Construction Liens in the News

The Orlando Sentinel recently ran an op-ed column written by Greg Dawson bashing Florida's existing Construction Lien Law, focusing on the potential horror stories where homeowners have to pay twice for subcontractor services. This can occur where an owner pays their contractor but the contractor has not paid its subcontractors or material suppliers, and then the unpaid subcontractor places a lien on the property. The column makes some points about problems faced by owners who do not understand the lien law. But first:

The column does not mention that this problem is completely avoidable if the owner obtains lien waivers from the contractor at the time of payment, and that the owner should never be surprised that the subcontractor or material supplier was furnishing labor or materials to the project if the subcontractor or material supplier provides a "Notice to Owner." If no Notice to Owner is provided, before or soon after work is started, then the subcontractor or material supplier has absolutely no lien rights, and the problems Mr. Dawson describes cannot occur. The Notice to Owner is required to say, in big letters, right at the top,

WARNING! FLORIDA'S CONSTRUCTION LIEN LAW ALLOWS SOME UNPAID CONTRACTORS, SUBCONTRACTORS, AND MATERIAL SUPPLIERS TO FILE LIENS AGAINST YOUR PROPERTY EVEN IF YOU HAVE MADE PAYMENT IN FULL.UNDER FLORIDA LAW, YOUR FAILURE TO MAKE SURE THAT WE ARE PAID MAY RESULT IN A LIEN AGAINST YOUR PROPERTY AND YOUR PAYING TWICE. TO AVOID A LIEN AND PAYING TWICE, YOU MUST OBTAIN A WRITTEN RELEASE FROM US EVERY TIME YOU PAY YOUR CONTRACTOR.

If the homeowner reads this notice, they should get an idea of the risks and steps to be taken to protect himself. If he doesn't receive this notice, than there can be no lien on the property. By omitting this information, Mr. Dawson's column presents an unfairly biased perspective.

Mr. Dawson in a subsequent comment published a portion of a letter from a reader who said "I ask for a lien waiver from contractors that do larger jobs for us. I think I've only gotten it once. Either they act like they don't know what I'm talking about, or they flat out don't send it. I guess I could hold out on the final payment until I get the waiver, but this is hard to do when they've done a good job." Rather than upholding this as the popular viewpoint, Mr. Dawson should be enlightening his readers to the idea that paying a contractor without obtaining a lien waiver, particularly when the owner knows to ask for one, is like paying cash for a car and driving away without the title.

It should also be noted that if a contractor is paid and does not pay the subcontractors or material suppliers, he may be subject to sanctions including fines and loss of a license, or in many cases, could be charged with a crime up to a felony. In other words, the contractor can't just keep the money paid by the homeowner and walk away with impunity.

If owners are unwilling to follow the instructions in the Notice to Owner, they can get help from an attorney, or as is more often the case, from their lender. In any construction project that is financed with a construction loan from the bank, the bank will generally ensure that the proper waivers are obtained prior to disbursing funds to the contractor. On a big project, it always helps to have a lender involved for this purpose.

Despite these points that Mr. Dawson does not consider, his views are not without some academic support. Last year, I was excited to see a rare law review article dealing with Florida Construction Lien law. In her note, Didn’t My General Contractor Pay You? Subcontractor Construction Liens in Residential Construction Projects,61 Fla. L. Rev. 151, Heather Howshedell made arguments for changes to the lien law which, although much expanded and well researched, boiled down to those in Mr. Dawson's editorial. Although I understand the difficulties that owners sometimes face, I cannot agree that the teeth of the lien law should be removed in all residential projects.

In my practice, I come into contact with many subcontractors who are not lawyers and have just as much trouble understanding and enforcing lien rights as the owners have in avoiding liens. The lien law is technical. The subcontractors often put substantial cash into projects, up front, to pay for materials and workers before they are paid by the contractor. If the contractor does not pay, the lien law is critical in obtaining payment. In many cases, the owner has NOT paid the contractor due to some dispute that has nothing to do with the labor, material, or services provided by the subcontractor, and the liens are an important tool in avoiding unfairness to the subcontractor resulting from some dispute between the owner and a contractor that is not his fault.

The solution, in my opinion, is not to have the legislature remove or even substantially change the lien law. Relatively simple steps can be taken by the owner to prevent problem liens. However, owners are not educated about these steps and apparently do not read or understand the warnings in the Notice to Owner. Accordingly, I would support changes in the law to educate owners about their rights and responsibilities without hurting the small businesses that rely on the lien law to ensure payment.