This blog comes from a webinar that was presented by SunRay Construction Solutions and Alex Barthet. Alex is a board-certified construction lawyer who serves clients in Florida. In this blog we will discuss the three Notice to Owner mistakes that can cost you big.
On the agenda for discussion are the following:
What Is a Notice to Owner and Why Will It Help Me Get Paid?
In the state of Florida, if you are not contracted directly with the owner of a property, you should send a Notice to Owner to secure your lien rights and bond claim rights. There are different scenarios to secure your lien rights.
1. Situations in which you may not get paid
There are some situations in which you may not get paid. For example, if the owner pays the general contractor but the general contractor does not pay you, or the owner does not pay the general contractor who then cannot pay you.
2. Person who hires you claims they are the owner, but they are actually the tenant
The person who hired you claims that they are the owner, but they are actually the tenant of the property. This is a very interesting scenario, because there are many times when general contractors fill out Notices of Commencement incorrectly and then peg the owner as being the one who is responsible for any of the construction, when it is in fact the tenant who is responsible.
Read more: How Do I Lien for Tenant Improvements?
3. Person who hires you should pay the supplier before the contractor
So, this is something to look out for when you are doing the construction project. And you know that you are doing the build-out work for a tenant. This is a way to make the owner aware that as a supplier or a subcontractor, you should be paid before payment is made to the contractor on the job.
4. It lets the customer know that you want to be paid on your terms
It lets your customers know that you are serious about getting paid on your terms and not their terms. Sometimes general contractors will pay people who notice first, and the people who do not notice are paid last.
5. If you are not paid, liening a property protects your equity interest in the property
In the event that you are not paid, liening a project protects your equity interest in the project.
6. If you are working on a bonded project, is secures your Claim on Bond rights
But if you are working on a bonded project, it secures your Claim on Bond rights.
Notice to Owner Deadlines
Many people think that they have only 45 days to send their Notice to Owner (NTO). But this is incorrect. The Notice to Owner needs to be received by the 45th day from the first day that work was started on the project.
Another important thing to note is if you are working on specially fabricated material. For example, a special door that can only be used in a specific building or residential property. The clock for specially fabricated material starts ticking as soon as you start making it.
A Notice to Owner should be sent 40 days from the first day that you work on the property. Because if it is sent by the 40th day, it is received by the 48th day, and it is stamped by the post office and a document called a manifest, then it does not matter if it is received by the 48th day.
The best business practice is to make sure that as soon as you sign a contract, you send out your Notice to Owner.
Exception to the 45-day and 40-day rule
It is possible to lose your lien rights though, even if you follow the 45-day or 40-day deadlines. The exception to the 45-day rule and the 40-day rule is if the general contractor gives a final payment affidavit and the owner disperses the final payment, you have lost your rights to lien the property.
The only way you can recoup your money in this situation is by going after the general contractor. So, waiting until the final hour to send your Notice to Owner is not a good business practice. You should send it as soon as you start the project.
Remember to use the accurate job address
You need to notice the correct address, because as you probably know, when you send a Notice to Owner, you are not just sending it to the owner of the property. You are also sending it to the general contractor and all essential parties that may be on the Notice of Commencement.
Now, a legal description for the property is in the Notice to Owner. That being said, an accurate address is essential because what you are saying is that this property is the one that we are improving.
These are some examples of bad addresses:
- Coordinates in the Pacific Ocean.
- Your job address, instead of your corporate office address,
- An unknown address,
- An incorrect address (like Fort Lauderdale instead of Miami), and
- Writing “Street” instead of “Avenue” and vice-versa.
If you write your own address it means that if you send the Notice to Owner to yourself, you will be liening your own property! So, you need to send it to the address that you are furnishing labor or materials. Always make sure that you have an accurate job address.
The Difference Between Private Jobs and Public Jobs
Very simply, private jobs are schools, office buildings, condos, warehouses, and residential properties. Public jobs are government-owned projects and include schools, court houses, public hospitals, and municipality offices.
Now remember, that you cannot lien a public project. This is because they have what is called “sovereign immunity.” You cannot lien a school, have it closed down and then take ownership of the property. But at the same time, you need to have the right to get paid for the work that you do. For this, there is what is called a “bond.”
What is very important to remember is that when you are working on a public project in the state of Florida, state public jobs must be bonded if they are over $400,000. Between $200,000 and $400,000, is at the discretion of the government entity to decide if they want to have a general contractor bond on it. And below $200,000, there may be no bonding.
If you are working for a subcontractor, and the subcontractor is working for the general contractor, they may also have a bond on the project. But you want to simply ask if they are bonded and if they were required to carry a bond on the project. If so, then you also want to ask for a copy of it.
The general contractor is required to record the bond in the county in which the work is being done. But there are also times when the general contractors do not record the bond. So, at the very beginning of the project, everything is fabulous but towards the middle, funds may become tight because people make mistakes. And you do not want to be in a situation towards the end of the project where you are looking for a subcontractor’s bond.
Finally, there are also federal projects, which are ones such as VA hospitals. These are governed by the Miller Act.
What Are the Traps I Can Find Myself in After I Have Sent a Notice of Commencement?
These are the most common traps to look out for after you send your Notice of Commencement:
1. What to do when you receive an amended Notice of Commencement
If you receive an amended Notice of Commencement, and the information is the same, just think about it logically. A Notice of Commencement lasts one year. They just need to amend it so that it can last three years.
2. Send a revised Notice to Owner
If it is the same information, you are safe, however it is best business practice to revise your Notice to Owner.
3. What to do if a Notice of Commencement is terminated
If a Notice of Commencement is terminated, the contractor, subcontractors, and suppliers need to be paid 100 percent, including retainage. If not, they need to be listed on the termination and accompanying affidavit.
The time to record a lien is reduced to 30 days from termination for the “old money” and a new NTO needs to be sent after the new Notice of Commencement is recorded. So, you need to be careful if you see a Notice of Termination.