This blog has been taken from a webinar presented by SunRay Construction Solutions and Alex Barthet. Alex is a board-certified construction lawyer who serves clients in the state of Florida.
Why Notices, Liens, and Bonds?
So why are we talking about notices, liens, and bonds, and why is it important? When the law in Florida and many other states allows those that improve property to have a security interest in that property, the exchange for getting the right to that security interest is to follow certain rules.
The rules that exist typically require you as a lienor to jump through some hoops and provide certain notices within certain amount of time. And we are going to talk about what those time frames are.
a. Put folks on notice of your rights
The reason this is important is that these documents put everyone else in the chain of construction on notice of your rights. Generally speaking, it is not always the case and there are many exceptions to the rules that we are going to discuss.
But the failure to timely serve these notices or to serve the wrong notice will invalidate your right to have a security interest in the property. When we say security interest, we mean that if you work on a project, you have lien rights, and you exercise those lien rights, if there is any equity in the property then you have the right to sell the property on the courthouse steps. Any equity that exists in that property will be liquidated in the form of a sale, and you will be paid.
It does not always guarantee that you are paid in full, because there may be no equity in the property that you lien. But it gives you a very strong right to take the property away from its owner.
b. Tells everyone you are serious about getting paid
The other reason these notices are important is that it lets everyone know you are serious about getting paid. You know the rules, you know how it works, and you are going to follow the rules to make sure that you get paid and secure the longevity of your company.
c. Required to secure your right to payment
If you have an obligation to send notices and you do not, you will not have a right to the property or the bond claim.
d. Forces owners and contractors to get a release from you to pay your customer
Interestingly, and barring the actual ultimate sale of the property at a foreclosure sale, these notices have an immediate effect on a project. Because those who understand the rules know that when they get a notice from you, that they need to get a release from you every time they pay the contractor.
So, your notice acts as a marker for them to say that they are going to pay the contractor, that they got a notice from a subcontractor or supplier and that they are not paying you, the contractor until they get a release from them.
Your notices alert the owner that you exist on the property and requires that you are paid in order for them to pay the contractor. And that check and balance is critical. The true value of the notice day to day is more about that check and balance about getting the owner to know that you are there, and therefore require a release from you or the contractor to require a release from the subcontractor because you sent a notice.
That is a much more every-day power of the notice laws than the actual ultimate foreclosure of the property. Not that that is not important, but the way it usually happens day to day is like that.
Notice to Owner
a. What is a Notice to Owner?
If you do not have a direct contract, whether it is verbal or written, with the owner of a property, you need to send a Notice to Owner to secure your construction lien or bond claim rights. The time frame to send a Notice to Owner is 40 days from the first day that you furnish labor and/or material to the project.
Now there is an exception to this rule, and that is for specially fabricated materials. So, when you are working on a specific glass for example, and it can only be constructed for a specific building, that would be considered specially fabricated. The clock starts ticking as soon as you start fabricating.
Now we will get into the difference between private projects and public projects.
b. On private projects and public projects, who needs to send an NTO?
Private projects are residential properties or commercial properties. Private projects on the other hand are owned by the city, the state, or the county. These projects cannot be liened. There is no such thing at all, in the state of Florida as liening a public project.
The purpose of a lien is to cloud the title of the property where you can foreclose on it, and possibly end up owning a building. Now, you cannot do that with public projects. So what is there to secure your payment? You have the bond.
Who needs to send a Notice to Owner? The document is called a Notice to Owner/Notice to Contractor. It is a combined form. At SunRay, we ensure that your form is both for private projects and for public projects.
For public projects, if you do not have a direct contract (verbal or written) with the general contractor who is carrying the bond, then you need to send a Notice to Owner. Now best business practice is to always send a Notice to Owner even if you have a direct contract with the general contractor on bonded projects.
c. When must it be sent and received?
You have 40 days from the first day you are on the property to send your NTO. The Notice to Owner must be received by the 45th day from first furnishing. Best business practice is once again, to not wait until the final hour to send your notices.
As soon as you have the contract in place, you should send these notices. A lot of companies use them as collection tools if they are not paid after, say, Day 35, to expedite payment. It does not help you in some ways because you could forget to send your notices. So many people forget to send their notices, so you should make sure you send yours at the beginning of the project.
d. What is first work? How early can I send it?
You can send your Notices to Owner as early as you wish. You just cannot send your Notices to Owner late. Your first day of work is when you are improving the project. So, when you furnish material to a project or when you are putting up drywall, that is your first day on the job.
Pro-Tip #1: Determine a monetary threshold in your office and send notices on all jobs over that amount
Determining the monetary threshold depends on you. There are often times when a project starts out at a certain amount of money, let us say $500 and before you know it, it is a $7,000 project with change orders.
Claim of Lien
a. What is a Claim of Lien?
A Claim of Lien is a document that is recorded in the public record. It sets forth who you are, who the owner is, who hired you, when you did first work, and when you did last work. It is the document that clouds the title and becomes the encumbrance that you will ultimately – if you have to – use as the basis to foreclose and take ownership of or sell a property.
It needs to be signed, notarized, and recorded in the county where the project is located.
b. On a private project, who needs to record a Claim of Lien?
If you have a contract with an owner, you will record your Claim of Lien. You do not need to send a Notice to Owner because you have a direct contract with the owner. But everyone else like subcontractors, sub-subcontractors, suppliers, and suppliers to sub-subcontractors need to record a Claim of Lien in order to secure their right to be paid on the project.
c. On private projects, who needs to record a Claim of Lien?
As mentioned above, on public projects there are no lien rights; that is a bond claim. Sometimes people will record Claims of Lien on public projects. It is not that the clerk is going to reject your construction lien. The clerk who receives these liens does not look at them, does not check dates, owners, or amounts. They just check that it is signed and notarized and, accept it.
So, just because the clerk accepts the Claim of Lien for whatever you have put in it does not mean that it is valid or enforceable. If you try to lien a public project, the clerk will accept it, but it is a meaningless document. It will have no effect legally when you need to record your Claim of Lien.
d. When must a Claim of Lien be recorded?
You need to record your claim no later than 90 days from your last work on the project. The 90 days is counted starting on the day after your last day of work. So if you show up today and finish all your work, Day 1 is tomorrow. So, you count all days, weekends, and holidays all the way through from Day 1 to Day 90.
If Day 90 falls on a weekend or legal holiday where the clerk is closed, it rolls to the next day. So if your 90th day is Saturday, it rolls to Sunday, and if Monday is a holiday it rolls to Tuesday. So it is possible for you to have 93 days to record your Claim of Lien.
e. What is not “last work?”
Now we will talk about what is not last work because this is always a question that people ask. Punchlist work, warranty work, and passing inspections are not counted as “last work” by themselves. Now you may be doing punchlist work at the same time that you are doing real work. So that may actually be your last day of work.
But if you finish your work today and you go back as the painter to touch up certain areas of the building. Then your last day of work is today, not a week from today when you go back and do the punchlist. If you are a plumber, you finish all your work today, a week from today the inspector comes in and you pass your final inspection, your last work is not the day of the inspection passing, it is the day you last did work.
Base contract work and approved change order work does constitute last work for your lien rights.
For example, you install doors, and you miss your 90-day window to record a lien. Then you are called and asked to install another door which they have not approved. It is $1,000 and the other side will sign a change order. You should absolutely do it. Put the door in your truck, install it, and get the signed change order because that will revitalize your lien rights. You will have done an approved change order and your 90 days will reset. Therefore, you have the right to go back and lien the job.
Also remember that just because you expect to go back, if you actually never go back to do work, your 90 days may expire. For example, you do work and the job gets shut down or you are demobilized from the job, you think that you will go back in two months, and that you do not need to lien now. But if something happens and you actually never go back, then you will lose your lien rights because the court is not going to care that you do not have the ability to go back. If you do not go back, you do not reset your 90 days.
This was seen a lot with the coronavirus. Jobs stopped, the 90 days expired, and some of the jobs did not start again. But you do not get an exception even because of the virus. If the job does not restart, you needed to have recorded your lien within 90 days of your last work. And if your last work was before a shutdown, then that is the date that matters.
Pro-Tip #2: Do not wait until the last few days. It takes time to prepare/record and could be problematic depending on what your last work was
Do not wait till the last few days just like mentioned above. Do not wait till the last minute to send your notice or to record your Claim of Lien. It takes time to prepare the lien and to record it. Typically, we see recording dates in more populous counties like Dade County, and even to record electronically (because you are still now allowed in person) at 5 days.
So everything is ready for you to submit to the clerk to record electronically and it could take five days before the clerk accepts it. That by itself is not a reason to say that you did everything you could and that your construction lien should still be good. There is no good case to support that. So, you need to make sure that you start at about Day 60.
At Day 60 from your last work on the job, you need to make sure that you are starting the process to record a lien so that you are not waiting until day 85 or 87.
Payment Bond Claims
Now we will talk about payment bond claims. This is the type of claim that you can assert when you work on a public project.
a. What is a Notice of Nonpayment?
A Notice of Nonpayment is the cousin to the Claim of Lien. When you are owed money on a public job, or a private bonded job and that contractor has not paid, or if you are a subcontractor or supplier and you have not been paid, you need to serve a Notice of Nonpayment. It is still a notarized document. It has slightly less information than a Claim of Lien and it needs to be prepared and notarized. Then it needs to be sent to the interested parties on the project, which would be the surety and contractor.
b. On private projects, who needs to send it?
On private projects not every single project is bonded. But if it is, then you need to send the Notice of Nonpayment, if you do not have a contract with the bonded contractor. For example, if the contractor has a bond on this private job and you are a plumber with a contract with the contractor, you do not need to send the first notice which is the Notice to Contractor mentioned above. But you still need to send a Notice of Nonpayment on this private job within 90 days of your last work.
c. On public projects, who needs to send it?
The same is true for public projects. The key is, just like it is best practice to serve your Notice to Owner whether you need to or not, you should be recording your lien and serving your Notice of Nonpayment no matter what within 90 days of your last work on the job,
d. When must it be sent and received?
It needs to be received by the contractor and the surety no later than 90 days from last work. The 90 days is counted the same way as the Claim of Lien. So if your last day is today, tomorrow is Day 1. You count every day in between, weekends and holidays. When you get to the 90th day, if it falls on a weekend or legal holiday, it carries to the next business day. This document is also not recorded, it is just sent.
It should be sent via certified mail but it can also be sent via overnight mail within seven days of the deadline, to make sure that nothing goes wrong with the certified mail. So, you can send it via FedEx, priority mail, or certified mail.
e. What isn’t “last work?”
Last work here is the same as for the Claim of Lien. So punch list work, warranty work, or getting an inspection pass does not count as last work. It has to be substantive work like approved change order work. That is going to be your last day of work under the lien and bond statute.
Pro-Tip #3: If you are in privity with the bonded public contractor, you do not need to serve a Notice of Nonpayment
You should not use it all the time, but it is good to know in case maybe there was a slip up, that you still have rights. If you are in privity with the bonded public contractor, you do not need to serve a Notice of Nonpayment. For example, if you are a plumber on a school board project and your contract is with the bonded contractor.
You do not need to send a Notice of Nonpayment in order to have rights on that bond. It is strongly encouraged you to still do it. You should have a practice in your office that any time you are owed money, at day 60 you should start the process of either recording a lien or serving a Notice of Nonpayment. But in the rare situation when it falls through the cracks, this is one of the many exceptions that exist in the lien law.
Pro-Tip #4: Not every public project is bonded
Also know that not every public project is bonded. There are certain thresholds that have to exist. So, just because you are doing work on a public project, do not assume that the job is bonded. For example, the law in Florida is that for any job between the public entity and the contractor, if it is less than $200,000, it does not need to be bonded. If it is between $200,000-$400,000, it is at the discretion of the municipality, whether they want it bonded or not. If it is over $400,000 then it has to be bonded.
So, is it possible that you could be on a small public job thinking that it is bonded but there is actually no bond? Absolutely. So be very careful and check that out before you start your work.
In those situations, if you go into a project and you know that it is not bonded, what you can do (it may not always work) is have a joint check agreement. So that is a way to assist you in some type of guaranty of payment. It is something that can help you. When you are working on a public project, it is an important question. And it is not a question that you have to worry about asking the general contractor, because it is a very normal part of business where you are required to carry a bond.
If so, you should ask for a copy of it to include in your records. If you are looking to the bond as your primary tool to mitigate the credit risk of this job, what if that bond does not exist? What else can you do to mitigate that credit risk? A joint check agreement is a great way to do that.
Putting It All Together
Now we will put everything together from beginning to end. We will round up all the time frames in one slide so that you have them all.
a. Within 45 days of your first work, serve an NTO
No later than 45 days from your first work (and we mentioned it should be sooner), you need to serve that Notice to Owner/Notice to Contractor.
b. Within 90 days of your last work, record a lien or serve Notice of Nonpayment
Within 90 days of your last work on the job, you need to record a lien or serve your Notice of Nonpayment. Again, the 90th day is the absolute last day for it to be either recorded for the lien, or received by the contractor and surety for the Notice of Nonpayment.
c. Within 15 days, serve the lien on all interested parties
Within 15 days of recording the lien, a copy of it needs to be served on all interested parties. When you use SunRay, we take care of all these mailings for you. So, everything is sent automatically, but this is another obligation that if you do it yourself, not only do you have to record the lien, but you also need to send a copy within 15 days to everyone on the project that is listed in the Notice of Commencement.
d. If in privity with the owner, serve a Contractor’s Final Affidavit at least 5 days before lawsuit to foreclose on lien
If you have a direct contract with the owner, there is another document you need to prepare, notarize, and send to the owner at least 5 days before you file your lawsuit to foreclose on the lien. That is called a Contractor’s Final Affidavit. Again, this is only if you have a direct contract with the owner and you have a construction lien on the project.
e. File suit on the lien within 1 year from the recording date of the lien
f. File suit on the bond claim within 1 year from your date of last work
If you have a claim on a payment bond, you need to file your lawsuit against the surety no later than one year from your last day of work. So notice that a lien foreclosure case has a slightly different deadline of one year from the recording date of the Claim of Lien, versus a bond claim which is one year from your last date of work.
Now in both points e and f above, the dates can be shortened. There are ways for the owner, contractor, and the surety to shorten the time that you have to sue. Sometimes it can be reduced to 60 days, and sometimes even down to 20 days.
You will get notice of those documents if they are in effect, but just know that it is not always one year. It can be shortened sometimes.