There
are two basic ways that an owner can protect real property
from construction liens. The first, and by far the more
superior method, is by requiring the contractor to provide
one of the forms of payment bonds provided for in Florida
Statutes, chapter 713, as discussed below. In general,
payment bonds which comply with Florida Statutes
section 713.23 exempt the real property from construction
liens. Conditional payment bonds which comply with Florida
Statutes section 713.245 exempt the real property from
construction liens only to the extent that the owner has
paid the contractor for the labor, services, or materials
which comprise the lien amount. Finally, transfer bonds
which comply with Florida Statutes section 713.24
transfer a specific recorded Claim of Lien from the real
property to security other than the real property.
The second means of protecting the real property from construction
liens, at least partially, is for the owner to be able to
claim what is referred to as the Proper Payments Defense.
The theory of the Proper Payments Defense is that if an
owner complies with the statutory requirements, the owner
should not have to pay more than the amount of the original
direct contract, in the aggregate, to the original contractor,
and any lienors who provided labor, services, or materials
pursuant to the original contract. In order to obtain the
benefits of this defense, the owner must follow certain
steps prescribed in Florida Statutes section 713.06(3).
This statute requires an owner to:
-
Obtain written, properly executed, lien waivers at the
time progress payments are made from every lienor who
has served a Notice To Owner; and
- Obtain
a Contractor's Final Affidavit prior to making the final
payment to the contractor, and obtain written, properly
executed, final lien waivers and releases from anyone
shown on the Contractor's Final Affidavit as yet unpaid,
and from every lienor who has served a Notice To Owner;
and
- Refrain
from making any payments after the expiration of the Notice
of Commencement.
To the extent that there is an error in the description
of the property in the Notice of Commencement and any lienor
is adversely affected by the error, payment made by the
owner to the contractor shall be found to be improperly
paid as the payment relates to the lienor adversely affected.
Although
it is not a mandatory requirement for establishing a Proper
Payments Defense, it is advisable for the owner to request
from the contractor, at the time of each and every progress
payment, an affidavit in the same form as the Contractor’s
Final Affidavit, stating that all lienors who have served
a Notice To Owner have been paid in full, or, in the event
that not all such lienors have been paid in full, setting
forth the name of each such lienor and the amount due, or
yet to become due, to each. If such a progress payment affidavit
is requested by the owner, the contractor must furnish such
an affidavit.
A 2005 statutory amendment leaves no uncertainty as to the
fact that any final payment made by an owner prior to the
contractor furnishing the owner with the Contractor’s
Final Affidavit cannot be considered a proper payment for
purposes of the Proper Payments Defense.
The value of the Proper Payments Defense has become less
certain as a result of a 1998 amendment to the statutes.
Prior to that amendment, if the owner followed the procedures
as prescribed by the statutes, once final payment was made
to the contractor in reliance upon the Contractor’s
Final Affidavit, the real property was protected against
liens from lienors who failed to serve a Notice To Owner
prior to the owner’s making the final payment (provided
the Contractor’s Final Affidavit did not identify
the lienor in question as one to whom money was due or yet
to become due). This was true even when the omission of
the unpaid lienor from the Contractor’s Final Affidavit
was the result of either an innocent mistake or intentional
fraud by the contractor, and even when the lienor in question
had fully complied with all requirements of the statutes
for enforcement of its lien.
The 1998 amendment to this statute added the language “however,
the negligent inclusion or omission of any information in
the affidavit which has not prejudiced the owner does not
constitute a default that operates to defeat an otherwise
valid lien.” Presumably, the owner’s making
of a final payment of the remaining contract balance to
the contractor would still constitute sufficient prejudice
to the owner that an omitted lienor’s subsequently
recorded Claim of Lien would be unenforceable. Nevertheless,
the addition of this language to the statute creates uncertainty
which did not exist prior to the effective date of the amendment.
The effectiveness of the Proper Payments Defense has been
further impaired by the 1998 amendment to the construction
lien statutes discussed above which provides that a Notice
To Owner can be deemed to have been “served”
upon the owner, if the statutory conditions for such service
are satisfied, if mailed within forty (40) days of first
providing labor, services, or materials to the project.
Consequently, it is possible for a Notice To Owner to have
been properly “served”, although not yet received
by the owner at the time of the owner’s making a progress
payment to the contractor. In such an instance an owner’s
payment could be considered improper if the lienor is not
treated in the same manner as other lienors whose Notices
to Owner have been both served and received by the owner.
This amendment is another reason why owners should request
an affidavit from the contractor in conjunction with each
and every progress payment.
Similarly,
lienors who are identified in the Contractor’s Final
Affidavit as being owed money, and whose forty-five (45)
day period for providing a Notice To Owner has not yet
expired, must be treated as though they had served the Notice
To Owner and must be paid accordingly. However, an owner
is not required to pay a lienor identified in the Contractor’s
Final Affidavit as being owed money where the lienor failed
to timely serve a Notice To Owner, and the lienor’s
forty-five (45) day period for serving its Notice To Owner
has expired.
Under the Proper Payments Defense, when the funds required
for disbursement under the owner’s direct contract,
whether progress payments, or final payment, are insufficient
to pay all proper and otherwise valid liens, Florida
Statutes sections 713.06(3) and (4) provide a specific
procedure for making pro rata payments to lienors. In essence,
liens are classified into three (3) classes:
- liens
of laborers,
- liens
of persons other than the contractor, and
- the
lien of the contractor.
In
the event of insufficient funds to pay all lienors, the
monies are disbursed to each class in the descending numerical
order stated above, with all lienors in each class to be
paid in full prior to disbursing funds to lienors in the
subsequent class. If insufficient funds exist to satisfy
all liens in a particular class, the funds are paid pro
rata among all lienors in that class.
Another inherent problem with the Proper Payments Defense
from the owner’s perspective is that there is some
case law authority to the effect that lienors may still
be able to recover their attorney’s fees in a lien
foreclosure lawsuit, even when the owner has limited the
owner’s exposure on the lien by virtue of the Proper
Payments Defense.
A further limitation on the Proper Payments Defense applies
exclusively to subdivision improvements. A 2005 statutory
amendment resolves any confusion which may have existed
previously by specifically stating that any payment made
by an owner on account of a direct contract for subdivision
improvements, made before the actual furnishing of labor,
services, or materials, shall not qualify as a proper payment.
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