Lien Law Overview & Definitions

Q. Florida Construction Lien Law Executive Summary

A; The Construction Lien Law, formerly known as the Mechanic’s Lien Law, has served as a source of confusion to owners, contractors, suppliers and materialman that seek to enforce its provisions. As outlined in Chapter 713, Florida Statutes, the Construction Lien Law established the ground rules for enforcing a construction lien on real property. The lien law authorizes those that furnish labor and material to improve real property as well as those that perform professional services, such as architects, landscape architects, engineers, interior designers, land surveyors and mappers to file a lien as security for payment. By following the Construction Lien Law, owners also benefit by being assured that the total payments made to the general contractor will not exceed the original price.Florida’s Construction Lien Law creates a system of notices which, if used properly, provide a balance of protections for owners, contractors, subcontractors, sub-subcontractors and material suppliers. The statutory scheme is substantially affected by the relationship of contractual privity between various parties in the “chain of contracts.” The Construction Lien Law is strictly construed by the Florida courts, requiring careful compliance with the statutory time periods and other requirements governing service of all required notices of Chapter 713, Florida Statutes. If potential lienors violate a provision of Fla. Stat.§ 713 or miss a deadline, in most circumstances, they will forfeit their lien rights.Generally, an owner’s only responsibilities are to file and post a Notice of Commencement on the jobsite before an improvement is commenced and to make proper payments. The Notice of Commencement contains all the information necessary for potential lienors to file and perfect a construction lien. To make a proper payment, an owner should require that the contractor provide the owner with waivers from each subcontractor working on the job prior to each payment draw. This will ensure that each subcontractor has been paid for their work before the contractor is paid.

To obtain a lien, a lienor not in privity with the owner must file a Notice to Owner upon first furnishing services or materials, or within 45 days thereafter. Both non-privity lienors and lienors in privity must also record a Claim of Lien within 90 days after final furnishing and must serve a copy of the Claim of Lien on the owner 15 days after filing. Finally, the lienor must initiate a proceeding to enforce the lien within one year of filing the claim of lien, or else the lien is extinguished.

An owner may shorten the period for filing an action to enforce the lien in three ways. The owner may file a Notice of Contest of Lien, which shortens the deadline to foreclose to 60 days. The owner may also file a Complaint to show cause. This action requires the lienor to come before the court within 20 days to show proof of the lien, or else the lien is extinguished. Lastly, an owner may also try to extinguish a lien by serving upon the lienor a Demand for Sworn Statement of Account. This demand requires the lienor to respond within 30 days, under oath, with a statement containing the services provided by the lienor and the compensation owed for those services.

The following table is a quick reference chart to the deadlines for both an owner and a potential lienor.

Construction Lien Deadlines

Q: What Florida statutes generally cover Florida construction lien law and how are they construed?

A: Chapter 713, Part I, Florida Statutes. Because a construction lien is a creature of statute, Florida case law holds that those seeking its benefit must strictly comply with the requirements of construction lien law or else forfeit their rights to claim a lien. However, compliance in most circumstances may often be very difficult since Florida’s construction lien law has long been recognized as one of the most complicated and confusing of all Florida statutes.

Q: What is a construction lien?

A: A lien is a vehicle for a statutorily specified claimant who has furnished labor, materials or services to a private project to hold security in the improved property and ultimately get paid. Under Chapter 713, Florida Statutes, liens are affidavits prepared under oath by the lienor stating that the lienor has provided labor, material, supplies or services to improve real property and has not been paid the amount stated therein.

Q: What is lienable?

A: The items that are considered lienable are set forth by lien statutes in Fla. Stat. §713.01. These items include items used for the “improvement” of real property. “Improve” means build, erect, place, make, alter, remove, repair, or demolish any improvement over, upon, connected with, or beneath the surface of real property, or excavate any land, or furnish materials for any of these purposes, or perform any labor or services upon the improvements, including the furnishing of carpet or rugs or appliances that are permanently affixed to the real property and final construction cleanup to prepare a structure for occupancy; or perform any labor or services or furnish any materials in grading, seeding, sodding, or planting for landscaping purposes, including the furnishing of trees, shrubs, bushes, or plants that are planted on the real property, or in equipping any improvement with fixtures or permanent apparatus or provide any solid-waste collection or disposal on the site of the improvement. “Improvement” means any building, structure, construction, demolition, excavation, solid-waste removal, landscaping, or any part thereof existing, built, erected, placed, made, or done on land or other real property for its permanent benefit. Furnished materials, including materials incorporated into improvements, specially fabricated products, extras or change orders, and contract modifications are also lienable. Punch list and warranty work is not. Lien claimants must improve the real property in such a way as to result in a “permanent benefit” to the land.

Q: What property can be liened?

A: Liens can only attach to private projects on real property. “Real property” means the land that is improved and the improvements thereon, including fixtures, except any such property owned by the state or any county, municipality, school board, or governmental agency, commission, or political subdivision. Federal, state, county and municipal property is exempt from the operation of the Construction Lien Law.

Q: What are the critical pre-lien notices required under Florida Construction Lien Law?

A: The Notice of Commencement and Notice to Owner/Contractor

Q: What are the basics and functionality of the Notice of Commencement?

A: As set forth in Fla. Stat. §713.13, the first notice required by the Florida Lien Law is a Notice of Commencement. This statutory form notice is intended to be an easily accessible public record giving notice of the commencement of the construction project. It also contains a brief description of the project, a legal description of the property, and all of the information needed by other parties involved in the construction project (names and addresses of the owner, the contractor, the lender, a surety if the project is bonded, and any other person who should be served). The owner has primary responsibility for preparation of the Notice of Commencement and recording it in the public records of the county where the real property is located as well as posting a certified copy of the Notice on the site of improvement. If a lender is involved, the lender has a responsibility to the owner to insure that a Notice of Commencement is prepared and recorded prior to commencement of construction.

When an owner fails to file a Notice of Commencement, it creates several different problems for subcontractors and the owner. A subcontractor needs the Notice of Commencement for two reasons. The first is to provide the address of the owner for the subcontractor to send the Notice to Owner. The second reason is that the Notice of Commencement creates the date at which the lien attaches. If the owner fails to record a Notice of Commencement, then the lien attaches at the time the subcontractor files the lien. If there are multiple liens, then the priority is determined at the time the lien is recorded. Any conveyance, encumbrance or demand recorded prior to the time the notice is recorded has priority over any liens filed after recording. In addition to providing important project information, if a properly recorded Notice of Commencement exists for a project, all liens recorded against that project relate back to the date on which the Notice of Commencement was recorded and are, therefore, equal in priority.

If the homeowner fails to record a Notice of Commencement or makes payments after the expiration of the Notice of Commencement, then all payments made to the contractor would be deemed an improper payment and the homeowner could end up paying twice for the same work, once to the contractor and once again to the subcontractors.

Another issue with the Notice of Commencement is that many homeowners are filing the Notice of Commencement prior to their lender recording the mortgage. This results in the construction liens taking priority over the mortgage. The reason that many homeowners file the Notice of Commencement prior to finalizing their mortgage is that contractors mistakenly believe that the Notice of Commencement is required in order to receive a building permit. The reason that contractors think that the Notice of Commencement is required is because many county and city building officials include the Notice of Commencement on their building permit checklist. Past research has yielded that several building officials indicated that the filing of a Notice of Commencement at the same time as the application for a building permit is filed streamlines the process. They indicated that if a building inspector inspects a job site and a Notice of Commencement has not been filed, then the inspection is not approved and construction is delayed. If the Notice of Commencement has been filed with the building official, then the first inspection goes much more smoothly. If the Notice of Commencement is filed before the lender records the mortgage, then the lender or homeowner will have to go through the expense of filing a Notice of Termination, obtaining waivers or release of liens from all subcontractors, and re-filing the Notice of Commencement after the lender has recorded the mortgage. This can lead to extra expenses for the lender and the homeowner.

The Notice of Commencement provides all necessary information for those who furnish labor and materials to send a Notice to Owner. By recording a Notice of Commencement, the owner can require the general contractor to supply releases of lien from all persons that have served a Notice to Owner. Construction must be commenced within ninety (90) days from the date that the Notice of Commencement had been recorded. The Notice of Commencement is effective for one (1) year after it is recorded unless otherwise provided in the Notice. The form for the NOC is provided in Fla. Stat. § 713.13(1)(d).

Previously recorded Notices of Commencement which have not expired or have been terminated may be amended to extend the effective period. A Notice of Commencement may be terminated by executing, swearing to, and recording a notice of termination according to the requirements of Fla. Stat. §713.132. The construction must be completed or ceased before termination and all lienors must be paid in full or pro rata. Notices of termination are not effective unless they have been served on the contractor and each lienor who has served a notice to owner.

Q: What should I do if I am a lienor and have received a Notice of Termination?

A: If you are a lienor on a project who is still owed money and receive a notice of termination, you should immediately record your claim of lien. Otherwise, the notice of termination becomes effective to terminate the notice of commencement and your lien will not relate back to the date of recordation of the notice of commencement. Even if the lien is recorded within 90 days of the lienors final furnishing of labor, services and materials to the project, it will not have priority over interests acquired in the property prior to the construction lien being recorded after the notice of commencement is terminated.

Q: How are liens waived, released and satisfied?

A: The terms waiver and release, when used in connection with construction claims, have been used interchangeably. Technically speaking, a waiver is the giving away of a future right. A release is the giving away of an accrued right. A satisfaction of lien is the term that is generally used to denominate the giving away of an asserted claim after a claim has been recorded.

During the past decade, statutory forms have been added to the laws governing private and public construction projects. Although the law permits a lienor to utilize a different form of their own choosing, it prohibits anyone from forcing a lienor to use a different form. These provisions were enacted in order to protect lienors from waiving rights other than lien and bond rights and to help curtail the widespread use of complex forms that require review by attorneys on a case-by-case basis. The statutes provide separate waiver forms to be used for progress payments and for final payments, for bonded projects and for non-bonded projects. Releases will release lien rights up to a specific sum or all claims for work done through a certain time.

Fla. Stat. §713.20 provides for the waiver or release of a lien by any lienor giving a Notice to Owner and may be requested by the owner prior to making a payment to the contractor. The provision does not allow the lienor to waive the right to payment in advance of doing the work, but nothing prohibits the waiver prior to receiving payment. These waivers must be obtained by the owner prior to each payment to the contractor if the owner has received a Notice to Owner from a subcontractor. If the owner does not request a Waiver or Release of Lien prior to each payment, the payments become improper. If the owner’s payments become improper, he or she may become liable to any lienor who has properly served notice and recorded a lien and therefore may end up paying twice for services or materials. Requiring and obtaining a Release of Lien at each payment for every Notice to Owner filed by a subcontractor “closes the loop” and releases the owner from liability for those payments.

Q: What is a Contractors Final Payment Affidavit?

A: A Contractors Final Payment Affidavit is a document furnished by the contractor that must state that all lienors under direct contract with the general contractor who have timely served a Notice to Owner on the owner and the contractor have been paid in full or, if otherwise, must show the name of each lienor who has not been paid in full and the amount to or to become due each for labor, services, or materials furnished. Contractors must provide a final payment affidavit at least 5 days before filing suit or he or she is precluded from foreclosing on real property.

In certain instances, and in reliance on the Contractor’s Final Payment Affidavit, an owner of the real property improved may disburse monies owed to subcontractors and/or materialmen disclosed in the Contractor’s Final Payment Affidavit. An owner may do so only after giving the contractor at least ten (10) days written notice of his or her intention to do so and the amount he or she proposes to pay each of the subcontractors and/or materialmen.

Q: How are unlicensed contractors treated under Florida Lien law?

A: The Construction Lien Law only permits a licensed contractor, subcontractor or sub-subcontractor to lien property. Upon receipt of a Claim of Lien, the owner should ascertain whether the lienor was properly licensed to perform work. Confirmation can be acquired by contacting the appropriate licensing authority, such as the Florida Construction Industry Licensing Board. If not licensed, the lien can be declared invalid and unenforceable.

Q: What disciplinary actions and criminal penalties can be imposed for abuse of Florida’s Construction lien laws?

A: Fla. Stat. §713.345 provides that a permissive inference that a person knowingly and intentionally misapplied construction funds when: a) valid lien has been recorded against the property of an owner; b) over 45 days have passed since the person who ordered the labor, services or materials received sufficient funds to pay for such labor, services or materials; and c) the person has failed to remit sufficient funds to pay for the labor, services or materials. Based on the amount misapplied, the accused may be charged with a felony of the first, second or third degree.

Further, Fla. Stat. §713.35 provides that anyone who knowingly and intentionally furnishes an affidavit, a waiver or release of lien or other document containing false information about the payment status of subcontractors, sub-subcontractors or suppliers on which others rely is guilty of a felony in the third degree.

Any licensed contractor may be subject to disciplinary action by the Florida Construction Industry Licensing Board for attempting to discourage service of Notice to Owner or Bond Notices. A contractor may also be disciplined if it is proven that a valid lien has been recorded against the property of a contractor’s customer for supplies or services ordered by the contractor for the customers job; the contractor has received funds from the customer to pay for the supplies or services; and the contractor has not had the liens removed from the property by payment or by bond within 75 days.

Q: What is a fraudulent lien and what are the penalties for filing one?

A: A fraudulent lien is a complete defense to a lien foreclosure action. A fraudulent lien arises when a lienor has: (1) willfully exaggerated the amount for which the lien is claimed; (2) included a claim for work not performed or materials not furnished; or (3) asserted a lien for work admittedly not performed, non-lienable items, or compiled a claim of lien with such willful and gross negligence as to amount to a willful exaggeration. Fla. Stat. §713.31.

Fraudulent liens typically involve situations where the completion of the work is disputed. A fraudulent lien can also arise where the lien amount is based upon a disputed method of compensation, or where the lien includes amounts not authorized by contract or change orders. A minor mistake in a lien or a good faith dispute as to the amount due is not considered a willful exaggeration and will not give rise to a fraudulent lien.

A fraudulent lien can also give rise to an affirmative claim for damages against the lienor. A lienor who files a fraudulent lien may be liable for actual damages, including attorney’s fees, the amount of any bond premium required to discharge the lien, court costs, and punitive damages not exceeding the difference between the amount claimed by lienor and the amount actually due. Further, in extreme cases, a fraudulent lienor may be subject to criminal and administrative penalties.