We have seen a lot of mistakes folks make when it comes to issuing lien releases. In this article, we are going to discuss the three most common lien release issues and how you should approach each.
What form of partial and final waiver should I use?
The first thing you need to be aware of is where you are in the pecking order of any particular construction project. If you are the general contractor, you are going to be looking for something different than if you are one of the subcontractors. Generally speaking, you want to give a narrow release when you are receiving a check. When someone is handing you a check for a release, you only release the fewest number of rights possible and you preserve the greatest number of rights. The converse is true if you’re giving a check to somebody. You want them to release anything and everything under the sun, so you don’t have to worry about those things being an issue later in the course of the construction project.
The basic form of release
The basic form of release is the release that’s found in Florida Statutes chapter 713. It is a form of both partial lien release upon progress payment and final waiver upon final payment. It releases contractor or subcontractor lien rights through a certain day for partial releases and through the time specifically stated on final releases. The component parts of the partial release upon progress payment include the amount of money that you’re getting and the through date which is the date through which the release rights are effective. Note that this release form does not cover any retention or labor, services, or material furnished after the through date specified. The final lien release, however, has only one major part, and that is the amount of money you are receiving. The final release form doesn’t have a through date. The most important thing you need to know is that this release form only releases the contractor’s lien rights. It releases no other rights that the contractor may have against you or the property.
Custom form of release
This release looks very different from the basic release form. This form is not found in the statute. The first thing you’ll notice in a custom form of release is that it has a lot more words. You need to read this type of release form carefully because you are giving up on a lot of other things, not just lien rights. The statutory release form only releases your lien rights. This form is releasing anything and everything that you may have as a possible claim. This include delays, change orders, any work done, and it’s all effective prior to and including the through dates. If you are a general contractor, this is the form of release that you should be getting from your subcontractors. With this, every time you give your subcontractors or suppliers a check effective through the through dates, all their rights go away. If you are a subcontractor and you’re receiving a check and having to give a release like this, you need to understand what rights you’re giving away. If you agree to a form of release in your contract, then that’s the form that you are bound to accept during the course of the project. So, if the general contractor or owner attaches a form of release to your contract, or they make a reference to the fact that you agree to use whatever release form they deem fit, you need to review it as you negotiate your contract. Negotiate the form of release just like you negotiate other components of the contract.
Not using a conditional release form when you’re giving a release without receiving a check
You need to condition your release upon payment of money. You can achieve this by issuing what’s called a conditional release whenever you’re giving a release without receiving a check. A conditional release is a release that is expressly conditioned upon payment. It is not effective until you receive the payment that’s recited in the document. A conditional release will say something like, “Notwithstanding anything to the contrary, this waiver and release is conditioned upon and not effective until the undersigned receives paid funds of XXXX.” You are expected to put whatever amount you’re expecting to receive in the blank space. Statements like this makes the release expressly contingent on actually getting the money.
As a supplier, it is important you only provide releases that are contingent on actually receiving money. Let’s say as an electrical supply house, you provide an unconditional release to the electrician who gives it to the contractor, who gives it to the owner. But you never got your money. You only received an e-mail copy or fax copy of the check you were promised was coming. But that check never arrived. Your options to collect on the debt are severely limited because the release you issued is now effective to all the parties up the chain since they have no reason to know that you didn’t receive your money.
We have a client right now who’s a drywall contractor. He has a contract with a general contractor who has a contract with an owner. He was promised a check and based on his long-time relationship with this contractor, he gave an unconditional release based on the promise of a check which never arrived. We have now been forced to send a letter to the contractor and the owner saying “You have received the release but our client never received consideration for that release. Therefore, the release is void and unenforceable.” We are still waiting to hear back. But they have already funded the contractor based on our client’s release. We are going to be in a tough spot to suggest that the owner didn’t have the right to rely on that release. So, it’s absolutely critical that if you are giving a release without actually getting a check that you make it conditional.
Also, watch out for releases that are titled conditional but are not. Sometimes, we see releases that say conditional partial release and then when you read the document, they’re not conditioned. Conditional releases need to specifically spell out the condition – they’re effective once you receive the money you’re owed. The fact that the title says conditional means nothing if the body of the release does not actually contain conditional language.
Another thing you need to know about a conditional release is that it must correctly indicate the amount of money that you’re expecting to receive. Don’t just put in $10 as the condition. If you do and you receive $10, the condition is satisfied.
As a general contractor, you need to be careful about receiving and paying against conditional releases from subcontractors and suppliers. If the electrician gives you a conditional release and you give the electrician the money, that release is good because you’ve now satisfied the condition in the release. Right? If there is ever an issue, you would say “well, the release is conditioned on receiving $25,000 and here’s the canceled check for $25,00; condition satisfied and the release is good”. Not necessarily. If the electrician has to also give you a release from his supplier and that supplier’s release is also a conditional release, you don’t have a direct ability to control that condition. You pay the electrician but the electrician may not pay the supply house, then the supplier can put a lien on the job. To avoid this, you have two options. The first one is to ask the subcontractor to fund the supplier or otherwise give you an unconditional release from the supplier. The other one is to issue a joint check.
Using the wrong “Through Date” on your release
This is another big mistake that we see happen all the time. What “through date” should you use? What if the “through date” and the payment amount do not match? The through date is the effective date of the release. It can be signed today but has the through date of 2 months ago. That means, you can sign the document today and say that the effective through date of this release is April 5th, March 9th or September 1st. You can make it any day you want. Know that the through date is going to control over the payment amount. For example, you are owed $100,000. If you sign a release in exchange for S75,000 and the through date is the end of the month when you’re expecting a $100,000 check but only got $75,000, you just released $100,000 worth of your rights for $75,000. What you need to know is that if the through date and the payment date don’t match, then you need to change one of them or both of them, but you cannot accept it as it is.
Why does the release say $10?
I’m not getting $10 neither am I giving them $10. So, why do I need to have a release that says $10? $10 releases are valid if you receive any type of consideration and sometimes even if you receive no money. For example, you’re a subcontractor on a job, and you have sent your notice to owner only because you’ve signed the contract, but you really haven’t done any work. Now that the owner and the contractor need a release from you, but you haven’t done anything or submitted any bills. In this case, issuing a $10 release at that point is perfectly fine. If you’re expecting a check, however, let’s say it’s $25,000, you must ensure your release says S25,000 and not $10. If you are a contractor and you are giving money and getting a release, you would always like it to say $10. The reason is that you don’t want any argument later. For instance, if the subcontractor comes to your office to pick up the check or you mail it to him or her, and they say “wait, you only sent me $20,000 it should have been $25,000.” If the release said $20,000 or $25,000, that’s the consideration that was given. And if they’re claiming more money, they may have a basis to say that you shorted the payment. However, if the release says $10, and you gave them $20,000, and they want $25,000. You can say “it doesn’t matter because I gave you consideration that you thought was adequate, I said $10 and I gave you a $20,000 check and the through date is the end of the month, we are done!”
If you are a general contractor, you would like to have all your releases to subcontractors and suppliers say $10. But If you are a sub, I would suggest that you scratch out $10 and put the actual amount that you’re expecting to receive on the check.
The only other time we see that a $10 release is acceptable is when a contractor does not want the owner to know what he or she is paying to the subcontractors. So maybe a contractor has a lump sum contract with an owner, and they don’t want the owner to be able to run through all of the releases, and add the amounts and realize that the contractor is charging so much more than he’s actually paying for the work. Some contractors may want all the releases given to them by the subcontractors and supplies to be $10 so that the owner is unable to add up all of the amounts associated with the project. The way to deal with that if you are a subcontractor is to issue two releases. You would give a release that has the correct amount on it and after you get that money, you will give the contractor a subsequent release, and it would say $10 for the same period.
We see them every time we are on any highway – those construction vans and pickups with the contractor’s name, logo and phone number. After all advertising is a part of every business. How else would the public know what services your company offers? But when it comes to the construction industry, advertising of this sort must be done in a particular way.
There are rules to follow, specific rules, or you could find yourself in a pickle. Most critical is the fact that your certification or registration number must appear on all forms of advertising. That’s everything including each offer of services, business proposal, bid, contract, or advertisement. The actual rule in Florida states:
“If a vehicle bears the name of a contractor or business organization, or any text or artwork which would lead a reasonable person to believe that the vehicle is used for contracting, the registration or certification number of the contractor must be conspicuously and legibly displayed with the name, text, or artwork.”
“Local governments may also require that locally licensed contractors must also display their certificate of competency or license numbers…”
Doing it right means any item you use to offer your services as a contractor needs to clearly have your certification or registration listed – websites, vehicles, brochures, all must contain the required certification numbers. And these numbers must also be easy to read and find.
Are There Exceptions?
The law does exclude some items. The term “advertisement” does not include business stationery or any promotional novelties such as balloons, pencils, trinkets, or articles of clothing.
What Happens If Rules Are Not Followed?
You could find yourself and your company in some trouble with the State of Florida if you don’t comply. The law states: “The board shall issue a notice of noncompliance for the first offense, and may assess a fine or issue a citation for failure to correct the offense within 30 days or for any subsequent offense, to any contractor or business organization that fails to include the certification or registration number as required by this part…”
This is one of those rules that many contractors just don’t know much about. But as you can see, it would be a mistake to ignore these compliance requirements. Folks are starting to receive citations, and some are being fined. Don’t be one of those contractors, especially when observance is frankly so easy.
You might assume your insurance (typically your commercial general liability insurance) will cover claims for your defective work. Unfortunately, this is not always true.
Your general liability insurance is intended to protect you for claims that cause damage to other property. Other properties in this case refer to property separate and apart from your work. For instance, if you are painting a building and paint falls on the car down the street, your insurance will likely cover the repair of the car that got splattered. Conversely, if you are installing windows and the windows were installed improperly causing water damage in the building, your insurance may cover the water damage inside the building. But it won’t cover your claims for defective work as to the windows or the installation of the windows themselves. In many cases where there are claims for defective work, they always have two components – the damage to other property (in some cases that’s very large and in other cases it’s very small) and the damage or the replacement and repair of the defective work (again, sometimes that can be small or large).
What’s important for you to understand is what your insurance actually covers and what it doesn’t. This way you can deal with claims that may be asserted against you for defective work. Some clients come to our office with a claim which they think incorrectly can be lodged against their insurance. They believe that since they are insured, everything should be covered under their insurance. That’s just not the case. Every policy is different, each has limitations and exclusions, so read your policy and speak to your agent.
2019 has seen the resurgence of the CPVC fire sprinkler litigation in South Florida. In an extraordinarily detailed 21 count, 164 page complaint, alleging product liability, fraudulent concealment and negligence against 11 defendants, Nordica Condominium Association, responsible for the management and operation of the 18 story Nordica Condominium, a Miami complex of 128 residences, has reignited what many believe could be the most significant construction defect issue ever raised. Fire sprinkler pipe litigation is surely not slowing.
This case, not very different than the dozens that have already been filed across the country, claims that a number of manufacturers, sellers, distributors and installers have supplied defective CPVC piping jeopardizing a building’s fire suppression sprinkler systems.
Allied Tube & Conduct Corporation and Lubrizol Corporation remain primary defendants. The allegations also remain the same. Allied pipe contains certain anti-microbial coating which is not compatible with Lubrizol’s CPVC piping and has resulted in leaks and failure of the fire suppression system. These failures have caused damage to individual units, common areas, personal property, and the building’s underlying life safety system as well as a reduction in the property’s value.
What is somewhat different with this suit is the addition of certain other parties, the fire sprinkler contractor, the developer and the general contractor, as defendants. Nordica alleges that these folks either designed, ordered, sold, assembled and/or installed the CPVC system which is now defective.
Nordica alleges that since 1984 Lubrizol has known that its coating adversely impacts CPVC piping. Moreover, the petroleum based cutting oil used to thread and cut pipe as well as the sealants placed on fire sprinkler piping can deteriorate and crack the CPVC pipe. The concern is not only that there could be a number of leaks developing over time, but worse that when placed under pressure, such as in the event of a fire, the entire life safety system will be compromised and possibly fail.
The crux of the claim revolves around the factual allegations that defendants concealed these problems therefore causing an unknowing building to incorporate a faulty life safety system. In painstaking detail, Nordica’s lawyers layout a time line of events showing how Lubrizol’s and Allied’s inhouse experts reviewed either actual sections of failed CPVC piping or reports describing their failures reaching the unfortunate conclusion that this could produce a faulty piping system. They then either kept the findings secret or hid them from those that mattered. Such actions and inactions by these defendants makes them strictly liable in the eyes of the plaintiff’s lawyers.
And according to Nordica, the contractor, developer and actual fire sprinkler installer owed it a duty to exercise reasonable care in selecting, ordering, assembling or installing its CPVC fire sprinkler system, as well as adequately warning Nordica that the system came with certain risks.
Given the hundreds and hundreds of buildings with CPVC piping in their fire sprinkler systems, this problem is not soon going away.
Do you know who can prepare and sign a claim of lien? You better. Having the wrong person do it can invalidate the claim of lien and even expose you to significant liability.
Specifically, a claim for a construction lien in Florida should only be prepared by the lienor, the lienor’s employee or the lienor’s construction law attorney licensed to practice in Florida, and that claim of lien should only be signed by the lienor or its authorized agent.
The Unauthorized Practice of Law.
The preparation of a claim of lien for third parties, in the state of Florida, is considered the practice of law. If someone prepares a construction claim of lien other than the actual lienor or its attorney, then that party will, in Florida, be found to be engaging in the unauthorized practice of law. Moreover, and a big disappointment for the lienor, is that such a practice could cause the claim of lien to run afoul of the fraudulent lien laws and completely invalidate the lien’s effectiveness.
Mistakes In The Lien.
Watch for mistakes in the claim of lien as well. Utilizing parties unfamiliar with the lien process or the specifics of a lien claim could lead to mistakes. For example, not listing the correct name of all parties in interest or the correct legal description of the property being liened could be as problematic as not having proper start and end dates for the lienor’s services, or worse having dates that fall outside the time frame requirements imposed by the applicable statute.
Validating your lien through the proper and timely insertion of all needed information is the first step. Seeing that the claim of lien is prepared and signed by a party authorized to do so will then ensure that it remains enforceable and allow you to secure payment for those unpaid services or materials.
You receive a message. Something is wrong with your work. What do you do? Do you ignore the request and risk liability, or do you fix the problem but risk destroying evidence – also known as “spoliation.” If litigation develops down the road, contractors that destroy evidence, even unwittingly or with the best of intentions, can wind up paying damages as assessed by a court.
Unfortunately, there is no easy way to balance the immediate need to repair against the equally important need to protect evidence. Construction mistakes create a host of complications. Despite a compelling need to preserve evidence of fault, ignoring a construction mistake in your work can tempt disaster. Oversights that compromise a building’s structural integrity can cause injuries and property loss. Errors also result in delays that tend to roll downhill, throwing subcontractors and material suppliers off schedule, jeopardizing the entire project. In many cases, it’s also impossible to track down the exact party responsible for the mistake, and equally problematic, the subcontractor at fault may not be trustworthy or skilled enough to remedy the problem.
Spoliation issues can arise even when contractors make good faith repairs. When evidence is destroyed, courts consider a number of factors to determine whether a contractor should be penalized for making a repair. They look at the following:
Intent: The court’s primary concern is generally the contractor’s intent. The court considers whether the contractor acted specifically to destroy evidence, or whether the spoliation was necessary to prevent harm and address safety concerns on the job site.
Notice: Contractors who take the time to properly notify owners, potentially responsible parties, and other involved persons before acting generally fare better than those who don’t.
Effect: Courts try to determine just how much the spoliation may have hurt the case. If other evidence exists that provides insight regarding the mistake, this lessens the effect of the spoliation.
Because fixing construction mistakes can be risky, here’s what you need to do to protect yourself.
When a mistake is discovered, gather information about the parties who may have caused the problem.
Prior to repair, immediately notify all subcontractors and suppliers who might be responsible. Each should have an opportunity to inspect the mistake and assemble evidence, such as reports and photographs.
Contractors well-versed in litigation generally obtain an expert opinion regarding the alleged mistake.
When it’s time to make repairs, notify all the parties involved and do so by return receipt so you can show that you provided notice. Include the name, address and contact number for the contractor making the repair, the date the work is scheduled to commence and document the repair, photograph if possible.
Have potentially responsible parties participate in overseeing the repair.
Your goal should be to minimize the loss of evidence while also minimizing your exposure.
Waiting a long time for a routine inspection can be frustrating. But It happens often, especially when there’s an uptick in construction activity. To overcome some of these delays, many states and municipalities, including Florida and Miami-Dade, allow the use of private, third party inspectors.
Florida Statutes allow the owner of a building to contract directly with a private inspector to furnish building code inspection services. The owner is required to have a written agreement in place with the inspector and to notify the local building department at the time of permit application or no less than 7 business days prior to the first scheduled inspection by the local building official or building code enforcement agency.
The notice must include the services to be performed; the name, firm, address, telephone number and fax of each inspector; the inspector’s professional license or certification number; a summary of qualifications or resume of the inspector; and a certificate of professional liability insurance if that is required by the local building official. As well, the owner must submit an acknowledgement in substantially the form outlined by Florida Statutes.
If after construction has commenced, the local building department isn’t able to provide timely inspections, the owner can elect to use a private inspector if notice is given to the building department no less than 7 business days prior to the next scheduled inspection.
In fact, an owner can also have his or her plans reviewed by a private inspector.
Who is a qualified private inspector?
A private inspector is any person licensed as an engineer or architect under Florida Statutes. As for performing inspections, if the inspection is of a residential addition or alteration limited to 1,000 square feet or less, the term private inspector also includes a person holding a certificate issued by the Building Code Administrators and Inspectors Board.
All the private inspector needs to do is inspect the project at each phase of construction required under applicable codes and must provide notice to the local building department of the date and approximate time of each planned inspection no later than 2:00 p.m. the prior business day. The building department may still send one of its inspectors to verify that the private inspector is performing all required inspections. Upon completing all inspections at each applicable phase, the private inspector shall record such inspection on a form acceptable to the building department and submit this report within 2 business days to the building department. And the private inspector needs to prepare and submit a certificate of compliance under oath at the completion of all inspections.
Despite some possible risks associated with an owner or builder hiring its own private inspector (and the potential for fraud), the benefits are obvious when there is a need to keep a project moving on a faster schedule than the local building department can provide.
Do you know that a statute exists which, if properly exercised, could have a lien canceled. That’s right – canceled. Florida Statutes provide that a lien properly perfected may still be discharged by an order of the circuit court of the county where the property is located.
Upon the filing of a complaint by any interested party, the clerk shall issue a summons to the lienor to show cause within 20 days why his or her lien should not be enforced by action or vacated and canceled of record. Upon failure of the lienor to show cause why his or her lien should not be enforced or the lienor’s failure to commence such action before the return date of the summons, the court shall order cancellation of the lien. It’s that straightforward.
This rule applies to all liens properly filed of record – regardless of whether or not the underlying lien is itself valid. Therefore, the owner of the property, or any other person who is deemed to be an “interested party,” can arrange to have a summons issued to the lienor to show cause why the lien should not be enforced. Failure to show cause within the 20 day period will result in a discharge of the lienor’s lien. There is no allowance or an extension of time provided because of excusable neglect or failure to diligently respond.
Who doesn’t want to have and use a better construction agreement? You can do so by simply making sure you address the following 6 topics.
Define the scope
You need to define what the scope of work is that you will be providing. Will it be only materials; will it be materials and labor; or will it be just labor? You need to be very clear and very specific in how you spell out the scope of your work. Many construction agreements state that you are responsible for all work that’s shown on the plans and specifications, as well as that which is reasonably inferable. Pretty subjective – even if not actually on the plans or specifications, someone may believe that it should be part of your work and this could expand what you have to do beyond what you understood or priced out.
List all the exclusions
Do the parties each have the same understanding as to what is covered in the construction agreement? Articulate what is not in your price and not in your scope. This reduces one party believing that something is to be done when it isn’t.
Explain the change order process
When you have to perform extra work under a contract, obtain written agreement on the change order. Make sure it’s fully memorialized – signed with change in scope, change in price and change in time, and approved before you do the work. Often you are just given a revised page in the plans. Before you do the work, generate the change order, submit it, and have it accepted. Alternatively, you can request a change directive, directing you to do this change work. You will then have the necessary paper trail.
Verify the schedule
As important as the price in your construction agreement is the schedule – how quickly is the work to be done? Importantly, check to see whether or not the agreement has any penalty associated with the failure to timely perform. Review the schedule and make sure that it is doable. Are there any liquidated damage provisions that exist in the agreement and if so, are they reasonable? Do you agree with them? Know that not having a liquidated damage provision doesn’t mean there are no damages for delay. You may be liable for the actual delay damages of the contractor and the owner. As an example, let’s assume you are a dry wall subcontractor on a hotel and the hotel is late and it’s late in part because of your failure to timely perform certain aspects of your work. If that’s the case and there is no liquidated damage in the contract, the owner may still be able to assess damages. The hotel’s actual damages could involve having to hire employees and keep them on standby. It could mean rooms weren’t rented. All of these actual damages may become your responsibility even though there is no liquidated damage provision. So review that schedule to be sure it is achievable.
Refine the dispute resolution procedure
Require that the executives of each party have a meeting within a week or two of any disagreement to try to resolve any dispute. If that doesn’t work, then the parties should go to mediation. Mediation is a process in which both parties meet and split the cost of a neutral mediator who tries to facilitate a resolution between the parties. The mediator may be able to bring the parties together and have them settle their dispute. If an impasse is reached at mediation, then the parties can proceed to either arbitration or litigation, but only after they mediate. Fifty percent or more of disputes actually settle at mediation.
Make sure the winner gets legal fees
There are only two ways in most states to recover your legal fees, by statute or by contract. Because dealing with legal issues can be expensive, you need to make sure that if you have to undertake the process, you are able to recover your incurred fees if you win.
Remember, a short document is better than no document, and a more thorough document is better than one that is too general. Sometimes people wonder whether a handwritten (versus a typed) agreement is valid. Yes it is. And what about something electronic, will that work? Sure – an email authorizing the terms and conditions of your agreement will be accepted as a contract. What if you don’t have an original? No problem; you don’t have to have the original for there to be a valid construction agreement. A recent case even determined that an exchange via text message was enough to create a valid contract between two parties. It doesn’t take much, but it should be in writing.
Obtain correspondence surrounding the transmission of the document
Ensure only authorized people execute the agreement
The average person believes that if a signature or document isn’t in its original form then somehow, it is going to be challenged in court, or the signing party can argue that it is not authorized or it is a forgery. All of that is possible, but having litigated hundreds if not thousands of cases in our Miami construction law firm over the last twenty-five years, we can tell you that it is astonishingly rare we receive claims from a signing party that the document is not an original, or that the signature is not an original. Most times, all we present as evidence in court is a photocopy of the actual document, and it is very rarely challenged.
What can you do to protect yourself if you don’t have an original?
Try to obtain correspondence surrounding the transmission of the document to show that the person that provided it to you knew that it was coming from or going to their office. Let me give you a practical example of what I mean.
Some months ago, we had a case involving one of our clients, a subcontractor. The contractor claimed that the change orders that were part of our claim were not authorized, even though they were signed by the contractor’s project manager. Not only did we have the executed change order with a signature (we presented a copy because everything was electronic), but we also attached email correspondence surrounding the change orders that went to most of the contractor staff, including the contractor’s president. And in addition, of the same people including the president of the construction company were copied with the signed change order we received from the contractor. Importantly we were also able to show, no one argued or complained at the time about the document. So, when we were able to present all of these pieces of evidence that the change was not only authorized, but that they knew about it, their arguments melted away.
So, the first thing to do to protect yourself is to make sure that you obtain correspondence to and from the people that authorized the transaction, whether it’s a change order, a release, a waiver, whatever document that it may be, showing that the people who need to receive the document are shown on the email chain, and they receive copies and related correspondence.
The second thing you can do to protect yourself is to see if your contract requires only certain people execute the particular document. For example, many construction contracts state that only the project executives have the authority to order new work or sign change orders. If you have a contract that says that you need to make sure you have those people execute the document. Know that if the authorized person doesn’t sign the document, you may run a risk later that the document will not be considered to be properly authorized.