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Florida lawmakers recently introduced a bill that could broadly impact Florida construction payment practices. If passed into law as drafted, Senate Bill 908 would require Florida contractors to use the standard construction lien waivers prescribed under Section 713.20, Florida Statutes. Additionally, going forward, noncompliant lien waivers may no longer be enforceable. The bill could come into effect as early as July if enacted.
Purpose of Construction Lien Waivers
In Florida, contractors and parties furnishing work and materials for a construction project are typically required to submit lien waivers in exchange for progress and final payments. These waivers usually state that the contractor waives its right to claim a lien for work or materials provided through a specific date. For example, an electrical subcontractor might give a lien waiver to a general contractor stating that it is waiving its right to claim a lien for electrical work performed through the date of its most recent application for payment.
There are two main types of lien waivers: partial lien waivers and final lien waivers. Partial lien waivers are given in exchange for progress payments periodically throughout the project, usually every month. Likewise, final lien waivers are given after the project in exchange for final payment.
Owners rely on lien waivers when paying their contractors for assurance that liens will not be recorded against a property for work the owner paid for. Therefore, most direct contracts require lien waivers, and general contractors, following suit, include a similar requirement in their subcontracts. In practice, general contractors prepare a lien waiver and gather lien waivers from each of their subcontractors, all of which are presented to the owner at the time of payment.
Problems with Florida’s Existing Lien Waiver Law
Section 713.20 prescribes statutory forms for both partial and final lien waivers. The law states that lien waivers “may be” given in substantially these statutory forms. The law also states that a lienor cannot be required to provide a lien waiver, which is not substantially the statutory form. However, these restrictions are often ignored because a later provision of the law states that customized (i.e., nonconforming) lien waivers are still enforceable under their terms.
Many property owners ignore the restrictions of Florida’s law, opting instead for enhanced or customized waivers. Enhanced waivers typically provide a broader waiver or guarantee than what is provided in the statutory forms. For example, an owner might request that a contractor sign a lien waiver relinquishing non-lien rights, such as rights arising under a contract or guaranteeing payments have been made to subcontractors before the owner has distributed any contract funds. Other times, owners request custom lien waivers with no enhanced provisions, presumably because they are unaware of standard forms and existing restrictions under Section 713.20.
Although would-be lienors are generally not obligated to do so, many contractors fulfill owners’ requests for enhanced or customized waivers. However, this practice can have significant legal consequences. Section 713.20 currently clarifies that, while improper, nonconforming waivers are still enforceable by their terms.
Proposed Changes to Florida’s Lien Waiver Law
SB 908 would require owners and contractors to use Florida’s statutory versions of construction lien waiver forms if enacted. Additionally, many customized lien waivers may no longer be enforceable. The bill accomplishes its intended result through two textual changes.
First, Sections 713.20(4) and 713.20(5) would state that lien waivers “must” (instead of “may”) be in substantially the statutory forms when a lienor is required to give a waiver. Second, the revised law would reverse earlier leniency, stating that waivers not substantially similar to the statutory forms are not enforceable by their terms. One could reasonably interpret the latter provision to mean that noncompliant waivers will be entirely unenforceable.
Unlike prior restrictions, these new restrictions should earn the caution of owners. Specifically, a requesting party’s failure to obtain a compliant waiver poses the risk of an ineffective lien waiver. This means a lien could still be recorded against a property despite an owner’s payment and a subcontractor’s supposed waiver. Consider the following hypothetical:
A general contractor requests a progress payment from a project owner. The owner gathers partial, unconditional lien waivers from the general contractor and each of its subcontractors. However, the waivers are heavily customized, violating the new law. The owner pays the general contractor, but the general contractor abandons the job and never pays its subcontractors. The subcontractors record liens against the property and sue to foreclose on the property.
In this example, the customized lien waivers might not be enforceable against the subcontractors’ lien claims even though the owner paid the general contractor for the subcontractors’ work. Recognizing this risk, educated owners would be wise to avoid requesting noncompliant waivers.
Adapting Practices for SB 908
With the proposed modifications to Section 713.20, significant changes may be on the horizon for construction payment practices. If signed into law, Florida contractors and property owners should monitor these developments and ensure they comply with SB 908.
First, owners and contractors who request lien waivers must carefully consider which modifications are essential and appreciate the risk that customized waivers could be ineffective. Second, potential lienors should understand the rights the law would afford and their ability to refuse to sign non-compliant waivers. Alternatively, lienors signing a noncompliant waiver may be comforted that the document could later be declared unenforceable.
Not all is lost for property owners, however. Paying parties who wish to obtain additional assurances may still be able to do so outside of the lien waiver. For example, well-drafted contracts might state that each contractor’s application for payment must be accompanied by both lien waivers and separate documents releasing contract rights, guaranteeing payment of subcontractors, or providing other assurances commonly inserted into today’s lien waivers. However, how Florida courts would treat these innovations under the proposed law remains to be seen.
The proposed legislation may also be modified before the new law is enacted. For example, Florida’s legislature may determine that the new law imposes too harsh of a result for owners, in effect, throwing the baby out with the bath water. Rather than stating that these waivers are simply unenforceable, the legislation could be revised to state that noncompliant waivers are unenforceable only to the extent of noncompliant modifications. However, it remains to be seen if this middle ground is even considered.
John Caravella, Esq
John Caravella Esq., is a construction attorney and formerly practicing project architect at The Law Office of John Caravella, P.C., representing architects, engineers, contractors, subcontractors, and owners in all phases of contract preparation, litigation, and arbitration across New York and Florida. He also serves as an arbitrator to the American Arbitration Association Construction Industry Panel. Mr. Caravella can be reached by email: [email protected] or (631) 608-1346.
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