Florida
Statutes section 713.245, creating conditional payment
bonds, was enacted in 1990 in response to the Florida Supreme
Court decision in OBS Co. v. Pace Construction Corp.,
588 So. 2d 404 (Fla. 1990). The Florida Supreme Court in
the OBS decision held that the surety providing a
section 713.23 payment bond was liable to claimants, despite
the fact that the contractor’s subcontract agreement
with the claimant contained a conditional payment (“pay
when paid”) clause. As a result, the surety, and,
ultimately, the contractor as the principal and indemnitor
on the bond, were liable to the claimant, thereby, defeating
the intent of the conditional payment clause in the subcontract
agreement. Since conditional payment bonds were created
solely in response to Florida Supreme Court decision, they
are unique to Florida.
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WHAT
ARE THE REQUIREMENTS FOR THE BOND?
To qualify as a section 713.23 conditional payment bond,
the bond must satisfy all of the requirements of a section
713.23 payment bond, i.e., the bond must be:
-
In at least the amount of the prime contract, and
- Executed
as surety by a surety company authorized to conduct business
in this state, and
- Conditioned
upon the contractor promptly making payment to all lienors,
and
- Furnished
prior to the commencement of construction, and
- Attached
to and recorded in the official public records along with
the Notice of Commencement.
In
addition to the foregoing, there are other specific requirements
for a valid and enforceable section 713.245 conditional
payment bond. Specifically:
-
The contractor’s written obligation to pay lienors
contained in the subcontract agreement(s) must be expressly
conditioned upon and limited to the payments made by the
owner to the contractor, and
- The
front page of the bond must contain the specific notice
language provided in section 713.245(1) in at least ten
(10) point type, and
- The
title of the bond must contain the phrase “Conditional
Payment Bond, and
- The
bond must be identified as a conditional payment bond
in the Notice of Commencement
Since a section 713.245 conditional payment bond form must
conform to the requirements of a section 713.23 payment
bond, with the addition of the specific noticed referenced
in paragraph 7, above, a bond form sufficient to satisfy
the statutory requirements, minus the minimum ten (10) point
type conditional payment notice, is provided in Florida
Statutes section 713.23(3).
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WHO
IS PROTECTED BY THE BOND?
Conditional payment bonds do not exempt the owner's property
from liens, and are designed and intended to provide security
to those claimants providing labor or services or supplying
materials to the subject project only to the extent that
the contractor has been paid by the owner for the labor,
services, or materials. Since conditional payment bonds
do not exempt the owner’s real property from liens,
a claimant on a conditional payment bond must perfect
its lien rights in order to also perfect its claim against
the conditional payment bond. Presumably, all claimants
who would have lien rights against the owner’s real
property would fall into the category of claimants entitled
to claim against the section 713.245 conditional payment
bond.
Despite the fact that section 713.245 conditional payment
bonds have been in existence since 1990, there are many
unanswered questions as to the practical application and
enforcement of claims against these bonds, thereby, creating
a great deal of uncertainty and confusion. For example,
it is unclear whether the bond is valid as a section 713.245
conditional payment bond, or, by default, operates as a
section 713.23 payment, where the conditional payment language
of the contractor’s subcontract agreement(s) is unenforceable
due to insufficient wording of the conditional payment clause.
Further, it is unclear whether the surety’s limitations
of exposure under the section 713.245 conditional payment
bond are effective against a claimant who does not have
a direct contract with the contractor, or whether the bond,
in such an instance, would function as a section 713.23
payment bond.
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HOW DO I OBTAIN A COPY OF THE
BOND?
Upon request by a lienor, the owner, the contractor and/or
the surety are all required to furnish a copy of the section
713.245 conditional payment bond at the cost of reproduction.
Any party who fails or refuses to provide a requesting lienor
with a copy of the payment bond, absent justifiable cause,
shall be liable to the lienor for any damages caused by
the refusal or failure. Additionally, since it is a strict
statutory requirement that the payment bond be attached
to and recorded along with the Notice of Commencement, any
person can obtain a copy of the bond from the official public
records of the county in which the real property is located.
Due to the many issues of uncertainty which cloud a section
713.245 conditional payment bond, it is a prudent practice
for a claimant to request and obtain a copy of the bond
early in the performance of the labor or services or the
furnishing of materials to the project, and sufficiently
in advance of the first notice deadline, in order to fully
examine and ascertain the nature of the bond and the resulting
requirements for enforcement.
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WHAT
ARE THE NOTICE REQUIREMENTS?
The notice requirements for conditional payment bonds are
substantially different from and significantly more complex
and cumbersome than the notice requirements under a section
713.23 payment bond. In general, the more complex notice
procedures under the section 713.245 conditional payment
bond are designed to inform the lienor and bond claimant
as to which party, the owner or the contractor, is in possession
of the funds from which payment to the lienor and bond claimant
may be due.
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A. Notice to Owner
Since
a section 713.245 conditional payment bond does not exempt
the owner’s real property from liens, a claimant under
the bond must comply fully with the notice requirements
for perfecting a claim of lien. As a result, the Notice
to Owner requirements for perfecting a Claim of Lien must
be followed and a Notice to Owner must be served if required,
as discussed more fully in the construction lien materials
above, in order to perfect the claim against the conditional
payment bond.
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B. Notice to Contractor
Unlike the section 713.23 payment bond, there is no requirement
for service of a Notice to Contractor under a section 713.245
conditional payment bond.
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C. Certificate of Payment to the Contractor
If a Claim of Lien is recorded against property covered
by a section 713.245 conditional payment bond for labor,
services, or materials for which the contractor has been
paid by, or on behalf of, the owner, the owner or the contractor
may, within ninety (90) days after the recording of the
Claim of Lien, record a Notice of Bond in the form specified
in section 713.23(9), together with a copy of the bond,
and a sworn statement in substantially the form as provided
in section 713.245(4), certifying that the bond is in full
force and effect and stating the dollar amount that the
contractor has been paid for the labor, services, or materials
described in the Claim of Lien.
If the Notice of Bond is recorded more than ninety (90)
days after the subject Claim of Lien is recorded, the Notice
of Bond will have no effect on that Claim of Lien unless
the owner, contractor, and the surety all sign the Notice
of Bond.
Upon recording of the Notice of Bond and attached copy of
the conditional payment bond, together with the Certificate
of Payment to the Contractor, the Clerk of the Circuit Court
shall serve all three documents on the contractor, the surety,
and the lienor.
The purpose behind this notification process is to let the
contractor, the surety, and the lienor know that the owner
is claiming that all or a portion of the monies that the
lienor is claiming to be owed have been paid to the contractor;
therefore, the lienor should look to the section 713.245
conditional payment bond, and not to its lien rights against
the real property, for payment of these sums.
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D. Joinder in Certificate of Payment
If the contractor, upon receipt of the owner’s Certificate
of Payment to the Contractor, agrees with the owner’s
statement as to the payment to the contractor, the contractor
may join in the Certificate of Payment to the Contractor
by recording a sworn Joinder in Certificate of Payment form,
in substantially the form as provided in section 713.245(6).
Upon
the recording of the Joinder in Certificate of Payment,
the Clerk of the Circuit Court shall serve a copy of the
Joinder in Certificate of Payment upon the owner, the surety,
and the lienor.
The purpose behind this notice is to inform the lienor that
the contractor does not dispute that payment of the amount
stated by the owner in the Certificate of Payment has been
received by the contractor and that the lienor should, therefore,
look to the conditional payment bond for payment of the
amount stated.
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E. Notice of Contest of Payment
If the contractor, upon receipt of the owner’s Certificate
of Payment to the Contractor, disputes, in whole or in part,
the owner’s statement as to the payment to the contractor,
the contractor must record a Notice of Contest of
Payment, in substantially the form as provided in section
713.245(8). This Notice of Contest of Payment must be recorded
within fifteen (15) days after the date that the Clerk of
the Circuit Court certifies the mailing of the Certificate
of Payment to the Contractor.
Upon the recording of the Notice of Contest of Payment,
the Clerk of the Circuit Court shall serve a copy of the
Notice of Contest of Payment on the owner, the surety, and
the lienor.
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F. Full or partial transfer of lien to bond
If the contractor signs the Certificate of Payment to the
Contractor, or if the contractor records a Joinder in Certificate
of Payment, or if the contractor fails to record a Notice
of Contest of Payment within fifteen (15) days after the
date the Clerk of the Circuit Court certifies the mailing
of the Certificate of Payment to the contractor, the Claim
of Lien shall transfer to the bond to the extent of the
payment amount stated in the Certificate of Payment. If
the amount of the Claim of Lien exceeds the amount stated
in the Certificate of Payment, the excess amount remains
as a lien on the owner’s real property. This does
not, however, preclude the surety from raising any defense
to the claimant’s bond claim that the owner would
have against the claimant in regard to the claimant’s
perfection of its Claim of Lien or any defense that the
contractor would have to the claimant’s claim against
the contractor.
If the contractor does not sign the Certificate of Payment
to the Contractor, and does not record a Joinder in Certificate
of Payment, and, instead, records a timely Notice of Contest
of Payment claiming that only a portion of the amount stated
by the owner in its Certificate of Payment has, in fact,
been paid to the contractor, the lienor’s Claim of
Lien transfers to the section 713.23 conditional payment
bond to the extent of the amount stated in the Notice of
Contest of Payment. If the amount of the Claim of Lien exceeds
the amount stated in the Notice of Contest, the excess amount
remains as a lien on the owner’s real property. Again,
the admission by the contractor as to a receipt of a portion
of the monies from the owner does not preclude the surety
from raising any defense to the claimant’s bond claim
that the owner would have against the claimant in regard
to the claimant’s perfection of its Claim of Lien
or any defense that the contractor would have to the claimant’s
claim against the contractor.
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CRIMINAL SANCTIONS FOR FALSE
STATEMENTS IN NOTICES
If either the owner or the contractor knowingly make false
statements of material facts in either a Certificate of
Payment or a Notice of Contest of Payment, the person making
the statement, including both the individual who signs the
document in a representative capacity and the company on
whose behalf the document is signed, can be guilty of a
third degree felony.
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WAIVERS OF BOND CLAIMS
Florida
Statutes section 713.235(1) provides a Waiver of Right
to Claim Against The Payment Bond (Progress Payment) form
to be executed by a claimant in exchange for or to induce
payment of a progress payment. Although the statute provides
that the waiver and release form “may” be in
substantially the form provided, as opposed to a mandatory
requirement that the form “shall” be in substantially
the form provided, section 713.235(3) provides “a
person may not require a claimant to furnish a waiver that
is different from” the form specified.
Similarly,
section 713.235(2) provides a Waiver of Right to Claim Against
the Payment Bond (Final Payment) form with the same permissive
use language and also subject to the same provision that
a claimant cannot be required to furnish a waiver that is
different from the form specified.
A bond waiver that is not in substantially the form provided
by the statutes, if executed by the claimant is, however,
enforceable in accordance with the terms of the executed
waiver.
A
claimant who receives either a progress payment or final
payment in the form of a check in exchange for providing
a bond waiver may condition the waiver upon payment of the
check.
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ADVANCE WAIVER OF BOND CLAIMS
UNENFORCEABLE
A claimant cannot validly waive its rights to claim against
the section 713.235 conditional payment bond in advance
of performing the labor or services or furnishing the materials
for the project, even if the claimant has executed a contract
containing a provision purporting to be an advance waiver
of its rights to make a claim against the bond. Any such
contractual provision is unenforceable.
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NOTICE
OF CONTEST OF CLAIM AGAINST PAYMENT BOND
Pursuant to a 1998 amendment to the statute, a contractor
may shorten the time period for a claimant to file a lawsuit
on the section 713.245 conditional payment bond if the claimant
is no longer furnishing labor, services, or materials on
the project by recording a Notice of Contest of Claim Against
Payment Bond, following procedures that are identical to
those provided for service of a Notice of Contest of Lien
under Florida Statutes chapter 713. The form of the
Notice of Contest of Claim Against Payment Bond should be
in substantially the form provided in Florida Statutes
section 713.23(1)(e). If a claimant who is served a Notice
of Contest of Claim Against Payment Bond fails to institute
a lawsuit on the bond within sixty (60) days from the date
of mailing of the Notice of Contest of Claim Against Payment
Bond by the Clerk of the Circuit Court, the claimant’s
claim against the bond shall be automatically extinguished.
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WHAT IS THE DEADLINE FOR
FILING THE LAWSUIT?
A lawsuit on a section 713.245 conditional payment bond
must be filed within one year from the date the Claim of
Lien is transferred to the bond. A claimant on a section
713.245 conditional payment bond should be aware that the
deadline for filing a lawsuit on the bond will always be
later than the deadline for filing a lawsuit to foreclose
on the Claim of Lien due to the fact that the one year period
for filing a lawsuit on the bond does not commence until
the after the lienor’s recorded Claim of Lien has
been transferred to the bond.
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WHO ARE THE PROPER PARTIES
TO THE LAWSUIT?
Claimants under a section 713.245 conditional payment bond
have the right to file a direct lawsuit against the surety;
therefore, it is not necessary for the claimant to join
the contractor or the owner as parties to the lawsuit, except
that the contractor would have to be made a party in order
for the claimant to pursue any contract remedies against
the contractor. In order for the claimant to pursue collection
of all or any portion of the amount due through enforcement
of its Claim of Lien, the owner, and all other necessary
parties, would have to be sued in accordance with the requirements
of the construction lien statutes discussed above.
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ARE
ATTORNEY’S FEES RECOVERABLE?
In addition to the bond claim amount, the prevailing party
in a lawsuit on a section 713.245 payment bond is entitled
to recover its reasonable attorney’s fees and costs
incurred in the lawsuit. The Florida Supreme Court has ruled
that the “prevailing party” in such a lawsuit
is not simply the party who recovers a net judgment in its
favor, but is the party who prevails on the “substantial
issues in the litigation.” This determination is made
by the trial court on a case by case basis which injects
uncertainty in the process, even after judgment on the principal
claim has been rendered. In any lawsuit to enforce a Claim
of Lien against the owner’s real property, the owner
shall not be considered the prevailing party for purposes
of recovery of attorney’s fees solely because the
Claim of Lien is transferred to the section 713.245 conditional
payment bond after the lawsuit to enforce the lien is brought.
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CHANGES
TO THE CONDITIONAL PAYMENT BOND
Any
party claiming an interest in the section 713.245 conditional
payment bond, or in the real property from which the Claim
of Lien was transferred, may at any time, and any number
of times, file a complaint in the circuit court of the county
where the conditional payment bond is recorded, to seek
an order of the court requiring an increase in the bond
amount, reducing the bond amount, changing or substituting
the surety on the conditional payment bond, compelling payment
or discharge of the bond, or any other matter relating to
the bond. If a lawsuit is already pending seeking to impose
a claim upon the section 713.245 conditional payment bond,
the request can be made in the form of a motion filed in
the pending lawsuit.
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