legal document that should be prepared or reviewed by the owner’s lawyer. Even though the contractor is nice and professional, don’t expect the contract submitted by a contractor to protect the owner. The terms and provisions for the owner’s protection are different from ones for the contractor’s protection. (I tell contractor clients the same thing when they do commercial work: don’t use the owner’s form without having it reviewed by your own lawyer.)
The second step to protecting the owner from liens is to record and post a Florida notice of commencement in compliance with the Florida Construction Lien Law. Many times the contractor prepares the notice of commencement because the building permit cannot be issued without it, but the owner should not rely on the contractor to prepare the Florida notice of commencement because under the lien law it is the owner’s responsibility. If anything is not correctly filled out, it is the owner who will suffer the consequences of not being in compliance with the lien law: a subcontractor or supplier might file a lien on the job even though the owner has paid the contractor. The owner’s lawyer should prepare or review the notice of commencement.
The third step is to treat all notices to owner with care. The Florida notice to owner tells the owner the names of the subcontractors and suppliers (materialmen) who are working on the job. Do not pay any person, who is not your contractor, unless you have received a notice to owner from him. When you do pay your contractor make sure that there is a lien waiver signed by any person who has sent you a notice to owner. The waiver should state that it is effective through the date that you make the payment. It’s best for the owner to have the owner’s lawyer prepare or review the lien waiver form.
The fourth step to protect the owner from Florida construction liens is for the contractor to provide the owner with an affidavit of payment and waiver and release of lien from every subcontractor and materialman who gave notice to owner. These should be provided when each payment application is submitted to the owner. Again, the owner’s lawyer should prepare or review this form. The final payment affidavit is very important under the Florida Construction Lien Law.
The fifth step to protect the owner is to withhold 10% from each progress payment. This is called a retainage. It must be written into the construction contract that the owner can withhold this amount.
The sixth step is for the owner to obtain a title search before making each progress payment and final payment to verify that no liens have been recorded. If a lien has been recorded, the owner’s lawyer needs to advise how to handle it under the circumstances.
Finally, in order to insulate Florida real property from a construction lien, the owner may require the contractor to provide a payment and performance bond. This should be written as a requirement in the contract in order to be legally binding. The Florida Construction Lien Law provides that such a payment bond issued in compliance with the lien law exempts the property from liens as long as the owner complies with certain things. Of course, there is premium that the contractor must pay to the insurance company (surety) that issues the bond, and the contractor will add that premium to the contract price, so it will cost the owner more to have the job bonded than not bonded, but it might be worth the premium.
These are just a few of the things that the owner of Florida real estate needs to do in order to protect his property from Florida construction liens. But it’s not so bad: Florida contractors have even more things to do to if they want to place a lien on a job, and they have less time to do it. Florida’s lien law is unusual and complex for both owners and contractors, which is why construction law in Florida really needs the assistance of a Florida lawyer.
[The above is from a letter I provided to clients who were about to undertake construction work on their homes in Florida. Before use, it must be updated by a Florida lawyer for a specific client and specific project.]
This letter is written to provide you with some basic information about the Florida Construction Lien Law and and how to protect yourself against paying the contract price twice. Florida Statutes Chapter 713 grants a construction lien, also called a mechanic’s lien, to any person furnishing labor or materials for the improvement of real property.
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