Contractors Beware: The Importance of Due Diligence in Construction Contracting—A Lien Rights Horror Story
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In the world of construction, contracts form the foundation for successful projects, and most contractors understand the importance of negotiating their contract terms. However, many contractors underestimate the importance of due diligence when entering into an agreement. By “due diligence,” I mean looking outside the language of your contract to analyze the property and project team to identify potential risks, liabilities, or obstacles that could negatively impact your rights or the construction process.
One critical component of due diligence is analyzing your construction lien rights. For example, contractors can fail to ensure that that the “owner” party for the project is the “true” owner of the land the contractor is working on. A recent case illustrates the dangers of falling into this trap. WB’s Septic & Sitework, Inc. v. Tucker, 365 So.3d 1242 (Fla. DCA 2023). Under the facts of that case, the contractor was not able to enforce a construction lien or otherwise recover payment for work it properly completed, because they had contracted with the wrong party.
In WB’s Septic & Sitework, Inc., the contractor (WBS) contracted with Eddie Tucker for the installation of a septic tank, as well as other improvements to the property. However, Eddie’s mother, Cybil Tucker, was the actual owner of the property. Eddie represented to WBS that he was acting as her agent, and WBS took him on his word. The contract listed Eddie as the project owner, and neither WBS nor Eddie corrected this mistake.
To be sure, Cybil was fully aware that the construction work was occurring on her property. In fact, she had given Eddie permission to have the work performed. However, and this comes as a big surprise to most contractors, “The fact that an owner was present or aware of an improvement being made is not enough to subject” the owner to a lien or payment obligation. They must be a party to the contract (e.g. the actual owner must be named as the owner on the contract).
When Eddie failed to pay WBS, WBS looked to Cybil for payment and filed a lien. When Cybil refused to pay, WBS filed suit to enforce the lien, and sought damages for quantum meruit against Cybil. However, the trial court denied WBS’s claims, finding that there was not a contract with Cybil. WBS appealed.
On appeal, the First District Court of Appeals affirmed the trial court’s judgment—finding that the contractor was not entitled to any payment from Cybil. The Court found it determinative that Eddie had no ownership interest in the land. Therefore, he was not able to create a lien on the property. Additionally, because a valid contract existed with Eddie, there were no equitable remedies available against Cybil. Therefore, WBS did not recover any payment.
The Court recognized it may be “unfair and unjust” to let the property owner off the hook despite receiving the benefit of enhancements to her property. However, the law can be a harsh mistress, and Courts are bound to enforce the law even if the results may be unfair.
In conclusion, before taking on a new project, contractors need to do more than focus solely on the written contract terms. Reviewing the contract language is not enough. Due diligence of factors outside the four corners of the contract should be performed. Specifically, a contractor should ensure that the contract is between the correct parties, who have authority to sign the agreement and have the ability to create valuable lien rights.