One of the most daunting aspects of construction projects is understanding the different legal documents presented (or that should be presented) by contractors, subcontractors, laborers, and suppliers. Although construction contracting is not something most board members are familiar with, the State of Florida requires them to follow very detailed procedures when making payments to the contractors hired to do work on the condominium property. If payments aren’t made correctly you may face liens on the property that interfere with sales and which may be foreclosed by the contractor.
The first step to take when commencing a construction project is to record a Notice of Commencement. Florida Statutes require you to record a Notice of Commencement in the public records identifying the legal title of the property being improved, and the names and addresses of the owner (or association as the agent of the owners), contractor, lender, bond surety (if any), and any other individuals who should receive copies of documents associated with the Florida Construction Lien Law. It is also critical to make sure that if your contractor or subcontractors are posting payment bonds (which may exempt your property from liens), those bonds must be recorded in the County Records along with the Notice of Commencement. A copy of the Notice of Commencement and Bond should also be given to the appropriate building department and inspecting authority.
As your construction progresses, you will receive documents called Notice to Owner. Sometimes these documents are called Notice to Owner/Preliminary Notice and are usually served upon you via Certified Mail. If you included your fax number in the Notice of Commencement, the Notice to Owner may also be faxed to you. They may also hand-deliver it to you and, in some instances, it may just be posted on your job site. It is very important that you keep track of everybody who has served a Notice to Owner on you. The Notice to Owner is not a cloud on title; rather, it is a document from those entities, hired by your contractor, that you must ensure get paid to avoid liens on your property.
Every time you pay your contractor for the construction on the project, which may vary depending upon your specific contract, it is vital that you ensure that all subcontractors and suppliers that have served you with a Notice to Owner have been paid in full. Before you make payments to your contractors, you should call everybody who served a Notice to Owner on you and find out how much they are owed. When you make your next payment to your contractor, it is critical that you make sure that you get a Release from everybody who served a Notice to Owner in the amounts which you learned are due. If you do not get a Release in that amount, you can be sure the company is not being paid, and they will look to you later for payment or lien your job. Sometimes, you may even want to consider writing joint checks, which are checks made payable jointly to your contractor and the company who served the Notice to Owner. These checks, even though they are joint in nature, will still count as payment towards your contractor and still be credited against the contract price. The bottom line is to ensure that everyone who serves a Notice to Owner is current with their payments every time you pay your contractor, and issue a Release of Lien to reflect this. The Florida Construction Lien Law also gives you the right to require a list of money owed to subcontractors from your contractor every time you make a payment. This Affidavit should be given to you by your contractor, but the law does not allow you to legally rely on whatever the contractor tells you. Rather, you have an affirmative duty to make sure everyone who serves a Notice to Owner is paid in full.
When the final payment under your contract becomes due, you should not make final payment until the contractor gives you an Affidavit stating that all lienors under the direct contract who have timely served a Notice to Owner have been paid in full or, alternatively, identify the names of the lienors who have not been paid in full and the amount due or to become due to each of them. Once again, although this Affidavit is helpful, you have no legal right to rely on it for any entity who served a Notice to Owner. Do not, under any circumstances, make your final payment to your contractor until you receive final Releases of Lien from every entity who served a Notice to Owner. If there is a problem getting these releases, you must make sure that everyone serving a Notice to Owner gets paid before you issue that last check to the contractor.
It is often a difficult procedure to ensure that you make your final payments properly, so please consult with the Association’s Attorney if you have any questions whatsoever. From time to time we will include case examples involving associations on this blog.