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This blog comes from a webinar that was presented by SunRay Construction Solutions and Alex Barthet. Alex is a board-certified construction lawyer who serves clients in Florida.
What Are the Basic Notice/Lien Rules?
We will now discuss briefly about the basic Notice to Owner and lien rules.
1. When to send your Notice to Owner
Generally speaking, you need to send a Notice to Owner no later than 45 days from your first work or delivery of materials to the site. That is the absolute latest time that the owner and any party designated in the Notice of Commencement actually needs to receive the NTO.
2. When to send your Claim of Lien/Notice of Nonpayment
The Claim of Lien or Notice of Nonpayment on a bonded job needs to either be recorded for the Claim of Lien or delivered for a Notice of Non-Payment no later than 90 days from your last work or delivery of materials to the site.
3. When to file suit on your lien and bond
You have to file suit on your lien within one year of the lien recording date. For a bonded job, you need to file suit within one year from your last work on your bond claim.
Now, as to the last deadline, notice the distinction between the two dates. The lien gives you a little more time than the bonded job, so if you have a bond claim, it is one year from last work. Some people make this mistake and then lose their rights.
Maybe You Only Think You Missed a Deadline, Seriously!
Sometimes people think they missed the deadline, but they actually did not. The most common exceptions are the following:
1. No NTO required if contracted directly with the owner
If you have a direct contract with the owner, you do not need to send a Notice to Owner. You should still send one, but even if you have not sent one, you still have lien rights.
2. No NTC required if contracted directly with the bonded contractor
No Notice to Contractor is required if you have a direct contract with the bonded contractor. For example, let us say that you are working on a project and you are a subcontractor. Your contract is with the contractor who has the bond. You do not need to send a Notice to Contractor on a bonded job to maintain your rights against that payment bond. But you should still send one as your general process.
3. No Notice of Nonpayment required when contracted with the bonded contractor
There is no Notice of Nonpayment that is needed when you have a direct contract with the bonded contractor on a public job. For example, if you have a contract and you are working for the bonded contractor, you do not need to send a Notice to Contractor (Notice to Owner). And because the job is public, you also do not need to send a Notice of Nonpayment.
So, if you are working on a bonded job and you have a direct contract with the bonded contractor, and the job is public, you do not need the first notice and you technically do not even need the second notice to still have rights on the project.
You should still use a procedure or process in your office where no matter what, you still send that NTO within 45 days and you send your Notice of Nonpayment no later than 90 days.
4. On a bonded project, the 45 days does not start until you know about the bond
This last exception is on a bonded project, and the 45 days do not start to run until you have actual or constructive knowledge that the job is bonded.
For example, let us say that there is a sub-subcontractor on a bonded public job. He did not send his Notice to Owner, but since he was a sub-subcontractor he was supposed to. The job was pretty much done, and he realized his mistake 60 days after he finished his last work on the job.
He then did some digging and realized that the contractor did not record a copy of the bond in the public records and there was no reference to it anywhere in the public records. Because the sub-subcontractor did not know about the existence of the bond and because the contractor did not do what he needed to do to make are that the public would know, which is recording a copy of the bond or referencing a copy of the bond in the Notice of Commencement, the 45 days never started to run.
So, the next day, he sends his Notice to Owner – technically the Notice to Contractor – to everyone who needed it. The day after that, the Notice of Nonpayment is sent, and the day after that, he files a lawsuit to make a claim on the payment bond. The sub-subcontractor then recovers all of his money, which amounts to around $100,000, plus interest and legal fees.
The moral in this example is to never give up. Because there may be an exception that can save your claim.
Is There Another Bond to Go After?
After going through the exceptions, you realize that there are none that can save you. The next thing to do is to see whether or not there is another bond on the job. And typically, where this happens is if you are a sub-subcontractor or material supplier to a subcontractor or sub-subcontractor. You are pretty far down the chain of command. It is possible and it typically exists on larger jobs that the subcontractor has a bond.
If the subcontractor has a payment bond, you may have a right to make a claim against that payment bond. So, if the job is bonded by the contractor, you would have a claim against that bond. But you also have a claim against the subcontractor’s bond if the subcontractor has one.
How to get your hands on the other bond
The first part of this is that it does not exist in the public. And unfortunately, you cannot do a search for it. It is not the contractor’s bond which is typically the one that is referenced in the Notice of Commencement or recorded in the public records. So, if you cannot find it in the public records, where do you get it?
1. Ask the contractor for a copy
The first thing you can do is ask the contractor for a copy.
2. Ask the subcontractor for a copy, but be careful
You could also ask the subcontractor for a copy, but you have to be careful because the subcontractor will not want you to know about their payment bond, because they know that if you know about it as a sub-subcontractor or a supplier, you may make a claim on it. So, subcontractors may not be as forthcoming as the contractor would.
But the contractor would actually be happy to give you a copy of the subcontractor’s bond, because they know that if they give you that copy, you are likely to not make a claim against the contractor’s bond.
Now if you use SunRay, what we do is actually call the contractor and subcontractor to find out if the job is bonded as well. Then you can make a claim against that sub-bond.
3. Send a written demand
Otherwise, you can send a written demand to see if you can get a copy.
For example, there is a supplier on a job, and they call the subcontractor, who lies and tells them that they do not have a bond. But after doing some digging the supplier found that the subcontractor did in fact have a bond. So, when the supplier found the bond, they were able to make a claim on the bond and get paid.
How to Sue for a Breach of Contract
If you have determined that there are no exceptions to the lien or bond law and there is no other bond that you can go after, then you effectively have two final recourses legally. The first one is to sue for breach of contract. This is pretty straightforward because all you need is an agreement with another person or entity. But there are some other things that you should look out for:
1. Agreement should preferably be in writing, but is not required
Ideally it should be in writing, but it does not have to be. Sometimes you may not have a contract, but a proposal or a quote, and that is okay.
2. Can be different formats
A proposal, a quote, an invoice, or even a handshake will work, because it does not have to be in writing. A court with enough evidence will support the idea that you had an agreement. Now keep in mind that many times it is pretty straightforward.
You will have delivered materials, provided labor, and you have not been paid. That is usually evidenced by a written contract, or something like a pay request or invoices you submitted that have not been paid. So, the more documents you have to support the notion that you are entitled to be paid, the better you will be able to support the concept of a breach of contract.
3. Watch out for a pay-when-paid provision
Remember to also be very careful of the pay-when-paid provisions in your contract. If you do not have rights against the owner for a lien or against the contractor’s bond because you missed the deadline, if you have a pay-when paid provision in your contract and the contractor has not been paid, they may be able to use that defense against you and not pay you.
So, if you sign a contract that says pay-when-paid and you miss your lien or bond deadlines, then unfortunately if the party that you want to sue for a breach of contract has not been paid, and that pay-when-paid provision is found to be enforceable, they do not have to pay you. That is an excuse that the court will enforce in the contract against you.
But also note that a pay-when-paid provision can sometimes be determined to be unenforceable. So just because you have the provision, may not necessarily be a bad thing. But be aware that it may be an issue.
How to Sue for Unjust Enrichment
Now we will talk about how to sue for unjust enrichment. The theory of unjust enrichment is pretty straightforward. It means that you confer the benefit, which is the enrichment part, and you have not been paid which is the unjust part.
1. This claim is typically used against a party further up the chain
Typically, a claim for unjust enrichment is used against parties that are further up the chain, which is usually the owner. So maybe you are a material supplier, you delivered materials to a job, and you have not been paid. As a result of missing your deadlines, you need to make a claim against the owner for unjust enrichment.
2. No claim exists if the owner has paid the contractor
However, the primary defense seen when owners receive claims for unjust enrichment is that if they have paid anybody, even the contractor, they will be absolved of liability on the unjust enrichment claim.
This means that if you have not been paid when you are that far down the chain, maybe as a sub-subcontractor or a material supplier to a subcontractor, your materials and work have been incorporated, so you make a claim for unjust enrichment from the owner. But the owner paid the contractor, and the contractor did not pay the subcontractor, or maybe he paid the subcontractor, but the subcontractor did not pay you.
Once the owner tenders payment that is consistent with his or her contract with the contractor, your claim for unjust enrichment will not be permitted. It is only if the owner is still holding money back from the contractor that your unjust enrichment claim will work.
Typically, where it works is prior to the end of the job when there is a holdback that the owner has against the contractor. If it is well after the fact and the owner paid the final bill, the claim for unjust enrichment against the owner will not hold.
