Ensuring a Lien-Free Project: "The Proper Payment Defense"

Owners are often shocked to learn they must pay a second time for improvements to remove a construction lien. First, they paid their direct contractor in full (and often in exchange for a final lien release). Then, a subcontractor or materialman (“lienors”) places a lien on the property for part of the already-paid-for improvements. If the direct contractor is unable or unwilling to pay the lienor, the owner must do so to satisfy the lien. The preceding scenario is not necessarily the best course of action in every situation, so owners should consult their attorneys.

Owners often ask for “iron-clad” assurance of a lien-free project. One way to accomplish this is by successfully asserting the “proper payment defense.” It is far easier said than done. In broad terms, a proper payment is a project payment made (1) during the pendency of a valid notice of commencement and (2) in response to an affidavit conforming to the technical requirements of Florida’s lien law. The proper payment defense is highly technical and has many requirements and conditions that are strictly construed by the courts. It would be impossible to adequately cover them here, but payments made without meeting all the requirements or satisfying all the conditions are unlikely to be “proper payments” — highly unlikely.

Many owners conflate the affidavit required for the proper payment defense with the statutory lien release forms. Collection of lien releases from the (1) direct contractor and (2) all lienors, giving notice prior to payment, does not create the proper payment defense. Hidden liens may still arise, because lienors are not required to provide notice to owners prior to commencing lienable improvements. Rather, they have 45 days after commencing lienable improvements to send a notice to owners. Direct contractor invoices often cover improvements made by lienors before the 45-day notice period has expired. The proper payment defense eliminates this “hidden lienor” risk. Lienors may protect themselves by sending notice-to-owner letters before commencing any improvements. If they fail to do so, their lien rights may be cut off as a matter of law by the proper payment defense.

The legislature, recognizing the difficulty of interpreting and following the Construction Lien Law, warns owners to consult an attorney before recording a notice of commencement or before commencing work. It would be wise for owners to take heed and consult an attorney who specializes in construction law for more information.

Doug has nearly three decades of construction industry experience and focuses on construction law and litigation. Doug works with clients in the construction, development, and public contracting industries on contract negotiations and settlements, regulatory compliance and investigations, risk management, and dispute avoidance. He can be reached at (941) 552-5545 or [email protected].