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Construction Liens – Liens of Persons Not In Privity

Construction Liens – Liens of Persons Not In Privity

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Lienors who do not have a contract with an owner must abide by the provisions of Florida Statutes Section 713.06.  Under that section, a materialman or laborer, either of whom is not in privity with the owner, or a subcontractor or sub-subcontractor who complies with the statute has a lien on the real property improved for any money that is owed to him or her for labor, services, or materials furnished in accordance with his or her contract and with the direct contract and for any unpaid finance charges due under the lienor’s contract.  This section also provides that such a lienor also has a lien on the owner’s real property for labor, services, or materials furnished to improve public property if the improvement of the public property is furnished in accordance with his or her contract and with the direct contract. The total amount of all liens allowed under this section for furnishing labor, services, or material covered by any certain direct contract (i.e., owner-general contractor agreement) must not exceed the amount of the contract price fixed by the direct contract, except to the extent the owner has made improper payments as provided in Section 713.06(3), which is discussed below.
All lienors not in privity with the owner, except laborers, as a prerequisite to perfecting a lien, must serve a Notice to Owner.  The Notice to Owner must set forth the lienor’s name and address, a description sufficient for identification of the real property, and the nature of the services or materials furnished or to be furnished. A sub-subcontractor or a materialman to a subcontractor must serve a copy of the notice on the contractor as a prerequisite to perfecting a lien. A materialman to a sub-subcontractor must serve a copy of the notice to owner on the contractor as a prerequisite to perfecting a lien. A materialman to a sub-subcontractor must serve the notice to owner on the subcontractor if the materialman knows the name and address of the subcontractor. The notice must be served before commencing, or not later than 45 days after commencing, to furnish his or her labor, services, or materials, but, in any event, before the date of the owner’s disbursement of the final payment after the contractor has furnished the Contractor’s Final Payment Affidavit under Section 713.06(3)(d)1. The notice must be served regardless of the method of payments by the owner, whether proper or improper, and does not give to the lienor serving the notice any priority over other lienors in the same category.  The failure to serve the notice, or to timely serve it, is a complete defense to enforcement of a lien by any person. The serving of the Notice to owner does not dispense with recording the claim of lien. The Notice to owner is not a lien, cloud, or encumbrance on the real property nor actual or constructive notice of any of them.
According to Section 713.06 (2)(b), if the owner, in his or her notice of commencement, has designated a person in addition to himself or herself to receive copies of Notices to Owner, a lienor shall serve a copy of his or her notice on the person so designated. The failure by the lienor to serve such copy, however, does not invalidate an otherwise valid lien.
The Notice to Owner should be in substantially the same form as provided in the statute. The form may be combined with a Notice to Contractor given under Florida Statutes Section  255.05 or Florida Statutes Section 713.23 and, if so, may be entitled “Notice to Owner/Notice to Contractor.”
Section 713.06(2)(d) provides that a Notice to Owner served on a lender must be in writing, must be served in accordance with Section  713.18 (discussed below), and must be addressed to the persons designated, if any, and to the place and address designated in the notice of commencement. Any lender who, after receiving a Notice to Owner, pays a contractor on behalf of the owner for an improvement shall make proper payments as provided in Section 713.06(3)(c) (discussed below) as to each such notice received by the lender. The failure of a lender to comply with this section renders the lender liable to the owner for all damages sustained by the owner as a result of that failure. This section does not give any person other than an owner a claim or right of action against a lender for the failure of the lender to comply with this section. Further, this section does not prohibit a lender from disbursing construction funds at any time directly to the owner, in which event the lender has no obligation to make proper payments under this section.
Once an owner of property under construction receives a notice to owner, that owner must be careful to make “proper payments” and making an “improper payment” may result in the owner paying twice for the same work and/or materials.  Under Section 713.06(3), the owner may make proper payments on the direct contract as to lienors, in the following manner:
(a) If the description of the property in the notice of commencement is incorrect and the error adversely affects any lienor, payments made on the direct contract shall be held improperly paid to that lienor; but this does not apply to clerical errors when the description listed covers the property where the improvements are located.
(b) The owner may pay to any laborers the whole or any part of the amounts that are due and payable to them respectively for labor or services performed by them and covered by the direct contract, and must deduct the same from the balance due the contractor under a direct contract.
(c) When any payment becomes due to the contractor on the direct contract, except the final payment:
1. The owner shall pay or cause to be paid, the sum then due to each lienor giving notice prior to the time of the payment. The owner may require, and, in such event, the contractor shall furnish as a prerequisite to requiring payment to himself or herself, a contractor’s affidavit, on any payment made, or to be made, on a direct contract, but the furnishing of the affidavit shall not relieve the owner of his or her responsibility to pay or cause to be paid all lienors giving notice. The owner shall be under no obligation to any lienor, except laborers, from whom he or she has not received a notice to owner at the time of making a payment.
2. When the payment due is insufficient to pay all bills of lienors giving notice, the owner must prorate the amount then due under the direct contract among the lienors giving notice. Lienors receiving money shall execute partial releases to the extent of the payment received.
3. If the contractor’s affidavit recites any outstanding bills for labor, services, or materials, the owner may pay the bills in full direct to the person or firm to which they are due if the balance due on the direct contract at the time the affidavit is given is sufficient to pay the bills and must deduct the amounts so paid from the balance of payment due the contractor.
4. No person who failed to serve a required notice to owner is entitled to be paid by the owner because he or she is listed in a contractor’s affidavit.
5. If the contract is terminated before completion, the contractor shall comply with Section 713.06(3)(d)1.
When the final payment under a direct contract becomes due the contractor, the contractor must give to the owner a final payment affidavit stating, if that be the fact, that all lienors under his or her direct contract who have timely served a notice to owner on the owner and the contractor have been paid in full or, if the fact be otherwise, showing the name of each such lienor who has not been paid in full and the amount due or to become due each for labor, services, or materials furnished. The affidavit must be in substantially the form set forth in Section 713.06(3)(d).  The contractor has no lien or right of action against the owner for labor, services, or materials furnished under the direct contract while in default for not giving the owner the affidavit. 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. The contractor must execute the affidavit and deliver it to the owner at least 5 days before instituting an action as a prerequisite to the institution of any action to enforce his or her lien, even if the final payment has not become due because the contract is terminated for a reason other than completion and regardless of whether the contractor has any lienors working under him or her or not.
If the contractor’s affidavit recites any outstanding bills for labor, services, or materials, the owner may, after giving the contractor at least 10 days’ written notice, pay such bills in full direct to the person or firm to which they are due, if the balance due on a direct contract at the time the affidavit is given is sufficient to pay them and lienors giving notice, and shall deduct the amounts so paid from the balance due the contractor. Lienors listed in these affidavits not giving notice, whose 45-day notice time has not expired, shall be paid in full or pro rata, as appropriate, from any balance then remaining due the contractor; but no lienor whose notice time has expired shall be paid by the owner or by any other person except the person with whom that lienor has a contract.
If the balance due from the owner is not sufficient to pay in full all lienors listed in the contractor’s affidavit and other lienors giving notice, the owner shall pay no money to anyone until such time as the contractor has furnished him or her with the difference.  However, if the contractor fails to furnish the difference within 10 days from delivery of the affidavit or notice from the owner to the contractor to furnish the affidavit, the owner shall determine the amount due each lienor and shall disburse to them the amounts due from him or her on a direct contract.
The owner has the right to rely on the contractor’s affidavit in making the final payment, unless there are lienors giving notice who are not listed in the affidavit. If there are lienors giving notice who are not so listed, the owner may pay such lienors and any persons listed in the affidavit that are entitled to be paid by the owner and shall thereupon be discharged of any further responsibility under the direct contract, except for any balance that may be due to the contractor.
The owner must retain the final payment due under the direct contract until the contractor’s affidavit has been furnished to the owner.
When final payment has become due to the contractor and the owner fails to withhold as required, the property improved is subject to the full amount of all valid liens of which the owner has notice at the time the contractor furnishes his or her affidavit.
If the improvement is abandoned before completion, the owner must determine the amount due each lienor giving notice and pay the same in full or prorate in the manner as provided in the statute.
A contractor has no right to require the owner to pay any money to him or her under a direct contract if such money cannot be properly paid by the owner to the contractor in accordance with the proper payment provision of Section 713.06(3)(d).
When the owner has properly retained all sums required in Section 713.06(3)(d) but has otherwise made improper payments, the owner’s real property shall be liable to all laborers, subcontractors, sub-subcontractors, and materialmen complying with Chapter 713 only to the extent of the retentions and the improper payments. Any money paid by the owner on a direct contract, the payment of which is proved to have caused no detriment to any certain lienor, shall be held properly paid as to the lienor, and if any of the money shall be held not properly paid as to any other lienors, the entire benefit of its being held not properly paid as to them shall go to the lienors.
Section 713.06(4)(a) sets forth priorities for payments between types of lienors.  That section provides that in determining the amounts for which liens between lienors claiming under a direct contract shall be paid by the owner or allowed by the court within the total amount fixed by the direct contract, the owner or court shall pay or allow such liens in the following order:
1. Liens of all laborers.
2. Liens of all persons other than the contractor.
3. Lien of the contractor.
Should the total amount for which liens under such direct contract may be allowed be less than the total amount of liens under such contract in all classes mentioned above, all liens in a class shall be allowed for their full amounts before any liens shall be allowed to any subsequent class. Should the amount applicable to the liens of any single class be insufficient to permit all liens within that class to be allowed for their full amounts, each lien shall be allowed for its pro rata share of the total amount applicable to liens of that class; but if the same labor, services, or materials shall be covered by liens of more than one class, such labor, services, or materials shall be allowed only in the earliest class by which they shall be covered; and also if the same labor, services, or materials shall be covered by liens of two or more lienors of the same class, such labor, services, or materials shall be allowed only in the lien of the lienor farthest removed from the contractor.