Mandatory Provisions in Residential Construction Contracts
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In Florida, contracts for residential construction must include certain provisions required by statute. This article identifies and examines these mandatory provisions. A prudent residential contractor needs to be aware of these requirements of Florida Statute and include all applicable provisions in his or her contracts.
A construction lien under Chapter 713, Florida Statutes is a valuable right available to contractors working in Florida. See Liening on Your Contract. To maintain construction lien rights in a direct contract greater than $2,500 between an owner and a contractor, related to improvements to real property consisting of single or multiple family dwellings up to and including four units, the contract must contain the following notice provision printed in no less than 12-point, capitalized, boldfaced type on the front page of the contract or on a separate page, signed by the owner and dated:
ACCORDING TO FLORIDA’S CONSTRUCTION LIEN LAW (SECTIONS 713.001-713.37, FLORIDA STATUTES), THOSE WHO WORK ON YOUR PROPERTY OR PROVIDE MATERIALS AND SERVICES AND ARE NOT PAID IN FULL HAVE A RIGHT TO ENFORCE THEIR CLAIM FOR PAYMENT AGAINST YOUR PROPERTY. THIS CLAIM IS KNOWN AS A CONSTRUCTION LIEN. IF YOUR CONTRACTOR OR A SUBCONTRACTOR FAILS TO PAY SUBCONTRACTORS, SUB-SUBCONTRACTORS, OR MATERIAL SUPPLIERS, THOSE PEOPLE WHO ARE OWED MONEY MAY LOOK TO YOUR PROPERTY FOR PAYMENT, EVEN IF YOU HAVE ALREADY PAID YOUR CONTRACTOR IN FULL. IF YOU FAIL TO PAY YOUR CONTRACTOR, YOUR CONTRACTOR MAY ALSO HAVE A LIEN ON YOUR PROPERTY. THIS MEANS IF A LIEN IS FILED YOUR PROPERTY COULD BE SOLD AGAINST YOUR WILL TO PAY FOR LABOR, MATERIALS, OR OTHER SERVICES THAT YOUR CONTRACTOR OR A SUBCONTRACTOR MAY HAVE FAILED TO PAY. TO PROTECT YOURSELF, YOU SHOULD STIPULATE IN THIS CONTRACT THAT BEFORE ANY PAYMENT IS MADE, YOUR CONTRACTOR IS REQUIRED TO PROVIDE YOU WITH A WRITTEN RELEASE OF LIEN FROM ANY PERSON OR COMPANY THAT HAS PROVIDED TO YOU A “NOTICE TO OWNER.” FLORIDA’S CONSTRUCTION LIEN LAW IS COMPLEX, AND IT IS RECOMMENDED THAT YOU CONSULT AN ATTORNEY.
Section, 713.015(1), Florida Statutes (2012). If the contract is written, the notice must be in the contract document. If the contract is oral or implied, the notice must be provided in a document referencing the contract. §713.015(2)(a), Fla. Stat. (2012). The warning is not required when the owner is a licensed contractor or a developer. §713.015(2)(c), Fla. Stat. (2012).
The statute does not specify a remedy for failure to include the warning. Prior to 2007, it was generally understood that an owner could assert failure to include the warning as a defense to lien enforcement by the contractor. See e.g. Basic Companies, Inc. v. Willis, No. 2005CA-002619, 2005 WL 5525824 (Fla. 10th Cir. Ct. 2005) (holding that contractor’s failure to include the warning language in the contract removed contractor’s lien rights but did not invalidate the contract). Since the 2007 amendments to the statute, it appears that the failure to include the warning is a defense to lien only if the owner can show the lack of warning had an adverse effect upon the owner. §713.015(2)(b), Fla. Stat. (2007). The requirements of this statute do not affect the lien rights of lienors who are not in privity with the owner. §713.015(2)(c), Fla. Stat. (2012).
Chapter 558 of the Florida Statutes, known as Florida’s Construction Defect Statute, provides an alternative method to resolve construction defect disputes. §558.001, Fla. Stat. (2012). The statute requires an owner to take certain steps prior to suing a contractor for construction defects, for the purpose of resolving the dispute without tapping into judicial resources. Seeing that consumer awareness of the alternative mechanism and its requirements was beneficial, the Florida Legislature made it mandatory that construction contracts contain a notice provision. See Section 558.005, Florida Statutes (2012).
Prior to 2009, a somewhat lengthy notice provision was required. See §558.005(3), Fla. Stat. (2012). Post 2009, unless the parties agree that Chapter 558 does not apply, any written contract for improvement of real property entered into between an owner and a contractor must contain substantially the following notice: “ANY CLAIMS FOR CONSTRUCTION DEFECTS ARE SUBJECT TO THE NOTICE AND CURE PROVISIONS OF CHAPTER 558, FLORIDA STATUTES.” §558.005(6), Fla. Stat. (2012).
Parties to a construction contract can agree to opt out of the requirements of Chapter 558, but must do so in writing. Simply leaving the mandatory notice provision out of the contract will not suffice to eliminate the need to comply with this statute. §558.005(1), Fla. Stat. (2012).
As for remedies, the Florida Legislature made it clear that failure to include the mandatory notice in the contract does not subject the contracting owner, contractor, or design professional to any penalty. The purpose of the contractual notice is to promote awareness of the procedure, not to be a penalty.
While the focus in this article is limited to contractual provisions, to get a better understanding of Chapter 558 as a whole, read Top 5 Things You Should Know About Florida’s Construction Defect Statute.
Florida Homeowners’ Construction Recovery Fund.
Florida’s Legislature enacted Statutes 489.140 et seq. to create a Homeowners’ Construction Recovery Fund. Generally speaking, the Fund compensates homeowners who have uncollectable judgments against their contractor based on certain listed grounds. Section 489.1425, Florida Statutes (2012) imparts a duty on the contractor to notify residential property owner of the Fund. The duty requires that any contract for repair, restoration, improvement, or construction to residential real property must contain a written statement explaining the property owner’s rights under the recovery fund, except where the value of all labor and materials does not exceed $2,500. The written statement must be substantially in the following form:
FLORIDA HOMEOWNERS’ CONSTRUCTION RECOVERY FUND
PAYMENT MAY BE AVAILABLE FROM THE FLORIDA HOMEOWNERS’ CONSTRUCTION RECOVERY FUND IF YOU LOSE MONEY ON A PROJECT PERFORMED UNDER CONTRACT, WHERE THE LOSS RESULTS FROM SPECIFIED VIOLATIONS OF FLORIDA LAW BY A LICENSED CONTRACTOR. FOR INFORMATION ABOUT THE RECOVERY FUND AND FILING A CLAIM, CONTACT THE FLORIDA CONSTRUCTION INDUSTRY LICENSING BOARD AT THE FOLLOWING TELEPHONE NUMBER AND ADDRESS:
The statement shall be immediately followed by the board’s address and telephone number as established by board rule. §489.1425(1), Fla. Stat. (2012).
The statute prescribes certain penalties against a contractor who fails to include the notice. For a first violation, the contractor may be fined up to $500. §489.1425(2), Fla. Stat. (2012). After that, a contractor may be fined $1,000 per violation. Id.
Contractor’s License Number.
A contractor’s license is required to perform certain construction work in Florida. A licensed contractor is required to affix his or her license number on all construction contracts he or she enters into. Section 489.119(5)(b), Florida Statutes (2012). Specifically, “[t]he registration or certification number of each contractor shall appear in each offer of services, business proposal, bid, contract, or advertisement, regardless of medium, as defined by board rule, used by that contractor or business organization in the practice of contracting.” Id.
A contractor that fails to comply with Section 489.119(5)(b) is subject to penalty. §489.119(5)(e), Fla. Stat. (2012). For a first offense, the contractor is given notice and an opportunity to correct; failure to correct upon 30 days from notice will subject the contractor to fine or citation. For all subsequent offenses, the contractor is subject to fine or citation without notice and opportunity to correct. Id.
Sale of Property.
Often times, new home construction contracts involve the sale and purchase of real estate in addition to a pure construction transaction. In these cases, Florida Statutes mandate additional contract provisions that do not otherwise apply in pure construction contracts. The focus of this article is limited to pure residential construction contracts, so we’ll just make mention of two statutorily-required provisions to be aware of if real estate changes hands as part of the construction deal.
First, Section 501.1375(2), Florida Statutes (2012), requires notice to the buyer of the buyer’s right to have deposit funds placed in escrow account. Second, we suggest including in the contract a disclosure of ad valorem taxes to comply with Section 689.261, Florida Statutes (2012).
The dictates of Florida Statute play an integral role in construction contracting. As discussed supra, there are important statutorily-required provisions to include in a residential contract. As well, it is vital to stay abreast with Florida Statute, as these requirements continue to evolve and new requirements are added. For these reason, we suggest you have an attorney review and revise your construction contracts on a routine basis.