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Monday, April 20, 2015

Property Ownership and Your Lien Rights


     The ownership interest of the party you contract with may dictate the reach of your lien rights. For example, if the owner of a property is the sole owner of the entire parcel, then a lien will extend to the entire interest of the owner. Conversely, if the party who contracts for an improvement to real property has no ownership interest at all in the subject property, a construction lien cannot reach the property. Take for example the facts of Paterson, Inc., v. Bonda. In that case, Paterson, a contractor has a contract with Mr. and Mrs. Bonda to improve the Bonda's condominium apartment. Before the work was completed the Bondas terminated Paterson. Paterson filed a mechanics lien against the Bondas and a lawsuit was filed.

     Mr. Bonda filed for summary judgment based on his not having an ownership interest in the property. The trial court entered summary judgment for Mr. Bonda and awarded him attorney's fees for defending the lien foreclosure claim. Donald M. Paterson, Inc. v. Bonda, 425 So. 2d 206, 207, 1983 Fla. App. LEXIS 18769, 1-2 (Fla. Dist. Ct. App. 4th Dist. 1983)

   Property Owned by Husband and Wife

     What about property owned by a husband and wife where only one of the spouses signs the contract? Florida Statute §713.12 provides that a contracting spouse is considered the agent of the non-contracting spouse. As such, both of their interests in the property are subjected to a lien. For this principle of agency to apply, the contracting spouse must not be separated and living apart from the other spouse. However, the non-contracting spouse can limit the extent of the lien to only the interest of the contracting spouse by giving written notice of their objection to the contractor within 10 days of learning of the contract. The objection must also be recorded in the public records where the property is located within the same 10 days.

Leased Property

     If the contracting party is a tenant with a leashold interest, only the leasehold interest is subject to a lien. The owner’s (Landlord) interest is not lienable unless the lease agreement actually requires the tenant to make certain improvements or is otherwise the essence of the lease (called the “pith” of the lease). The Owner (Landlord) can protect his interest, notwithstanding that the improvements are required by the lease or are the “pith” of the lease, by including a prohibition against liens in the lease agreement itself and recording the lease, short form of the lease or statutory notice in the public records in the county where the property is located.

Condominium Property

     What about liens on condominium property? Florida Statutes §718.121 governs liens against condo property. What determines the extent of any lien rights in this context is the date on which the declaration of condominium is recorded. When a lien is recorded before the declaration, the lien extends to the entire property (including common areas). If the lien is recorded after the declaration, then the lien extends to all the condominium parcels in the proportions for which the owners are liable for common expenses but the lien will not extend to the common areas.

Public Property

     Remember, public property generally cannot be liened. On public projects, security comes in the form of a payment and performance bond.

     Knowing who you’re contracting with and their interest in the improved property can be just as important as making sure you timely serve a preliminary notice or record a construction lien. When in doubt, always consult with an attorney who is familiar with Florida’s Construction Law.

BY: JOSE A. RODRIGUEZ, ESQ.
The Soto Law Group, P.A.
2400 E. Commercial Blvd., Suite 400               
Fort Lauderdale, FL  33308
jose@sotolawgroup.com
TEL:  954-567-1776

FAX:  954-567-1778

The hiring of a lawyer is an important decision that should not be based solely upon advertisements. Before you decide, ask us to send you free written information about our qualifications and experience. Additionally, the information above is not intended to be legal advice. Please consult with an experienced lawyer if you have a specific issue or dispute.





 


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Thursday, April 2, 2015

TOP TEN CONSTRUCTION CLAUSES PART 2-CLAIMS FOR CONSEQUENTIAL DAMAGES

     This article is the second of a ten-part series analyzing ten critical construction clauses.  In this installment, we analyze the “mutual waiver of consequential damages.” The first article, which addressed indemnification clauses, can be found at http://sotolawgroup.blogspot.com/2015/02/top-ten-construction-clauses-part-i.html

     Before analyzing the significance of this provision, however, you must understand the difference between “direct” or “general” damages, and “indirect” or “consequential” damages.  Direct or general damages are those damages that the law presumes follow from the type of wrong complained of.  Examples include an owner’s cost to correct or complete a contractor’s work after a breach.  Indirect or consequential damages are losses that do not flow directly and immediately from an injurious act, but that resulted indirectly from the act.  Examples include lost profits suffered by the owner caused by the delayed completion of a store or lost rents from the owner of an apartment complex building. 

     Absent language to the contrary in the contract, consequential damages are recoverable in Florida.  As a Florida court has recently held, a homeowner is entitled to “loss of use” damages (in other words, consequential damages) under Florida law.  See Gonzalez v. Barrenechea, 40 Fla. L. Weekly D 258 (Fla. 3d DCA 2015). Whether a construction contract addresses the risk of consequential damages is a serious consideration for property owners and contractors alike because consequential damages often greatly exceed direct damages.  In one oft-cited example, a contractor on a $24 million hotel-casino renovation substantially completed the project on time, with the exception of a non-functional, ornamental facade designed to attract passersby from the boardwalk.  See Perini Corp. v. Greate Bay Hotel & Casino, Inc., 610 A.2d 364 (1992), overruled on other grounds by Tretina Printing, Inc. v. Fitzpatrick & Associates, 640 A.2d 788 (N.J. 1994). Despite the fact that the contractor’s total compensation on the project was only $600,000 plus reimbursement for actual expenses, the appellate court upheld an arbitration award in the amount of $14.5 million for damages resulting from the delay of the facade! See id. It is clear, therefore, that whether consequential damages are recoverable after a breach of a construction agreement is of paramount importance. 

     In order to level the playing field between project owners and contractors, in 1997, the American Institute of Architects introduced a mutual waiver of consequential damages into its General Conditions of the Contract for Construction (AIA A201).  The provision, as most recently revised in 2007, currently provides:

§ 15.1.6 CLAIMS FOR CONSEQUENTIAL DAMAGES (AIA A201-2007, General Conditions of the Contract for Construction)

The Contractor and Owner waive Claims against each other for consequential damages arising out of or relating to this Contract.  This waiver includes

.1       damages incurred by the Owner for rental expenses, for losses of use, income,
       profit, financing, business and reputation, and for loss of management or employee  productivity or of the service of such persons; and

.2   damages incurred by the Contractor for principal office expenses including the compensation of personnel stated there, for losses of financing, business and reputation, and for loss of profit except anticipated profit arising directly from the Work.

This mutual waiver is applicable, without limitation, to all consequential damages due to either party’s termination in accordance with Article 14.  Nothing contained in this Section shall be deemed to preclude an award of liquidated damages, when applicable, in accordance with the requirements of the contract documents. 

The AIA also provided the following commentary to its Mutual Waiver of Consequential Damages Clause:

     By waiving claims for consequential damages, the owner and contractor limit themselves to direct damages.  This eliminates some of the incentive to escalate claims and may encourage settlement.  Other contracts on the project (such as the owner-architect agreement and the subcontracts) should include similar provisions so that other parties are not targeted for receipt of claims waived between the owner and contractor.  The items identified as consequential damages in .1 and .2 are not intended to be a complete listing of all such items. State law may include many other items of cost. 

     It's clear from the AIA’s Commentary that the Mutual Waiver of Consequential Damages can be a powerful tool to limit a contractor’s potential damages on a construction project.  The provision, however, is not bullet-proof and is often criticized because the AIA did not specify within the provision whether such list is intended to be merely illustrative or an exclusive list (although the Commentary indicates it’s the former).  ConsensusDocs, another leading provider of standard contracts developed by a coalition of more than 40 construction industry associations, also includes a “Limited Mutual Waiver of Consequential Damages at 6.6 of its Standard Agreement and General Conditions Between Owner and Contractor (ConsensusDocs 200). 

     Consult with an attorney knowledgeable in construction so that together you can decide whether it is advisable to include such a Mutual Waiver of Consequential Damages in your contracts.  Understand the value of a consequential damages clause, the existence or absence of the cause in a contract and the risk/reward if there is no waiver of consequential damages.


 BY:       DALE A. EVANS JR., ESQ.
The Soto Law Group, P.A.
2400 E. Commercial Blvd., Suite 400
Fort Lauderdale, FL  33308
dale@sotolawgroup.com
TEL:  954-567-1776
FAX:  954-567-1778

The hiring of a lawyer is an important decision that should not be based solely upon advertisements. Before you decide, ask us to send you free written information about our qualifications and experience. Additionally, the information above is not intended to be legal advice. Please consult with an experienced lawyer if you have a specific issue or dispute.