Home>Levelset Community>Legal Help>I am a Florida GC and I'm having an issue where I pay my subs and get a lien release that states they paid their subs but then I get slapped with an NTO after I have issued payment saying that their supplier wasn't paid. How can I avoid this payment issue?
I am a Florida GC and I'm having an issue where I pay my subs and get a lien release that states they paid their subs but then I get slapped with an NTO after I have issued payment saying that their supplier wasn't paid. How can I avoid this payment issue?
I keep getting slapped with liens after I issue payment and have no way to get visibility into my subtier vendors. They don't send the NTO until after I have already gotten a release from their sub and issued payment.
Jan 8, 2019
That's an interesting situation, and I'm sorry to hear you've been having to fend off mechanics liens. There are a few things going on here worth exploring. First, let's look at Florida's NTO deadline. A Florida NTO must be sent by the earlier of 45 days from first furnishing or 45 days from when work begins on making specialty materials. In either case - payment must be made before final payment is made to the prime contractor. Thus, when a sub-subcontractor or supplier is waiting to send their NTO, they very well may be running afoul of their NTO deadline. Of course, it's certainly possible that a claimant could still send their NTO within this deadline even if it's after the first-tier sub has received payment and issued a lien waiver. But there are other safeguards available that can help to avoid situations like the one described above.
For one, utilizing joint checks could nip this issue in the bud. With the use of joint checks, a contractor can be sure their sub can't run away with payments without also paying their subs and suppliers. You can learn more about that option here: What is a joint check agreement?Another option could be to better inform a subcontractor of potential penalties for lying on their lien waiver. Under § 713.35 of the Florida lien statute, knowingly and intentionally providing an affidavit, lien waiver, lien release, or other document containing false information about the payment status of subcontractors, sub-subcontractors, or suppliers can result in a third degree felony. So, if this information is made clear at the time a waiver is requested, it could serve to fend off the inclusion of false information in a lien waiver. Including this information along with a request for the lien waiver might do the trick - but there are any number of ways this information could be made clear.
Alternatively, at the start of a job, a contractor can demand that everyone on the project issue NTOs from the get-go. Doing so would provide a clear job tree from day 1, and it'd help prevent sub-subs or suppliers from coming out of the woodwork when it comes time for payment. That may seem hard to enforce, but a contractor could certainly include this requirement in their contract and include a flow down provision that creates an obligation for other parties with whom the contractor does not have a contract with. Further, at the time of contracting, a contractor can require a list of all subcontractors and suppliers on the job - and the contractor could require that the list be updated periodically. Including a flow down provision that states the contractor's first tier subs must also obtain and disclose the information of any other parties down the chain is a possible solution, as well. Where the contract states that a list of subs and suppliers must be provided prior to payment, a contractor may be able to withhold payment until that list is provided.
Lastly, threatening legal action against a subcontractor who fails to pay their subs and suppliers could go a long way to forcing them to fulfill their obligations. Having an attorney send a demand letter that threatens legal action against the sub might scare them into passing payment down the chain.