Terminating a Notice of Commencement in Florida: Owner and Lienor Beware
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The Florida Construction Lien Law is an intricate machine full of requirements and traps for the unwary. The notice of termination of notice of commencement (Notice of Termination) is no exception. For the construction project’s owner, the Notice of Termination is a sworn document from the owner. For the lienor, the Notice of Termination is a sign that something is happening on the project and, therefore, the lienor must act quickly to preserve the priority of its lien for amounts owed.
Under the Florida Construction Lien Law, an owner or an owner’s agent (subject to some exemptions) is required, prior to commencing construction or recommencing completion of a project, to record a notice of commencement in the public records of the project’s location. See Section 713.13 of the Florida Statutes. From the lienor’s perspective, the notice of commencement is a critical document establishing the lienor’s priority interest in the real property where the project is located. Without a notice of commencement, the lienor’s construction lien will simply attach on the date the lien is recorded.
In some cases, an owner may attempt to terminate the notice of commencement, due to new financing for the project or simply to terminate all or a portion of the project. To properly terminate the notice of commencement, the owner must follow all of the requirements set forth in Section 713.132 of the Florida Statutes.
Owner Requirements When Completing and Recording a Notice of Termination
To properly terminate a notice of commencement, the owner must swear to and include the following information in its recorded Notice of Termination:
1. the same information as in the notice of commencement;
2. the book and page reference numbers and date of the notice of commencement;
3. the date which the notice of commencement is terminated, which date may not be earlier than 30 days after the notice of termination is recorded;
4. a statement that the notice of termination applies to all the real property subject to the notice of commencement or specifying the portion of such real property to which it applies;
5. a statement that all lienors have been paid in full; and
6. a statement that the owner has, before recording the Notice of Termination, served a copy of the Notice of Termination on the contractor and on each lienor who has a direct contract with the owner or who has served a notice to owner.
Tips for the Owner Prior to Recording the Notice of Termination
First and foremost, make sure the Notice of Termination is accurate. If an owner or contractor makes a fraudulent statement in the Notice of Termination, a lienor, who suffers damages as a result, has a claim for damages against the owner and/or the contractor. The prudent owner should obtain a contractor’s final payment affidavit (See 713.306(3)(d) of the Florida Statutes), showing who has and has not been paid on the project. The owner has the right to rely on this affidavit, except as to lienors who have given notice in connection with the Notice of Termination. If the owner obtains a contractor’s final payment affidavit, at least one Florida court has held that attaching it to the Notice of Termination satisfies the requirement of item number 5 above (that all lienors have been paid in full). Lasalle Bank National Association v. Blackton, Inc., 59 So. 3d 329 (Fla 5th DCA 2011) (interpreting statute to mean owner has right to rely on affidavit as an alternative to giving a sworn statement in its Notice of Termination that all lienors have been paid in full). Assuming there are unpaid lienors on the project, the owner must ensure they are paid before recording the Notice of Termination. Florida Construction Lien Law is clear—the owner cannot record the Notice of Termination “except after completion of construction, or after construction ceases before completion and all lienors have been paid in full or pro rata in accordance with § 713.06(4).” See Section 713.132(3) of the Florida Statutes.
Tips for Lienors Upon Receipt of Notice of Termination
When a lienor receives a Notice of Termination, he/she should immediately recognize that something significant is happening on the project. Regardless of the status of the project, the lienor must act quickly to ensure his/her lien priority and that the lien will relate back to the original notice of commencement, rather than some later date.
Under the Florida Construction Lien Law, the Notice of Termination is effective to terminate the notice of commencement at the later of either 30 days after its recording or the date stated in the notice as to the date of termination of the notice of commencement. Therefore, a lienor who is served with a Notice of Termination, and is owed money on the project, should prepare and record a claim of lien prior to the termination date of the Notice of Termination. This will ensure that the lien relates back to the recording of the original notice of commencement/lien, rather than some later date. By doing so, the lien will trump any future encumbrance on the property (such as a new mortgage from a new lender).