CONTRACTOR IS NOT REQUIRED TO SERVE NOTICE TO OWNER ON SUBSEQUENT OWNER AFFILIATED WITH PRIOR OWNER
By: Richard E. Guttentag, Esq., Stearns, Roberts & Guttentag, LLC
A lienor, except a laborer, who does not have a direct contract with the owner of real property to furnish improvements, is required to serve a Notice to Owner in order to have a valid construction lien. A lienor who does have a direct contract with the owner is not required to serve a Notice to Owner. However, does a contractor have to serve a notice to owner on a subsequent owner during construction, if the subsequent owner is affiliated with the prior owner? The appellate court, in Marble Unlimited, Inc. v. Weston Real Estate Investment Corporation, 2013 WL 1222779 (Fla. 4 th DCA 2013) addressed this question.
In Marble Unlimited, Inc., a contractor (“Contractor”) entered into a contract with the corporate owner (“Owner”) of the property to renovate buildings within a condominium complex. Between 2003 and 2007, the Contractor completed renovations on Buildings 3 through 8 of the complex. In 2006, the Contractor entered into two new contracts with the Owner to perform work on Building 9 of the complex. John Genoni, Jr. an officer of the Owner, signed the two new contracts on behalf of the Owner. While the Contractor was performing work on Building 9, the Owner transferred the property to an affiliated corporation (“Affiliated Owner”). In 2008, the Contractor recorded claims of lien against the property, referencing its contracts with the Owner. The Affiliated Owner was the owner of Building 9 at the time the Contractor recorded its liens. John Genoni, on behalf of the Owner and Affiliated Owner filed Notices of Contests of Lien.
The Contractor filed a complaint for breach of contract and to foreclose the construction liens on individual units in Building 9, naming both the Owner and Affiliated Owner as defendants. Although the Contractor was awarded $112,237.29 in damages against the Owner under its breach of contract claims, the court dismissed the Contractor’s lien claims against the Affiliated Owner on the grounds that the Contractor did not served a Notice to Owner on the Affiliated Owner. The Contractor appealed.
A lienor who is in privity with the owner is not required to serve a Notice to Owner. Whether privity exists is a factual inquiry requiring both knowledge by an owner that a particular subcontractor is supplying services or materials to the job site, and an express or implied assumption by the owner of the contractual obligations to pay for those services or materials.
At the time the Contractor commenced its work on Building 9, the Contractor was in privity with the Owner, as it signed two contracts with the Owner where the Owner identified itself as the owner of the property. The appellate court held that the Owner could not trigger a duty on the part of the Contractor to serve a Notice to Owner on the Affiliated Owner by transferring ownership of the condominium units to a related corporation. The Court reasoned that requiring the Contractor to serve a Notice to Owner in such a situation would allow corporate owners to play a shell game with ownership and frustrate contractors’ valid lien claims.
The appellate court referred to prior decisions that involved situations where a common identity existed between the owner and the contractor in reaching its conclusion that the Contractor was not required to serve a Notice to Owner on the Affiliated Owner. The concept of common identity was established to allow a lienor to enforce its lien without serving a notice to owner when the corporate owner and corporate contractor share the same owners and address. The Court explained that the purpose of the Notice to Owner is to protect an owner from paying over to his contractor sums which should go to a subcontractor – finding that “privity” as used in the lien statute is not employed in the technical sense, but implies special knowledge showing active consent or concurrence. In the Marble Unlimited, Inc. case, the Court concluded that it was evident that the Owner and Affiliated Owner were related in that John Genoni filed Notices of Contests of Lien on behalf of the Owner and Affiliated Owner, John Genoni, Jr. signed the contracts, and the Owner and Affiliated Owner shared the same principal and mailing address. Thus, under these circumstances, the Contractor was not required to serve a Notice to Owner on the Affiliated Owner.
This case demonstrates that when a lienor is in privity with the owner of the property, and the owner transfers the property during the course of construction to an affiliated company, the lienor does not have to serve a Notice to Owner on the affiliated company.
About the Author: Richard E. Guttentag is a partner with Stearns, Roberts & Guttentag, LLC, and is Board Certified in Construction Law by the Florida Bar. Mr. Guttentag exclusively in construction law including construction lien claims and defense, payment and performance bond claims and defense, bid protests, construction contract preparation and negotiation, and construction and design defect claims and defense. He can be reached for consultation at firstname.lastname@example.org.