Proper Payments Defense
So you’ve decided to improve your property. There is one final defense that you should be aware of that may save you dollars when you suspect that the subcontractors, sub-subcontractors, or suppliers who have been improving your property and have not been paid. It’s called the Proper Payments Defense.
The Proper Payments Defense restricts the homeowner’s lien liability to the total value of the contract. This can be a huge savings in the event liens are filed against your property and the total of the liens exceeds the value of the contract. In essence, the legislature has seen fit to limit your exposure to filed liens to the extent of the contract price (see Chapter 713.06 of the 2008 Florida Statues). There is little known about this defense because in most cases it cannot be used due to an owner’s failure to follow a few steps. So pay attention to the next 3 steps on how you can limit your exposure to having to pay more than your contract price.
The first step is to make certain that you record a Notice of Commencement and post a certified copy of it at the work site prior to commencing any work. Do not allow the contractor to record the Notice of Commencement because the homeowner has the duty of performing this task (unless you have financed the construction work with a lender). In the event the notice of commence expires (usually after one year from recording it), do not make any further payments to the contractor until an Amended Notice of Commencement is recorded and posted at the work site showing the extended effective period.
Once the recording of the Notice of Commencement is recorded and posted you can safely begin making payments to the contractor (however, the law does not penalize you for paying the contractor prior to recording the Notice of Commencement).
The second thing that you must be aware of is not to make any payments to your contractor until you’ve checked out a few things. You must determine that subcontractors, sub-subcontractors and suppliers have been paid to the extent of the funds you have paid your contractor. This is usually determined by comparing the amount of the draw paid the Contractor against those subcontractors, sub-subcontractors and suppliers who have served you with a Notice to Owner. Your duty is to obtain releases of lien from all persons or entities who have sent you a Notice of Owner. This can be accomplished by seeking copies of lien releases from your contractor or from those persons or entities who sent you a Notice to Owner prior to delivery of the next draw. You may also obtain this information by demanding an affidavit from your contractor prior to releasing the next draw that states that all potential subcontractors, sub-subcontractors and suppliers have been paid to the extent of the draw paid. However, do not wait to long before seeking out this information because it may cause you to be in breach of your contract for failure to pay. Read your contract to find out how long your grace period is before payment is due.
The third thing you must do occurs at the time that the final payment is due. Before making the final payment, obtain a Final Contractor’s Affidavit from your contractor. Remember that the Final Contractor’s Affidavit must state that all subcontractors, sub-subcontractors and suppliers have been paid with the exception of those listed as not paid. If any person or entity is listed on the Final Contractors Affidavit as not paid, you owe a duty to make certain that those persons or entities are paid before the Contractor. Remember that the contractor is obligated to list any person or entity under the Contractors “direct contract” who has not served you with a Notice of Owner within the 45 day service period and has not been paid. You also owe a duty to verify those persons or entities that served you with a Notice to Owner within the 45 days of beginning their work and prior to final payment that they were paid, whether or not they are listed on the Final Contractors Affidavit.
Any lien in excess of the contract price will be paid from the remaining final draw in full or pro-rata to those persons or entities who are listed in the Final Contractors Affidavit as not being paid; provided the remaining draw amount is sufficient to pay each person or entity. If you follow the above steps, your exposure for payment of liens in excess of your contract price will be limited to the contract price.
If you are wondering what you should do if you have followed the steps listed above and liens are filed against your property, here are a few reminders from previous articles:
- After receiving a Notice to Owner and you desire to ensure payment, serve the person or entity sending the Notice to Owner a written request for a statement of account under oath
- When a draw payment comes due and you have determined that a subcontractor, sub-subcontractor or supplier that served you with a Notice to Owner within the 45 day notice period and has not been paid, you should:
- Determine if there is a payment problem that is bad enough to warrant a breach of contact claim with your contractor;
- Pay the laborers who have a claim first;
- Once the laborers have been paid, pay all the other persons or entities next before paying the Contractor. Make certain you pay the person or entity who served you with a Notice to Owner in the order received.
- If there is any remaining funds left, then make payment to the Contractor
- When the final draw becomes due and there are insufficient funds to pay any claim of lien, you should make a written demand on the Contractor to pay the difference above the contract price. If the Contractor fails to do so within 10 days of your demand, you may make payment directly to the subcontractor, sub-subcontractor or supplier who recorded a claim of lien pro-rata. Prior to making such payment, be sure to obtain the Contractors written consent or serve notice on the Contractor that payment will be made within 10 days unless the Contractor objects.
Follow the above steps and your liability to filed claim of liens in excess of your contract price will be limited. More importantly, you’ll sleep a lot better knowing that you reduced your exposure to paying more than you agreed too.
This is the last of articles on improving your real property. In the next segment of articles we’ll begin exploring Florida’s guardianship laws and its usefulness in protecting those persons who are vulnerable to being exploited.