This blog was taken from a webinar presented by SunRay Construction Solutions and Alex Barthet. Alex is a board-certified construction lawyer who serves clients in Florida. We will discuss whether you can still lien a property if you do not have a contract.
What Is A Contract Under the Lien Laws
Before we can talk about what the lien law defines as a contract, we need to first generally understand what a contract is.
1. What is a contract?
In short, it is a meeting of the minds. It is where one party and another party agree in principle to certain key terms about what they are going to do.
2. What does the lien law require?
Because everything flows down from the owner, does the owner have a contract with the contractor? Understand that from the lien law perspective, a contractor is anyone that has a direct contract with the owner.
For example, if you are a plumber and you have a direct contract with an owner, under the lien law you are considered a contractor even though your trade would be more aptly classified as a subcontractor. So, the lien law requires that at the level of the owner, there exists some contract or agreement with a contractor.
As long as that exists, then the contract that the contractor has with others, whether it is with a subcontractor or supplier, everyone in the chain of the lien statute is protected. An example of a situation where there would not be lien rights would be if you are a painter, you receive an order, and in the process of processing that order to paint somebody’s house, you inadvertently transpose the digits on the address. So, you go out and paint the wrong person’s house.
If you do this, then you do not have construction lien rights because the person’s house you painted never had an agreement with you to do the work. So, as long as there is an agreement that exists between the owner and the contractor, then every other contract underneath that, assuming of course that the scope of work was within the original scope of contract that the owner was expecting, all of those parties have lien rights.
3. Does it have to be in writing?
The next question is does it have to be in writing and the short answer is no, it does not have to be in writing.
4. Does it have to be signed?
If it does not have to be in writing, then it does not need to be signed. The lien law has no specific mandate that the contract be in writing or signed, in order for there to be a valid and enforceable contract. There are however some exceptions to this, and we will talk about them now.
What Are the Benefits of a Written and Signed Contract?
The first thing you should understand is why you want a contract to be in writing.
1. Why a written contract?
Clearly, if the contract is in writing, the parties will have less to argue about. Because a specific provision in the contract can be pointed to, whether it is the price, scope, or the amount of insurance that was needed. Whatever terms you have in your contract, to the extent those are in the written document, it avoids a great deal of ambiguity and disputes.
When attorneys get hired by their clients to resolve disputes, many times what they are attempting to resolve are things that are not in the contract. If they were in the contract there would be a lot less to argue about. So, having a written contract is highly recommended.
2. What are the key contract terms?
There are some things that you should put in your contract.
The first thing you should include is the scope. What work are you going to perform? As important as it is to put in any exclusions that you know exist, like if there are things in your general scope of work that you know you do not do and are not included in your price, you should list those specifically as exclusions. This helps to avoid a dispute about whether they were or were not in the contract.
The next thing is price. Obviously, you need to articulate how much you expect to be paid for the work that you are going to perform.
c. Payment terms
Payment terms are also very important. You will need to include when and how you will be paid on larger projects or projects where you may be a subcontractor to a general contractor. The most significant issue is the one with the pay-when-paid provision which is a contract provision that says the contractor does not have to pay you as a subcontractor unless the owner pays the contractor.
Understanding how that provision works, when it is enforceable, and how it can be made unenforceable are things you should understand.
d. Start date and completion date
You should include a period of time or a triggering event when you intend to start the work as well as when you expect to finish the work. You need to decide those specific dates or duration.
These five things should be in your construction contract.
What About Any Mandatory Disclosures?
So, what about certain mandatory disclosures? These are those things that are required by the law to be given to the other party in order to have a valid and enforceable contract. So, this is the exception we are talking about. If you fall into a certain class of contractor, you are obligated to provide certain disclosures typically to the owner.
If you are a subcontractor it is never really an obligation to provide these disclosures to a general contractor. There is a series of disclosures that are required by the law, and again these apply almost exclusively to situations where you have a contract with a residential owner. So, if you are doing residential construction, these are certain disclosures that you need to have in writing.
Which means that you should have a written contract that includes all of the terms talked about before plus these in order to have a valid and enforceable contract.
1. Rights of Rescission
The first is the Rights of Rescission up to the extent you provide any sales at someone’s home. In someone’s home there is generally in most jurisdictions of law a three-day Right of Rescission. So, if you sell something effectively door-to-door but you consummate the sale in someone’s house you may be obligated to give them a three-day Right of Rescission and there may be certain warnings in the contract that you need to include.
2. Lien law
There are certain obligations to provide residential owners a warning about the Florida lien law and how it works. It is roughly a page worth of disclosures that is in Chapter 713 (the lien law). Those disclosures need to be in a certain size font and type on the first page of the contract. Failure to include these warnings could impact your ability to lien the property.
3. Construction defect
If the owner wishes to assert a claim that your work was defective, there are certain obligations under the law, also known as Chapter 558. This is how it is typically referred to. It requires certain mandatory disclosures in advance. So, they would be in your construction contract with an owner that makes reference to Chapter 558 of Florida Statutes.
4. Recovery fund
The recovery fund is for residential construction particularly in Florida. There is a certain fund that exists that is maintained by the state and to the extent a homeowner is injured because of a violation of Chapter 489, which would include mismanagement, deceit, or fraud if any. If any of those things were to occur, the claimant or injured party could make a claim on the state and if that claim was handled by the state and determined to be proper, that person may get up to $25,000.
In order for that fund to exist, they require certain disclosures in the residential construction contract. That is roughly a paragraph long as well in the contract.
5. Municipal requirements
Finally, there are certain municipalities that require disclosures for residential construction. Miami-Dade County is one that requires roughly a page in disclosures for any residential construction. So, the takeaway is that if you fall into the category that requires these disclosures, you have approximately two to two and a half pages of disclosures that are required by the law. The failure of which may jeopardize your ability to enforce your contract or lien the property.
What Is the Process to Secure Lien Rights?
Now that you know you do not need a written contract but you should have one, what is the process generally to secure your lien rights? We will go over this process now.
1. Notice to Owner
First, within 45 days of your first work on the project, you need to send a Notice to Owner. The 45 days is from the time that you start work or deliver your first materials. And no later than 45 days, the owner and those parties that need to get it per the Notice of Commencement need to receive it by the 45th day. So, sending it on the 45th day does not work. They need to receive it, and you should do it sooner rather than later.
If you have a direct contract with the owner, you do not need to send a Notice to Owner, but we still recommend that you do.
2. Claim of Lien
Next, within 90 days of your last work or delivery of materials on the project you need to record the Claim of Lien to secure your right to be paid. And last work does not include punch list or warranty work.
3. Contractor’s Final Affidavit
The Contractor’s Final Affidavit needs to be sent five days before you institute any foreclosure action on your lien. We recommend that if you are required to send the Contractor's Final Affidavit, you do it when you record your construction lien. Those that are required to send it are those parties that have a direct contract with the owner.
So, if you are a general contractor with an owner and you have a contract with an owner, within five days before you institute a foreclosure, we recommend that at the time you record your Claim of Lien that you send that Contractor’s Final Affidavit to the owner.
If you are a plumber, electrician or roofer, and you have a direct contract with an owner, you are obligated to send that Contractor’s Final Affidavit as well.
4. Foreclosure suit
Finally, you need to foreclose on your construction lien which means filing a civil action no later than one year from the recording date of the Claim of Lien. This period of time cannot be extended. There is no such thing as re-recording your Claim of Lien. You actually have to commence a civil action. That is the only way to keep your lien in place.
This period of time can be shortened by an owner down to 60 days if they send a notice to the clerk. You will receive that in the mail via certified mail or down to 20 days if they actually file a lawsuit against you to have that period of time of the one year reduced down to 20 days.
We advise that you seriously move forward on preparing your lien as when you hit about 60 days from your last work. This is so that you don’t run up until the very last minute to record your construction lien and then within 60 to 90 days of recording your Claim of Lien, you should seriously be considering moving forward unless you have a specific factual or business reason not to.
Every day that goes by that you are not attempting to collect debt that is on your books makes it that much harder to get paid.