1998 changes to public works bonds and construction lien law.

Traditionally, lien changes are effective on October 1 of the year enacted; however, these changes became effective on July 1, 1998.

Changes to the Florida Construction Lien Law seem to follow each legislative session like the evening follows the day; 1998 was no exception. The changes relate to both construction liens under F.S. Ch. 713, and payment bonds for public works under F.S. [sections]255.05. As an example of compromise legislation addressing the competing interests in the construction industry, there will be questions to be resolved regarding the language in some of the changes. Having participated in changes to the lien law in prior years, it is difficult in the heat of the session to anticipate every application of the words chosen. Confusing items usually are addressed the following year with a "glitch" bill. The following is what happened to Ch. 713 and [sections] 255.05 in the 1998 session.

Amendments to F.S. [sections] 255.05

More information on first page of payment bond for public works. The contractor on a public works project has been required to record the bond given pursuant to F.S. [sections] 255.05 since 1988. The purpose of recording was to make the bond more accessible to potential claimants. The problem with what was enacted in 1988 was that there was no requirement for a legal description to be in the bond. Thus, if the bonds were recorded, the ability to retrieve them pursuant to a title search was questionable. Effective July 1,1998, the bond must include on its front page the name, principal business address, and telephone number of 1) the contractor; 2) the surety; 3) the owner; and, if the contracting entity is different from the owner, 4) the contracting public entity. The first page also must include (although there is qualifying language that says "if applicable") a legal description and street address of the property being improved as well as a general description of the improvement. Essentially the legislature is requiring information on the first page of the bond (to be recorded) as would be put in the notice of commencement in the setting of private work. There is no consequence addressed in the statute about the failure to include any of the required information. However, earlier cases had held that the failure to comply with the requirement of recording the bond rendered the bond a common law bond, excusing the claimants from the statutory notices, and leaving the parties to comply with the notices in the bond form itself, if any.[1]

Notice of contest of claim against payment bond. In the lien setting for private work, an owner or the owner's agent or attorney may shorten the time within which a lien claimant is required to file suit to enforce the lien to a period of 60 days from the date that the clerk of court certifies that a copy of the notice of contest of lien was mailed to the lien claimant at the address in the claim of lien.[2] There was no corresponding shortening procedure for a private or public works payment bond. Effective July 1, 1998, there is. In the public works arena with a payment bond pursuant to F.S. [sections] 255.05, the contractor or the contractor's agent or attorney may shorten the time within which to file suit on the payment bond by recording a notice of contest of claim against payment bond in the clerk's office.[3] This is authorized to be done only after the claimant "is no longer furnishing labor, services, or materials on a project." The time within which to file suit on the bond is limited to 60 days from the date that the clerk of court certifies that a copy of the notice of contest was mailed to the bond claimant "at the address shown in the notice of nonpayment or most recent amendment thereto." Thus, it appears that another precondition to recording the notice is the service of a notice of nonpayment. Remember that a claim of lien is recorded in the public records. A notice of nonpayment making claim against a payment bond is not. Note that the copy of the notice of contest of claim against payment bond is to be recorded in the clerk's office. It appears that the clerk of court for the county in which the improvement is located is the clerk intended, although that is not expressly stated. Someone will be arguing that the notice of contest of claim against payment bond may be recorded with the clerk of the county of the contractor's principal place of business, or the county where the payment is due (principal place of business of the claimant?). The only trigger to be able to record and serve the notice of contest of claim against payment bond is that the claimant no longer be furnishing labor, services, or materials on the project. However, in order to serve a copy on the lien claimant at the address given in the notice of nonpayment, there must be a notice of nonpayment. It appears that the clerk of court will have to rely on the contractor or the contractor's agent or attorney to furnish the clerk with an accurate copy of the original, or most recent amendment to, the notice of nonpayment. Unfortunately, this is fraught with opportunity for error or misunderstanding by the court clerk, as well as potential abuse by contractors. The concept is acceptable, but the logistics are loose.

Extension of limitations period within which to bring suit for retainage. F.S. [subsections] 255.05(2)(a)2 has been amended to lengthen the time within which suit may be brought by an unpaid claimant for retainage[4] only, to a period of either one year from the claimant's last performance of the work,[5] "or within 90 days after the contractor's receipt of final payment (or the payment estimate containing the owner's final reconciliation of quantities if no further payment is earned and due as a result of deductive adjustments) by the contractor or surety, whichever comes last."

First, the language says that this action exclusively for retainage must be instituted against the contractor or the surety. This appears to be an unintentional requirement to elect either the contractor or surety for suit, not both. If the contractor sues within the one year and does not allege that the action is exclusively for retainage, it appears that the claimant can sue both the contractor, the surety, or both.

Secondly, the determination of what is final payment to the contractor or the surety meeting the parenthetical requirement may not be easy to quickly ascertain, and may be subject to interpretation.

Request for sworn statement of account. Again, in the private setting with the lien law, there has long existed the right of the owner to request a sworn statement of account from potential lien claimants.[6] The failure of the lienor to respond with a sworn statement within 30 days of the request, or furnishing inaccurate information, resulted in adverse consequences to the lien claimant. In 1997, the legislature enacted the right of a contractor with an exemptory F.S. [subsections] 713.23 bond to request a sworn statement of account, the failure to timely and accurately respond to which resulted in loss or diminution of bond rights. A similar concept has been enacted in F.S. [subsections] 255.05(8) effective July 1, 1998.

When a contractor has furnished a payment bond pursuant to F.S. [subsections] 255.05, and when the public owner makes payment to the contractor, or directly to a claimant, and before suit has been filed on the bond claim, the contractor may serve a written demand on any claimant who is not in privity with the contractor for a written statement under oath of his or her account showing 1) the nature of the labor or services performed; 2) and to be performed, if any; 3) the materials furnished; 4) the materials to be furnished, if known; 5) the amount paid on account to date; 6) the amount due; and 7) the amount to become due, if known. The request for sworn statement is not required to have any particular warnings or format. Thus the request could be tucked into the middle of a letter. The similar request under the lien law requires the demand to be in a particular format with a warning at the top of the form.

The statute says that the request must be served on the nonprivity claimant at the address and to the attention of the person designated in the notice to contractor to receive the demand served by the claimant. The failure to respond to a request for sworn statement of account within 30 days of receipt of the request, or the furnishing of a false or fraudulent statement, deprives the claimant of rights under the bond. However, the failure to properly respond does not have adverse consequences if the demand is not served at the address of the claimant or not directed to the attention of the person designated to receive the demand in the notice to contractor. This is confusing. The directive is to serve the demand on the claimant and to the attention of the person designated.[7] However, the statute goes on to say that if a demand for sworn statement is not served at the address of the claimant or directed to the person designated, there is no adverse consequence of deprivation of bond rights.

If the contractor serves more than one demand for sworn statement of account, and there has been no change in the information from the last response to a demand, there is no consequence of the failure to respond to the later request.

Remember that the furnishing of a false statement or fraudulent statement acts to deprive the claimant of bond rights. It appears by the two descriptions that a false statement does not require intent, but a fraudulent statement does require intent. However, the statute also says that the negligent inclusion or omission of any information in the responsive sworn statement deprives the bond claimant of rights only to the extent that the contractor can demonstrate prejudice from such act or omission of the claimant. Thus, the intent of the claimant is important when false information is included or omitted from the responsive sworn statement.

Construction Lien Changes

Solid waste removal included in definitions. In an apparent response to a special interest lobby, solid waste collection or removal has been included in the definition of improve.[8] Solid waste removal (only) has been included in the definition of improvement,[9] subcontractor,[10] and subsubcontractor,[11]

Final contractor's affidavit. In the 1997 case of Craftsman Constructors, Inc. v. Brown, 695 So. 2d 750 (Fla. 1st DCA 1997), the court held that a final contractor's affidavit, which failed to list an unpaid subcontractor whose time to have served a notice to owner had expired, was improper. This appeared to be inconsistent with the definitions in the lien law. A final contractor's affidavit required the listing of unpaid lienors. A lienor was defined as one having a lien or prospective right to lien. A nonprivity claimant who had not timely served a notice to owner was not within the definition of "lienor" since there is no lien or right to lien.

The 1998 amendment to F.S. [subsections] 713.06(3)(d)1 provides that the affidavit must state that all lienors "who have timely served a notice to owner on the owner and the contractor" have been paid in full. This change now makes clear that there is no duty to list a person who would be a lienor, but whose time to serve a notice to owner has expired without service of the notice, and the copy of the notice on the contractor. However, there are potential lienors (e.g., subcontractors and material suppliers to contractors) who are not required to serve a copy of the notice to owner on the contractor. Thus, it appears that a subcontractor need not serve a copy of the notice to owner on the contractor in order to obtain lien rights, but must serve a copy of the notice to owner on the contractor if that party wishes to be included in a list of unpaid persons in a final contractor's affidavit.

The amendment goes on to say "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."[12]

Notice of termination of notice of commencement. The owner is required to state in the notice of termination of notice of commencement that he or she has served a copy of the notice of termination of notice of commencement on the contractor, and each lienor who has served notice to owner. The 1998 amendment states that the owner is not required to serve a copy of the notice of termination on any lienor who has executed a waiver and release of lien upon final payment in accordance with F. S. [subsections] 713.20.[13]

Manner of serving notices to owner. Prior to July 1, 1998, the original of the notice to owner was not permitted to be served by fax. Of course, if the owner put a fax number in the notice of commencement space for the owner's agent designated to receive notices, and that agent was served by fax, it was unclear as to whether that service by fax would be adequate. Effective July 1, 1998, the lienor is permitted to serve the original notice to owner by fax if the owner has placed a fax number for service in the notice of commencement, and the lienor can provide a confirmation sheet from the fax machine reflecting service.[14] Of course, if the owner does not desire to be served by fax, the owner may choose not to put a fax number in the notice of commencement. If the fax number for the owner is not set forth in the notice of commencement, service by fax may not be effective (although there may still be an issue as to "actual delivery").

A very significant change has been enacted regarding service of a notice to owner by certified or registered mail. Prior to July 1, 1998, service by certified or registered mail required evidence of delivery. After July 1, 1998, service by certified or registered mail has been divided into two categories. Service still may be effected by certified or registered mail with evidence of delivery not later than 45 days from the lienor's first work or delivery.[15]

The second category of certified or registered mail service added as of July 1, 1998, is that service may be effected as of the date of mailing by simply placing the notice in the mail to the proper address with postage affixed if: 1) the notice is placed in the mail within 40 days after the date the lienor first furnished labor, services, or materials; and 2) the person who serves the notice maintains a registered or certified mail log that shows the date the notice was served, the registered or certified mail number issued by the U.S. Postal Service, the name and address of the person served, and the date stamp of the U.S. Postal Service confirming the date of mailing.

This was intended to reduce the cost of serving notices to owner by eliminating the requirement of a return receipt card (and resulting cost). Certified mail without a return receipt card is significantly cheaper than certified mail with a return receipt. The proof of service would be the mail log with the U.S. Postal Service stamp on it instead of the return receipt card.

The problem with this change is that there is a very real possibility that the postal worker will not diligently check to see if the envelope for the notice to owner has the same address as the log which the postal worker stamps. Thus, in that situation, if the notice or other document is not actually received, the owner will be charged with having been served.

Notice of contest of claim against payment bond. This is the same provision for payment bonds on private work given pursuant to F.S. [subsections] 713.23 and 713.245 as described previously in this article. The contractor or the contractor's agent or attorney may record a notice of contest of claim against payment bond.[16] The clerk serves a copy on the bond claimant. The time within which the bond claimant may bring suit on the bond is limited to 60 days from the date the clerk certifies that a copy of the notice of contest of claim against payment bond was mailed by the clerk to the bond claimant by certified mail.

While expressly authorized, this concept is difficult for application to a [subsections] 713.245 bond, since there is no notice to contractor required to be served in order to make claim under this type of bond.

Release forms for bond rights under F.S. [subsections] 713.23 and 713.245. The same type of form releases for partial payments and final payment are put into the statute for claimants under F.S. [subsections] 713.23 and 713.245 payment bonds[17] as have been in the statute for liens. The same problems exist in regard to the potential for a contractor to rely on a release upon final payment as exists under the lien law. While a claimant may give a release upon final payment, if the claimant does further work after the release, the release does not operate to release the later work done.

The issue also exists in regard to claimants seeking to insist on giving the statutory release and no other. While it is true that no one can insist on a release of the statutory bond rights on any form other than the statutory forms, the parties must understand that there are other rights that should be released in exchange for payment in addition to the bond rights (e.g., contract rights and equitable claims). A release for those rights may be properly requested in addition to the form in the statute.

Increase in lien transfer security for costs and attorneys' fees. As of July 1, 1998, it will take a greater amount to transfer a lien to bond or cash deposit. The amount necessary to transfer a lien will be the amount of the lien, plus legal interest for three years (currently 30 percent, i.e., three times 10 percent), plus the greater of $1,000 or 25 percent of the lien claim, as a deposit for costs and attorneys' fees.[18]

The court is further required to increase the amount of the transfer deposit or bond if the amount of the bond in excess of the lien is found to be insufficient to pay the lienor's attorneys' fees and court costs in the action to enforce the lien. This may be difficult to enforce if the current property owner is not the party who has effected the transfer to the deposit or bond. There also are interesting issues as to any requirement to make a surety increase a bond without the surety having the right to exercise its discretionary underwriting for any additional amount. It appears that if the court orders an increase in the bond, and the surety exercises credit discretion in refusing to increase the amount of the bond, it is going to be interesting.

Effective date. Traditionally, lien changes have been made effective on October I of the year enacted, to allow time to disseminate the information to those impacted. This time, the changes became effective on July 1, 1998.

[1] WPC, Inc. v. Hartford Accident & Indemnity Co., 698.So. 2d 1324 (Fla. 1st D.C.A. 1997); Martin Paving Co. v. United Pacific Ins. Co., 646 So. 2d 268 (Fla. 5th D.C.A. 1994).

[2] FLA. STAT.[subsections] 713.22(2).

[3] FLA. STAT. [subsections] 255.05(2)(a)1 (1998).

[4] Unfortunately, retainage is not defined. It appears that the contract of the claimant may define retainage. However, there certainly will be disagreement about what is included in this statutorily undefined retainage. Some subcontractors will tell you that retainage is what has been withheld along with the last two progress payments.

[5] The current limitations period for a claim on a FLA. STAT. [subsections] 255.05 bond for payment.

[6] FLA. STAT. [subsections] 713.16.

[7] This is problematic in itself, since there may not be a person designated in the preliminary notice to the contractor.

[8] FLA. STAT. [subsections] 713.01(12) (1998).

[9] FLA. STAT. [subsections] 713.01(13) (1998).

[10] FLA. STAT. [subsections] 713.01(26) (1998).

[11] FLA. STAT. [subsections] 713.01(27) (1998).

[12] FLA. STAT. [subsections] 713.06(3)(d)1 (1998).

[13] FLA. STAT. [subsections] 713.132(1)(D (1998).

[14] FLA. STAT. [subsections] 713.18(3) (1998).

[15] Or before final payment is made in reliance upon the final contractor s affidavit, whichever occurs first.

[16] FLA. STAT. [subsections] 713.23(1)(e) (1998).

[17] FLA. STAT. [subsections] 713.235 (1998).

[18] FLA. STAT. [subsections] 713.24(1)(b) (1998).

Larry R. Leiby is a graduate of the University of Miami School of Law (J.D., 1973) and a principal in Leiby Construction Law Firm, P.A. He began his practice in Florida construction law. He founded and was the first chair of The Florida Bar Construction Law Committee of the Real Property Section (19761994). Mr. Leiby authored the Florida Construction Law Manual, in its fourth edition, and co-authored the article Licensing for Construction: A Legal Mechanism of Control in Comparative Studies in Construction Law: The Sweet Lectures (1996).

This column is submitted on behalf of the General Practice, Solo and Small Firm Section, Clinton N. Gregory, chair, and David A. Donet, editor.