Protecting Yourself When
Your Contractor Quits
Edward J. Kinberg
Attorney
This column will discuss how property owners can protect themselves against liens if a builder quits or is terminated before the job is finished without paying the subcontractors and suppliers. As the rules in this area are complicated and must be followed exactly, an attorney familiar with the lien law should be consulted as soon as it appears the builder may quit or be terminated.
Following the proper procedures upon abandonment or early termination of construction or remodeling can limit an owner's liability for liens to the amount of the original contract. On the other hand, failure to strictly use the proper procedures could result in liability for liens well in excess of the original contract price.
The first step, proper payment, must be implemented with the first payment made on the contract. Determining whether a payment is proper must be based on the facts of each particular payment. As such, this article will only discuss some of the basic issues in this area.
Before any payments are issued to a builder/remodeler a partial release of lien must be obtained, covering the period of time for which payment is requested. In addition, if any Notice to Owner forms have been received from any subcontractors or suppliers, a partial release of lien must be obtained from each individual or firm that has served a Notice to Owner.
Before final payment is issued, the builder should provide a "final affidavit." This affidavit should be provided even if the contractor has quit or been terminated. In this affidavit, the builder is required to state all subcontractors and suppliers that have been paid or list those which have not been paid and the amount owed.
If an Owner receives any demands for payment or has liens recorded against the property after the original contract has been terminated, the owner must be careful not to issue any payments to lienor's until a new contractor is hired to complete the work and the work is completed. If payment is made to lienors before that time, such payments could be considered "improper" and may not be counted as part of the completion costs.
The second step is the recording of an "Affidavit of Intention to Recommence Construction" in the County Clerk's Office. This affidavit must state that all lienors giving notice (those that have filed a Notice to Owner) have been paid in full or, if full payment has not been made, list each party that has not been paid in full. In addition to recording the affidavit it must also be served on each lienor named in the affidavit.
The third step involves recording a "new" notice of commencement for the recommenced construction before work is begun and posting a copy of the notice at the construction site in the same manner in which the original notice of commencement was posted.
The final step is making proper payments after the termination or abandonment of the original contract. In this regard, each subcontractor and supplier from the original contract should be required to provide a sworn statement of account and a copy of their contract with the builder. Florida Statute 713.16 includes a form for such a request with which an Owner must "substantially" comply. Failure to provide the statement within 30 days of the request, "deprives the subcontractor or supplier of its lien."
If the above steps are strictly followed according to the law, an owner's liability to lienors can be limited to the original contract price. As noted above, there are a number of complicated issues that arise in cases of abandonment or termination. As such, Owners should seek the advice of an attorney as soon as it appears a builder may have to be terminated or will stop work before completion.