Construction liens and payment bonds help construction industry participants protect their rights and ensure proper payment. We’ve provided a brief summary about construction lien and payment bond law to give potential clients a general idea of possible issues involved. Please note that this summary is for informational purposes only and should not be relied on as legal advice (full disclaimer available here).
Private vs. Public Property
The first step in analyzing how payment can be guaranteed for a construction project is to determine if the property being worked on is private property or public property. Generally, construction liens provide protection to construction industry participants working on private projects. However, a property owner may require that the contractor provide a payment bond; in such cases, the existence of such bond is a complete defense against a construction lien.
When the property being improved is publicly owned, it cannot be encumbered or sold to force payment to the parties. Given this fact, many public work projects are protected by payment bonds instead of construction liens.
Payment for construction work on private property is generally guaranteed by a lien if the proper steps are taken.
A lien is a charge on property for the payment or discharge of a debt or a duty. Liens may be created by a contract between the parties or by operation of law. A lien allows a lienor to maintain a right to possession of the property of another until the debt owed by that person is discharged.
Construction Lien Notice & Time Requirements
Timing is a very important aspect of Florida construction lien law. Failing to adhere to the numerous timing constraints provided in the law may lead to serious consequences, such as a loss of lien rights.
Among these timing constraints is a series of notice requirements. The first notice requirement is the Notice of Commencement. The owner, or an owner’s authorized agent, must file a notice of commencement with the clerk’s office pursuant to the requirements listed in Fla. Stat. § 713.13. The owner must also post a certified copy of this notice at the property site. The Notice of Commencement must be filed 90 days or less before the commencement of construction.
The next notice requirement is Florida’s Notice to Owner requirement. In a Florida-based private construction project, subcontractors, and other suppliers who are not in direct contract with the owner must provide notice to owner to preserve their mechanics lien rights within 45 days after beginning to work on a project. When the 45-day time period begins running may differ depending on the kind of work being done, so parties must be aware of specifically when the time period begins.
An additional important timing constraint is when a claim of lien must be recorded. Pursuant to Fla. Stat. § 713.08, a lienor must record the claim of lien no later than 90 days after the final furnishing of the labor materials or service materials by the lienor. The lienor is required to serve a copy of the claim of lien to the owner within 15 days of recording the lien.
Exceptions to Notices Requirements
For the Notice to Owner requirement there are three exceptions in which a party does not need to provide this notice. The first is if you contract with the owner. If this is the case, notice to owner is not required.
The next exception is that laborers and professionals are not required to provide this notice. To qualify as a laborer, you must provide only labor at the site and must not provide any materials or the labor of others. Exempt professionals include architects, engineers, land surveyors, mappers, and landscape architects.
Lastly, liens that qualify as “subdivision improvements” are exempt from providing notice to owner. Subdivision improvements refers to performing services or furnishing materials to real property to make it suitable as the site for construction. Some examples of subdivision improvements include, but are not limited to, grading, leveling, excavating and the filling of land.
A payment bond is a surety bond, posted by a contractor, to guarantee the owner that all bills contracted for and used by the contractor will be paid to any subcontractors and material providers by the surety if the contractor defaults. A payment bond creates a three-way contract between the owner, the contractor and the surety to ensure that all subcontractors, laborers, and suppliers of materials will be paid. Unlike construction liens, which only apply to private property, payment bonds can secure payment for both private and public property. With regards to private property, the requirement for a payment bond must be negotiated between the owner and contractor. Construction projects on public property may, by statute, be legally required to have payment secured by a bond.
Bond Requirements for Public Property Projects
Pursuant to Fla. Stat. § 255.05, when entering into a contract with the state or any county, city or political subdivision for the construction of a public building, completion of a public work or repairing a public building, you are required to execute and record in the county public records where the land is located, a payment and performance bond with a surety insurer. This bond must be recorded before commencing the work or before recommencing the work after a default or abandonment has occurred.
Bond Requirements for Public Transportation Projects
Pursuant to Fla. Stat. § 337.18, the successful bidder for a public transportation project is required to provide a surety bond in the amount equal to the contract price. The Department of Transportation may decide, in multiyear maintenance contracts, to allow for incremental annual contract bonds instead.
The Department may waive the need for all or a portion of a surety bond if the contract price is $250,000 or less and that nonperformance will not endanger public health, property, or safety. They may also waive the requirement if the prime contractor, or a prime contractor’s subcontractor, is a qualified nonprofit agency for the blind or for the other severely handicapped.
Federal Property Projects
Before a contract of $100,000 or greater for the construction, alteration or repair of any public buildings or public work for the Federal Government is awarded, a person is required to furnish both a performance bond and a payment bond to the Government.
A performance bond is for the benefit of the Government, for the amount deemed adequate by the officer awarding the contract. As previously discussed, the payment bond is for the protection of people supplying labor and materials to carry out the work provided for in the contract.
Payment Bonds as a Defense to Liens
A payment bond may be used as a way for the owner to discharge the lien placed on the property. The bond returns the legal right to sell or deal with the property back to the owner, while making sure that instead of the property, the bond money is there to ensure the lienor receives payment.
The extent to which a subcontractor lienor is protected by a payment bond can depend on whether the bond is a conditional or unconditional payment bond. According to Fla. Stat. § 713.245, if the contractor’s written obligation to pay lienors is expressly conditioned upon and limited to the payments made by the owner to the contractor, the duty of the surety to pay lienors will be coextensive with the duty of the contractor to pay. Alternatively, if the bond is an unconditional bond, the surety has unconditional liability to pay the lienor regardless of the extent of payments made by the owner to the contractor. Unlike unconditional bonds, conditional bonds are not a defense against liens. Fla. Stat. § 713.245 (3).
Required Notices for Payment Bonds
A payment bond must be furnished by the contractor in at least the amount of the original contract price before beginning construction under the direct contract. A copy of the bond needs to be attached to the Notice of Commencement when the Notice of Commencement is recorded. The owner, surety or contractor is required to furnish a copy of the bond to any lienor who requests it.
Pursuant to Fla. Stat. § 713.23, either before beginning work, or within 45 days after first furnishing labor or materials, a lienor who is not in privity with the contractor, except a laborer, shall serve the contractor with notice in writing that the lienor will look to the contractor’s bond for protection to ensure payment. If a Notice of Commencement with the bond attached is not recorded before the beginning of construction, the lienor not contracted with the contractor may instead elect to serve the notice to the contractor up to 45 days after the date the lienor is served with a copy of the bond. Furthermore, the lienor must serve a Notice of Nonpayment on the contractor and surety not more than 90 days after the final furnishing. Fla. Stat. § 713.23(1)(d).
Foreclosing on a Lien/Bringing Action on a Bond
As previously mentioned, timing is an important aspect of construction lien and payment bond law in Florida. In general, you have one year from when the lien was recorded to foreclose on the lien. After this time period the lien expires and becomes null and void unless legal proceedings have commenced to foreclose or discharge the lien. To bring an action on a payment bond described in Fla. Stat. § 713.23, one must bring action within one year from the date that materials or services were last provided.
This brief summary of construction lien and payment bond law is a simplification given as a general overview of the topic. This area of law contains many intricacies and timing requirements that if are not adhered to, may greatly affect the rights of construction industry participants. For this reason, we strongly advise hiring an attorney to ensure all rights of the parties involved are preserved.