4 Techniques to Fight Slow Payment in Florida

One of Florida’s top construction lawyers, Nicholas Fernandez from The Barthet Firm, will walk us through the steps everyone should take to maximize their Accounts Receivables.

Watch this webinar to learn:

• How to protect your Mechanics Lien rights to ensure payment
• When and how to use Bond Claims properly
• The right way to use Lien Releases so everyone is happy
• Common contract mistakes to avoid

Full Transcript

Pierce:
Hello everyone. Like I said before, my name is Pierce Rubinstein. I’m the expert center coordinator here at levelset. Thank you all for coming today. We have a fantastic host for you. His name is Nick Fernandez. He works out of the Barthet law firm in Miami. They specialize in construction law and I’ll pass it over to him. Let him take it from here. Thanks Nick.

Nick:
So good afternoon, everybody. As he stayed, I’m Nick Fernandez. I’m part of the Barthet law firm, which has been around for 25 years now. And it has a primary focus today in construction law, construction law ranges from drafting agreements to handling accounts receivables, and also defending against construction defect claims. So the purpose of today’s presentation is to primarily focus on the collections aspect, and that is the best way to maximize collection on your accounts receivables. And we can do that through multiple things and the four key items that we’re focusing in on today, or lien claims, bond claims, making sure that you don’t give away rights by signing an improper release and certain terms that you can include in the contract in order to foresee likely issues that you can address and anticipate ahead of time by including those terms in your contract.

Nick:
The Barthet law firm includes a it’s a, it’s a boutique form. We are 10 attorneys and it’s under the direction of several board certified construction law attorneys. So together we work to assist a variety of clients in legal matters. So that being said I will get started. The first thing we’re taking away today from this presentation is how to properly secure your lien claims. Now, if you are a, if you provide labor services or if you provide materials on a project of your commercial supplier, if you provide any sort of subcontracting work, or if you’re a general contractor, the liens is something you should consider utilizing in order to secure payment. The most important thing to know in order to secure lien is to make sure that you don’t miss any deadlines. This is a creature of Florida statute, and the statute is very, very complicated and very strict with respect to the requirements you are to fulfill.

Nick:
If you miss a deadline, it is unlikely that you will be granted the ability to later record a lien. So the first deadline you have to be aware of is the notice to owner requirement for any party that works on a construction project, you must serve a notice to owner within 45 days of your first involvement in that project. First involvement in the project will mean different things, depending what trade you are a part of. So if you are delivering materials from the first date, the materials arrive or equipment arrives on that project that is considered day zero and tomorrow will be day one of your 45 day notice requirement. If you’re providing labor and your, your guys stepped foot on that project, that will be day zero. The following day would be day one. It Is important that every party who does not have the direct contract with the owner, meaning every party who is not the prime contractor is required to serve this notice to owner.

Nick:
In order to secure lien rights, this notice must be served, meaning delivered on the 45th day to the owner. If it is not delivered on that date, you have now lost the ability to record a lien if you’re not paid on this project. So it is important that you get in the habit of sending these out on every project and tracking these deadlines from the first date of involvement, meaning once you get involved in a project, do you have some sort of task reminder set within your office to make sure you timely deliver a notice to owner? Now, if you are a subcontractor on the project and in direct privy with the contractor, the only party you must worry about serving this notice on is the owner. However, if you fall beneath a subcontractor, meaning you’re not in direct contractual relationship with the prime contractor, then you must also serve this note or this notice to the prime contractor, as well as the owner, meaning both those parties within 45 days of your first date of work.

Nick:
Now service of this document is very important because you can’t just deliver it via email or in any way that you can’t track. It’s important that you track the actual service of the document. So in order to do this, you make sure to send it to every address you have for the recipient, but the most important addresses to focus on are those addresses found on the notice of commencement, which is a document recorded on the majority of construction projects and any addresses for these parties that may be found on your actual contract for this project. Once you’ve complied with this 45 day requirement, you actually haven’t done anything to make a claim on the property or against the owner. All you doing is securing your rights to later make a claim for a lien. So let’s move on to step two, actually making that lien.

Nick:
If you’ve arrived towards the end of your project, and you realize that you have not been paid in full, you must strongly consider recording a lien, a lien like bond claims, which we’ll talk about later in this presentation, give you the incredible ability to collect from a, a party that you were not in direct contractual privity with. Meaning if you were a sub contractor or a sub sub subcontractor, you are still able to collect from the owner, despite not having a direct contract with them in order to have this ability, you must once again, strictly comply with the deadlines set forth by the statute. And that is that a lien must be recorded within 90 days of your last date of work. One of the most complicated issues that we’ve noticed our clients at the firm experiencing here is finding the most conservative considerable date of last date of work.

Nick:
And I state that because there are many things that you, you, as a party may do to close out a project that within Florida law are not actually considered last date of work. Some of those items will be attending an inspection. You also, any punch list items that you may do or any corrective work that you may be that you may do. All those three items are not considered last date of work. So do be sure that your last substantial improvement to the property is marked on your calendar as the last date of work, so that you know that within 90 days of that date, you must record a claim of lien. Now, one thing that we have noticed with clients and lien deadlines is that we are encouraging them to record liens sooner rather than later. The reason being is that due to COVID-19, we no longer have the ability to walk into the clerk’s office and record a lien in person, same day because of this, we have to submit liens recording online and they’re recorded in the same order that they’re received by the clerk, meaning that if today is your lien deadline, and you submit your lien for recording today, it may not get recorded in time.

Nick:
So for that reason, we do make sure, and we do encourage our clients to really keep track of these deadlines and make sure that around the 60th day is the day that you are executing all the relevant paperwork and whatnot. So you can then submit it for recording to keep track of this 90 day. Keep in mind that if the 90th day falls on a weekend or legal holiday, that deadline rolls over to the next business team.

Nick:
Now, from there, we’ll, we’ll move on to talking about the lien amounts. A lien is a very technical document, so we’re not actually getting into the nuances of what will be going into that document because that’s definitely something you should consult with an attorney for. However, calculating the lien amount is a relatively simple topic that we can discuss at a high level at this time. One important thing to do, to, to assess when you are determining the amount that you include in that lien is that you should only be including the principal amount due on the face of the lien, meaning all finance charges or interest charges should not be included on that face amount of the lien, because that is a dollar amount that will change over time. And then you could claim later on when it is that you’re actually resolving the payment disputes.

Nick:
Likewise, any attorney’s fees that you may have incurred in pursuing collections should not be included in the face amount of the lien, but rather something that you can claim later when you’re settling the, the actual lien with any opposing party who may be willing to pay you, speaking of the principal amount that should be included in that lien, do be sure to realize that you should only be liening for the improvements that you actually performed. One common misconception that we see clients do is that they’re halfway through a project. The project has gone awry. They haven’t received any payment for the work they’ve performed, and now they choose to perform to record a lien on the property. At that time, they often record a lien for the entire contract amount saying this would have been the contract amount, how they should complete the project. And this is what I’m going to lien for. That’s improper. That’s not the way it’s done, where you have to be cognizant of is the fact that you’re only leaning for the work you’ve done through that date. Meaning if you’re liening a project, you must make sure to double check your records and assured that the, that the lien amount is only for the work performed, which includes reasonable, overhead and costs and whatnot. According to the terms of your contract, meaning what your contract would entitled you to collect at that time.

Nick:
Also with respect to liening, it’s not just the value of the work completed to that date, but assuring that you were authorized to perform the work that you did. The most common example that we share with all our clients is if you are an owner and you will hire a party to build a shed in your backyard, you’re responsible for paying for the building of that shed and you don’t pay for it. A lien will be recorded on that property. However, if I’m a contractor and I’m walking around neighborhoods and I see an open bag gate and I walk in and I build a shed on an owner’s property, and then I tell them, Hey, you gotta pay me. And if you don’t pay me, I’m going to lien. That’s unlawful. You cannot do that. So well, that’s a pretty extreme example. The same applies to contracts.

Nick:
If your contract included a specific scope of work, and you go beyond that scope of work, pursuing two directives that were given to you, you have to make sure to get those directives in writing. The reason being is that you don’t want a, it offense later to be raised as to the value of your lien, stating that the value of the lien exceeds the work. I’m sorry, the, the dollar amount stated in the contract or relates to work that was not approved by the opposing party. You don’t want to get into a, he said, she said, argument over one word was or was not approved. So do keep in mind to only lien for work, that you are able to evidence that you have the authority to perform. So from liens we move on to bond claims. This is a different kind of claim that you can do in assuring to collect on your accounts receivables. And this is step two on the major topics that we are discussing today. So bond claims are different than lien claims, and it is rare that the project will have the ability to what will grant you the ability to do both a lien and a bond claim. However, there are some projects where both rights overlap, however, when doing a bond claim, do be sure to know that there in fact is a bond. This is something you need to know at the onset of a project rather than at the time that the bond claim is due.

Nick:
Similar to a notice to owner, which has done on projects, where a lien available, bonded projects require that you issue what’s called a notice to contractor within 45 days of your first date of work. It is exactly that it is exactly the same, form that is used to do a notice to owner, except the person that this is being served on is the prime contractor, because of the fact that the prime contractor is the party who has posted a bond on a project. One of the most common questions is how do I know if there’s a bond on my project? Well, the best thing to do is to take a look at the notice of commencement. And on there, it’ll tell you if there’s a surety who has posted a bond and it should also include a copy of the bond to that notice of commencement. And there you’ll know that if the project is bonded, then that notice that you’re doing within the first 45 days is a notice to contractor and that the claim you’ll be making upon 90 days of your last date of work will be a notice of nonpayment to the bond company. Rather than just assuming that the next step would be to record a lien,

Nick:
The important thing in a notice to contractor is to make sure that you send it up, everybody in the chain of command, meaning it’s, you know, regardless of who, of what role you play in a, in a project and how far you fall down in the chain of command, it is always pertinent that you send these notices to everybody who falls up the chain of command from you. So moving on from the initial notice that goes with a bond claim, we’ll actually move on to discussing what happens when you need to make a claim on a bond.

Nick:
So assuming you’ve sent your, your notice within 45 days of, of your first date of work and keeping in mind that if you are in direct contractual, privity with the principal on that bond, which is almost always the prime contractor being in privity with the prime contractors, the only instance where you do not need to send a notice to contractor in order to secure the right to later make a claim on that bond. So putting that aside and assuming that your initial notice has either been waived because you’re in direct contractual, privity with the prime contractor or timely done, because, you know, you’ve issued it. The next step would be to do this notice of nonpayment. And these notice of non payments are a statutory form. A there’s actually a new statutory form as of October, 2019. So if you’re not using a notice company or an attorney to prepare these, be sure you are aware of the latest form to use.

Nick:
These forms, just like a lien must be, a lien must, be recorded on the 90th day. These notice of non payments must be served and delivered to the receiving parties by the 90th day. The receiving parties will be the surety, who posted the bond as well as the prime contractor and any other relevant parties delineated in your contract or in the notice of commencement. Be sure that when you’re issuing this notice,uto, to this notice of nonpayment, to make a claim on the bond that you delineate, meaning separate any claims that you have retainage from the principle amount due, otherwise the rules as the claim amount on a lien is the same, do be sure to not make a claim for monies related to work that you have not performed, meaning you should only be claiming monies for unpaid for work performed through that date and do be sure that you’re only making a claim for work that was contemplated in your agreement with the opposing party.

Nick:
So from here, we’re moving onto the fourth step of collection as to the takeaways we’re doing today. So the first takeaway was securing your rights, make a lien claim. The second being securing your rights, make a claim on a bond. Now the last two are discussing releases and discussing applicable contractual terms. Releases is a very important topic. Cause you’ll often be asked to sign one of these in exchange for payments. However, parties are just signing these under the impression that they will be paid without realizing what they actually are signing. So for that reason, we do encourage our clients and, and you know, any parties that we’re advising to be extremely cautious prior to signing any of these, because, you know, once you sign a release and you turn it over to the opposing party, we cannot undo the fact that you’ve signed, that you’ve signed that release.

Nick:
So there’s damning language in the document, and you’ve agreed to that language. There’s really little to nothing that can be done to unwind it. So for that reason, if you’re uncertain about any language stated in your release, then reach out to an attorney and make sure they advise you so that you’re making an informed decision. Releases by Florida statute are, are permissible. It is, it is reasonable that an opposing party states, we will not pay you if you do not sign a release. However, the releases set forth by Florida law, are very, very generic and minor in the terms of promises. You’re making that release more often than not all you’re agreeing to is exchanging a specific sum of money in exchange for a release through a certain date of work performed. If you note that a release is broader than that, then you should actually reach out to somebody and that somebody should be an attorney specializing in construction law to advise you on whether what you’re signing in essence waives the right you were not intending to waive or makes an affirmative statement that you didn’t otherwise have to do by law. So do keep in mind to, to consider the terms of this release, because if a party makes an, a verbal assertion inducing you to sign a release with the terms of that release, the written terms of that release are contradictory to the, to the verbal assertions. The written language is what will govern. So don’t disregard the language as stated in a release as we’ve seen many, many clients do in exchange for relying on their verbal promises that have been made to you, you need to do your own due diligence and be certain that you are familiar with the terms you are signing. That being said, one of the most common tricks we see used by opposing party is pushing you to sign a final release in exchange for a partial payment when what you should actually be signing as a partial release in exchange for that partial payment.

Nick:
There there’s many things that could be thrown into a document to confuse you and to get you to release something that you shouldn’t otherwise have released. So do be very, very careful when when reviewing these documents from here, we move on to a contractual terms. So contractual terms are something that you should do at the onset of a project, meaning whether you have a credit application with a customer where you engage in multiple you know, subsequent deep business dealings with a certain customer over and over again, using the same credit application, meaning you’ll use this credit application to cover your work on multiple projects with a given customer or number two, you can enter into project specific agreements, regardless of the type of agreement you and you enter into. You must be certain that a few things are laid out. Now do keep in mind that I know construction is a very, a handshake deal business.

Nick:
So if you have a verbal agreement or an email agreement, it’s not that that’s not enforceable, just harder to enforce something that’s not described in a document that’s been signed by all parties. Cause then we’re getting into a gray area area as to what is part of the agreement and what is not. So it is always advisable to enter into an a written, into a written agreement that being said, once you have a written agreement, you do want to make sure that you include payment terms there, and you want to be very strict in your payment terms stating that if, for example, you’re not paid within 30 days of each invoice, that the, that the amount due will then begin accruing interest at 1.5% per month, or at 18% per year, this would be a right that you’re otherwise not entitled to, if it has not been included in your contract and agreed to by all parties in writing otherwise, what you defer to would be the, the legal rate for collection of past two amounts, which is substantially below this 18%, which is a percent that you would be entitled to in Florida, if it is included in your contract.

Nick:
Number two that I find to be abundantly it’s something that is often, often disputed about is scope of work. So that is something that you always want to delineate in writing with the opposing party. And that is the purpose of delineating that in writing is for the purpose of assuring that the opposing party, and you are on the same terms as to what they’re paying you for in exchange for certain work performed. In other words, you don’t want to get to the end of a project and say, I understand that the original agreement was a hundred thousand dollars, but now only 130,000, because the work I performed was above and beyond the work that was originally reached to the scope of work that was originally agreed to then the opposing party steps in and says, you know, no, sir, ma’am, you don’t get this $130,000.

Nick:
You’re limited a hundred thousand because the a hundred thousand we agreed to includes the work that you performed and you didn’t do any work outside that agreed to original scope. You don’t want to have this back and forth of, you know, was the scope of work originally agreed to and contemplated in our proposal pricing amounts, or is it something that’s new and above and beyond. So for that reason, you want to be sure to include a scope of work description. That’s sufficiently detailed to assure that when something falls outside, that scope of work, that you can easily argue that you’re entitled to additional sums of money because of the fact that this other work performed is something wholly apart from what you originally agreed to. When, when taking into consideration additional scope of work, it is important that you consider executing a change order because while a verbal change orders may sometimes work, if your contract prohibits verbal changes to that agreement, then you, you might be out of luck enforcing a change to that contract.

Nick:
So for that reason, you always want to make sure to get a change order. When you are changing one of three things, one the value of your contract to the scope of work being performed, or three, the time you have to complete a contract. What I often notice, and this is a tip that, that I give to you just seeing many parties, having made these errors in the past, the scope of work may have not changed. And the contract value may have not changed, but there may have been something in the project that caused delays, something that was out of the control of the lien or, or the person who would be making the bond claim or the breach of contract claim, meaning the ultimate party providing labor services or materials. There is something that is outside their control that occurs on a project which causes the time to complete the project to change.

Nick:
However, they failed to submit a change order that grants them, the ability to finish on a later date than was originally agreed to now, there’s all these terms included in the contract, such as liquidated damages or delay damages, whatever you want to call it, which a party didn’t anticipate and being responsible for because in their mind it would be logical that they wouldn’t be responsible for a hearing to the original deadlines of the contract. Given all the, you know, the delays that occurred that were not part of it’s, it’s…that we’re not caused by this party, when that occurs, you must also be concerned if you don’t have a change order in hand, that would be the third example of a situation. The first two being changed in time. I’m sorry. The first two being changed in scope and change in dollar amount.

Nick:
When you must consider whether a change order would be appropriate. So having your contract documents in line at the onset of a project really will help you towards the end of a project once it’s time to collect because your contract is that underlying agreement with the party that you will be collecting on. If you, for some reason, miss your deadline to make a lien claim or miss your deadline to make a bond claim. You know, the last Avenue of collection will be that contract you have, and you, you want to make sure that contract you have is, is solid in benefiting you to collect. One of the other things we noticed, many clients of ours started implementing in their agreements is a personal guarantee by one of the principals or officers of their customer, meaning that if the customer goes belly up and goes into bankruptcy, or if the customer is simply experiencing financial hardship, the, you know, the, the party who is unpaid, that has the ability to seek payment from that specific officer individually, where the debts of its company, that a guaranteed these are all things to consider and to talk to your personal attorneys about when, when considering what you should do to maximize collections on projects.

Nick:
So that being said, I, I do a tender the remainder of my time, to questions, if you have any you know, that, that being said, there are many things you could do to assure that you’re maximizing the ability to collect. And we do want to be sure that before you do something that can’t be undone, meaning before you sign a release or before you sign a contract, or before you agree to forego a claim that you contact an attorney, who’s familiar with these topics to advise you, to make sure that you’re making an informed decision so that you are not making a decision that you otherwise cannot undo in the future. So that being said, I see Pierce here wants a few questions that you’ll share with me so I can answer the questions of the people attending today.

Pierce:
Yeah. Thanks. Thank you, Nick. I think that was, that was a lot of great information. So thank you for sharing. We do have a couple of questions coming in. I do encourage everyone else to please share. This is your time. It’s not often that you can get free answers from an attorney, so definitely take advantage. We’ll start with Chris. He says we do commercial landscaping. Can we lien for maintenance services that are unpaid? If not, what about in contract mulch that would be built into the monthly maintenance services? I believe we can lien for enhancement work such as planting trees and shrubs, but not clear on everything else.

Nick:
Okay. That’s actually a great question. Cause there’s often, often a a misunderstanding as to what is, what is, and what is not meaningful. So the maintenance of the property and, you know, including things such as mulch and whatnot, don’t really contribute to the permanent improvement of that project. Even some landscaping services such as the flowers and whatnot are less of a permanent impact of the property in comparison to a specific tree that will stay there for a long time and, and whatnot. So when it comes to landscaping, it is difficult because a lot of the work that you actually do is not meaningful for the purpose of it is not a true permanent improvement.

Pierce:
That makes sense. And Chris, if you have any followup questions, feel free to share them. I actually have a question that sometimes people don’t want to ask, but I think is important. What should people do if they miss a deadline?

Nick:
If you miss a deadline, there’s really little to nothing you can do, Um in respect to getting that deadline back, that’s why your last Avenue of collection is collection against the direct customer that you contracted with, just because you lose a lien or bond deadline, and the ability to make that claim. It doesn’t mean that you’ve lost the ability to collect on your accounts receivables. It just means that now you’re minimizing what you can collect from. So if you’ve missed a deadline, be sure to share the information with your attorney who is enforcing collection of your accounts receivable. The reason being is because against these third parties being prime contractors and owners, even if you’ve lost your ability to make that lien or bond claim, if you do find out that they have not paid your customer, and you have the ability of bringing a claim for unjust enrichment against them the reason being that they have received a benefit, which they haven’t paid anybody for, and it would be unlawful for them to retain that benefit if they don’t compensate somebody for that. And, and it’s important to, just to, so to answer your question, you know, share all information with your attorney, even if you know that you’ve missed the deadline,

Pierce:
That makes complete sense. Well that honestly looks like all the questions that we have today. If there are any more, please share them quickly. If not, you are welcome to reach out to to either Nick or go to our expert center, which is levelset.com/payment-help and post questions there as well. And we have a number of attorneys who would happily help you in whatever area you’re doing work in. But thank you so much today, Nick. You were fantastic. I’m sure everyone found it helpful. And we look forward to having you back again,

Nick:
Thank you for the invite Pierce. Thank you everybody for attending today, and I’ll leave you actually with one last tip. And that being one of the most common issues I see that is unrelated to the four topics we discussed today is parties being confused as to who they should take directives from. Do you remember who hired you on a project and who contracted you? That is the person who was able to determine what work you are and are not authorized to perform, make sure that you’re not taking directives from, you know, an architect, an owner, or some other third party. If your, if the party who hired you did not tell you to take their direction, and that will help you in collecting later on. You know, just to make sure that you follow followed everything by the book and did things according to the person who is ultimately responsible for paying you. So once again, thank you everybody for attending and thank you Pierce. I look forward to doing one of these again in the future.

Pierce:
Yeah. Thank you. That was a great, a bit of land. Yap. I can see how you could find yourself in a bad situation if you don’t do that. So thank you. Well thank you everyone that concludes us for today. Hope to see you again soon and let us know if you need anything. Thank you. Bye.