EQUITY, LIENS AND LEASEHOLD INTERESTS
By: Michael E. Stearns, Esq.
Construction liens are creatures of statute. That is to say, they were created through enactment of legislation. There is no such thing as a common law construction lien. A construction lien has traditionally be excellent security for payment for work performed. This has been true, in part, because a construction project improves real property and increases the value of that real property and therefore the equity in the property that the owner enjoys. The ultimate conclusion to a construction lien foreclosure action is the perverbial sale of the real property “on the courthouse steps”. A simple example would be where the owner owns his property outright. As long as an owner has equity in his property that he wishes to protect, (i.e. the property is worth more than the construction lien) he will not allow his property to be sold to satisfy the construction lien. As such, were there is equity in property the perverbial sale never happens and the owner pays the lienor to prevent the sale. . AnWith the economic downturn and attendant drop in property values, however, A question often asked by lienors is “What can I include in my lien?” The answer is fairly straight forward and is fournd in Florida’s Construction Lien Law. A lienor can include, “any money that is owed to him or her for labor services, materials, or other items required by, or furnished in accordance with the direct contract and for unpaid finance charges due under the lienor’s contract.” This is what can be included in the lien and nothing more. Note that there are two contracts referred to, the “direct contract” and the “lienor’s contract.” The direct contract is the contract between the owner and the contractor. Since your lien must be for money owed to you for items required by, or furnished in accordance with that contract, in the somewhat unusual circumstance where a lienor furnishes items that are required by its contract but not by the owner/contractor “direct” contract, those items cannot be included in the lien. Note also that a lien can also include finance charges “due under the lienor’s contract.” Therefore, if your contract requires payment of say 1 ½ percent interest a month then you can include that amount from the date that payment was due under your contract. While lienors are free to prepare their own liens, it is not recommended. Instead, it is recommended that a licensed attorney be used to prepare the lien. This leads to the question of whether the attorney fees incurred in preparation of the lien. The simple answer is that the statute does not state that these can be included and they should not be included.
Another question is what happens if you include more in your lien than the statute allows? Is there a penalty and, if so, what is the penalty? There is a penalty and it can be severe. A lien where the lienor has “willfully exaggerated” the amount due, included amounts for work not performed or which is compiled “with such willful and gross negligence as to amount to a willful exaggeration “shall be deemed a fraudulent lien.: A finding that a lien is fraudulent is a complete defense to the lien claim meaning the lienor will recover nothing on its lien claim. Additionally, the lienor will be liable to the owner for the owner’s attorney fees and the court may award the owner damages measured by the difference between what the lien amount should have been and what amount was in fact included in the lien.
A recent case involving a lien which included amounts that it should not have and which was found fraudulent is Pace Properties, LLC v. Excelsior Construction, Inc., 2010 WL 431869 (N.D.Fla. 2010). There, a contractor did not dispute that it purposefully included amounts for work that had not been performed. Instead, the contractor argued that under its contract the amounts were due whether or not the work was performed. Note the language from the lien law quoted above. You can include money owed for labor, services, materials or other items required by, or furnished in accordance with….. your contract. The court disagreed that this language provided room for the contractor to include amounts due for work not performed. The contractor also attempted to avoid a finding of a fraudulent lien by arguing that the amounts included for work not performed was minuscule and should therefore be treated as a minor mistake. The court again disagreed. The contractor’s knowing inclusion of amounts for work not performed doomed its lien. The issue is intent.
Inclusion of other items such as delay damages and lost profit on work not performed have also resulted in findings of fraudulent liens. On the other hand, it is important to note that the inclusion of amounts that a lienor believes to be due on a disputed change order or extra will typically not support a finding of a fraudulent lien, even if it is ultimately determined that those amounts were not due. Again, the issue is intent. Because relying on the advice of an attorney in including certain items in your lien negates this “intent” element, reliance on advice of counsel is a defense to a claim of fraudulent lien – another good reason to have an attorney prepare your lien.
About the Author Michael E. Stearns has practiced exclusively in the area of Construction Law since 1996 and was designated as a Board Certified expert in construction law by the Florida Bar in 2005, the first year this designation was available. Mr. Stearns is “AV” rated by Martindale Hubble – the highest professional peer rating for legal ability and ethical standards. He is listed among the “Best Lawyers In America”, “Florida Super Lawyers” and “South Florida’s Top Lawyers”. Mr. Stearns got his start in the construction industry working as a carpenter while attending the University of Florida’s M.E. Rinker College of Building Construction where he earned a Bachelor’s Degree in Building Construction. He has held a Florida State Certified Building Contractor’s license since 1989 and directed multi-million dollar construction projects as a project manager before attending law school and embarking on his legal career. He can be reached for consultation at firstname.lastname@example.org.