HOA Restrictions on Property

Winter Park Home Magazine - Issue 2 - 2011

Many individuals purchasing real property expect that they have the right to use the land without interference from their neighbors. However, that right is limited both by local governmental regulations and any recorded restrictions imposed on the property. This article addresses private restrictions.

Developers typically place restrictions on large tracts of land that are subdivided into smaller parcels and then formally submitted to the local governing body as a new plat, or subdivision. These Developer restrictions typically incorporate terms that are more extensive than private parcel restrictions. These recorded Covenants, Conditions, Restrictions and Easements (the “Covenants”) impose easements and restrictions on lots in that subdivision. So, any purchaser of a lot acquires that property subject to those conditions. Terms vary and often cover a wide variety of items such as the type of roof shingles that can be installed, to the selection of exterior paint color, location of trash cans, and the right to construct fences and the type of material for a fence. They may also include building setbacks, the location of utility easements on each lot, and even the number of pets that a lot owner may have. Covenants will also occasionally include minimum age requirements for lot owners.

Covenants usually provide for mandatory membership of all lot purchasers in a named Homeowners’ Association (“HOA”), with the obligation to pay annual dues and special assessments, together with the obligation to abide by its Rules and Regulations. Some individuals take the position that they should not be subject to the HOA’s authority and the restrictions on the property. However, purchasers of land in Florida acquire their title subject to those matters which have been previously recorded and which directly impact their property. Therefore, a purchaser is “on notice” of the Covenants, and is obligated to be a member of the HOA, pay assessments, and abide by the restrictions.

HOAs generally are responsible for the care and maintenance of common areas and recreational facilities on the plat. They also oversee each lot owners’ compliance with the restrictive covenants. The HOA will assess each lot owner his proportionate share of these maintenance expenses. Prior to closing, a prospective purchaser should determine the amount of dues each lot owner must pay annually to the HOA. In today’s market, a buyer should also determine whether there are substantial special assessments that will be charged to cover payments by delinquent lot owners, or to pay for expensive repairs to the common areas. A prospective buyer, not wishing to become responsible for paying such fees and assessments is well advised to purchase property elsewhere.

A buyer should also determine if there are any regulations in the Covenants with which he cannot comply. For example, if Andy Anderson intends to rent the property after a closing, he should first confirm that the Covenants and the HOA’s rules and regulations permit non-owner occupied lease agreements, their permitted terms, and whether the HOA must pre-approve the tenant.

Recently, Tom Johnson received a notice from an HOA concerning outstanding dues. Tom told me that he has lived on the property for over five years, that no one has ever contacted him to pay dues, and that he wasn’t even aware that there was any HOA in his subdivision. A review of the original recorded Covenants confirmed that there were no provisions establishing any HOA. Subsequent amendments to the Covenants also failed to identify any HOA. I advised Mr. Johnson that this HOA appears voluntary in nature, and that he could not be required to pay any dues. We subsequently obtained a title search for Mr. Johnson’s property and confirmed that neither Mr. Johnson, nor his predecessors in title, ever consented to the authority of this voluntary HOA.

I frequently receive questions concerning the enforceability of restrictions. For example, if the Covenants provide that a lot owner cannot build a fence along the rear property line, the HOA typically retains the right to enforce these restrictions. The HOA can sue to have the fence taken down; impose a fine on a lot owner who violates this fence restriction; and can record a lien against that owner if the fine is not timely paid. That lien will attach to the real property and, if provided for under the Covenants, can be foreclosed.

Alternatively, if there is no HOA, the Covenants usually provide that any impacted lot owner in the subdivision may enforce the restrictions. Although there may be situations where a neighboring property owner is granted rights to enforce restrictions, generally only those subdivision lot owners who are subject to Covenants have a right to compel compliance with its terms. Certainly a neighbor could contact the city or county government if the actions of a lot owner constituted a public nuisance. But this right is distinct from the right afforded to members of the HOA to enforce its Covenants.

This Article is not a substitute for hiring an independent attorney
to review the impact that restrictions may have on real property.

Visit our website for more information on this subject.

Frank Pohl founded Pohl & Short, P.A. based upon the belief that a high quality small commercial law firm was needed in the Orlando, Florida area as an alternative to the large commercial law firms. He still believes that client responsiveness and satisfaction has a place in a fast changing legal profession. Frank has been involved in the Central Florida community for more than twenty-five years. He has been a dedicated past board member of many local organizations over the years. Frank graduated magna cum laude with a B.G.S. Degree from the University of Miami in Coral Gables, Florida; attended the University College at the University of London as an undergraduate studying British literature and British history; obtained his Juris Doctorate Degree in 1979; and obtained a Masters of Law and Letters Degree (LL.M.) from New York University School of Law in 1980. Frank is a member of The Florida Bar, the California Bar, and the District of Columbia Court of Appeals. He is also admitted to the U.S. Supreme Court. He has served on the Orange County Bar Association Real Estate Committee and is a member of the The Florida Bar’s Real Property and Corporation and Business Law Section. He has also served on the Florida Bar Grievance Committee.

Power of Attorney II-The Sequel

Winter Park Home, Volume 9 / Issue 1, 2011

In the previous issue, I covered the use of a Power of Attorney in real estate transactions for those situations in which a party is not available to sign documents at a closing and appoints a third person to sign on his or her behalf. This column continues that discussion, addresses the proper format for the execution of a document by the Attorney-in-fact, and introduces the use of a statutory form of Power of Attorney known as a Durable Power of Attorney.

A Power of Attorney is a written instrument in which one person, known as the “Principal,” delegates authority to another person, known as the “Attorney-in-fact,” to act as an agent of the Principal to sign specific documents on behalf of the Principal. The Attorney-in-fact is only authorized to sign documents in his/her representative capacity, and should never sign the documents in his/her own name. If, for example, Michael Smith gives a Power of Attorney to David Jones to sign a warranty deed on his behalf, then structurally the grantor of the deed is still Michael Smith. The signature block should state “Michael Smith, by David Jones, his Attorney-in-fact,” and David Jones should sign the deed in the same manner as recited in the signature block. If the deed fails to recite that David Jones is signing the deed in his representative capacity as an Attorney-in-fact, then the deed will fail for lack of proper execution. Additionally, the original Power of Attorney must be recorded with the transaction to establish on the public record the authority of the Attorney-in-fact to sign on behalf of his Principal.

Conceptually, the Attorney-in-fact is given full authority to bind the Principal, but only to the extent that the Principal could bind himself and execute those same documents. Since a Principal can sign a deed or a mortgage only if the Principal himself is both alive and competent, then the Attorney-in-fact likewise can only execute those same documents if the Principal is alive and competent. As part of the execution of documents by the Attorney-in-fact (the “AIF”), and under the provisions of Chapter 709 of the Florida Statutes, the AIF must sign an affidavit to verify that to the best of the agent’s knowledge the Principal is still alive and mentally competent. Provided this affidavit is recorded in conjunction with the documents that are signed by the AIF, a good faith purchaser or Lender will be able to rely on the documents executed by the AIF on behalf of his Principal. If the AIF knows that the Principal is alive, but cannot verify that the Principal is competent, then the AIF no longer has authority to sign documents on his Principal’s behalf.

The Durable Power of Attorney created under F.S. 709.08 addresses those situations where the Principal was clearly competent at the time of the execution of the Power of Attorney, but subsequently may no longer be competent, and where there has never been an adjudication of incompetency. This situation frequently occurs when the Principal is appointed as an Attorney-in-fact for an aging or sick relative or spouse. To create a valid Durable Power of Attorney, words identical to, or similar to, the following must be incorporated into the Durable POA: “This Durable Power of Attorney is not affected by a subsequent incapacity of the principal except as provided in F.S. 709.08, Florida Statutes.” These words express the Principal’s intent that the authority conferred on the Principal is exercisable notwithstanding the principal’s subsequent non-adjudicated incapacity. This statute provides that the Power of Attorney may be used by the AIF as long as the Principal has not been adjudicated as incompetent, and as long as no petition or court proceeding has been filed to determine the competency of the Principal. Under these guidelines, the Durable POA may be used even if the Principal clearly is no longer lucid.

The advantage of the Durable Power of Attorney is clear. In relying on the powers recited in a general or specific POA, the Attorney-in-fact may not execute documents if he has any reason to believe that the Principal is now mentally incompetent. The Durable Power of Attorney statute provides that this incompetency standard is not one that needs to be decided by the Principal. The AIF of a Durable POA must only verify that the Principal is alive, that the Principal is not currently adjudicated as mentally incapacitated, and that no proceeding has been initiated to determine the mental capacity of the Principal. The use of the Durable Power of Attorney has become much more commonplace, especially for those individuals assisting elderly and sick parents and spouses in this world of Alzheimer’s and related illnesses. It is, as always, critical that the person granting the Power of Attorney truly trusts the person to whom the authority is granted.

A general or specific Power of Attorney normally must be executed with the same formalities as the document that is to be signed by the Attorney-in-fact. An exception to this rule applies to homestead property. Any POA involving homestead property must be executed with the formalities of a deed, i.e. two witnesses and a formal notarized acknowledgement. Durable Powers of Attorney, on the other hand, must always be executed with the formalities of a deed.

You should always contact your attorney to prepare the appropriate Power of Attorney for a real estate transaction, and to provide the necessary empowerment language and execution formalities, to ensure that the requested Power of Attorney is properly prepared, executed, and utilized for its intended purposes.

Visit our website for more information on this subject.

Frank Pohl founded Pohl & Short, P.A. based upon the belief that a high quality small commercial law firm was needed in the Orlando, Florida area as an alternative to the large commercial law firms. He still believes that client responsiveness and satisfaction has a place in a fast changing legal profession. Frank has been involved in the Central Florida community for more than twenty-five years. He has been a dedicated past board member of many local organizations over the years. Frank graduated magna cum laude with a B.G.S. Degree from the University of Miami in Coral Gables, Florida; attended the University College at the University of London as an undergraduate studying British literature and British history; obtained his Juris Doctorate Degree in 1979; and obtained a Masters of Law and Letters Degree (LL.M.) from New York University School of Law in 1980. Frank is a member of The Florida Bar, the California Bar, and the District of Columbia Court of Appeals. He is also admitted to the U.S. Supreme Court. He has served on the Orange County Bar Association Real Estate Committee and is a member of the The Florida Bar’s Real Property and Corporation and Business Law Section. He has also served on the Florida Bar Grievance Committee.

ASK A LAWYER-Dumping timeshare could mar credit

Orlando Sentinel, January 17, 2011

Question:
We paid cash for an Orlando timeshare 15 years ago, but we can no longer afford its annual maintenance fees. We’re thinking about refusing to pay any more maintenance fees. We’ve been told the timeshare would revert to the parent company, and we could walk away with just a minor blemish on our credit.

Is this our best option?
I.D., Eagleville, PA

Answer:
A Florida timeshare interest owner is personally liable for all assessments during the course of ownership. The timeshare managing entity, or TME, holds a lien over the timeshare that it can foreclose to secure payment of assessments.

The TME has two forecloser options. The first is a traditional foreclosure lawsuit in which a personal claim against you – for assessments as well as for attorney’s fees and costs – could be made. The second is a non-judicial foreclosure in which the TME’s recovery is limited to only the proceeds of any sale.

The TME should prefer the efficiency of the second option, but both are possibilities. Because personal liability exists, your credit could be seriously affected by non-payment. You should contact the TME to discuss voluntarily selling or exchanging your interest in return for a release of personal liability, or seek help from a Florida attorney.

Visit our website for more information on this subject.

Frank Pohl founded Pohl & Short, P.A. based upon the belief that a high quality small commercial law firm was needed in the Orlando, Florida area as an alternative to the large commercial law firms. He still believes that client responsiveness and satisfaction has a place in a fast changing legal profession. Frank has been involved in the Central Florida community for more than twenty-five years. He has been a dedicated past board member of many local organizations over the years. Frank graduated magna cum laude with a B.G.S. Degree from the University of Miami in Coral Gables, Florida; attended the University College at the University of London as an undergraduate studying British literature and British history; obtained his Juris Doctorate Degree in 1979; and obtained a Masters of Law and Letters Degree (LL.M.) from New York University School of Law in 1980. Frank is a member of The Florida Bar, the California Bar, and the District of Columbia Court of Appeals. He is also admitted to the U.S. Supreme Court. He has served on the Orange County Bar Association Real Estate Committee and is a member of the The Florida Bar’s Real Property and Corporation and Business Law Section. He has also served on the Florida Bar Grievance Committee.

Using A Power of Attorney

Winter Park Home, Volume 8 / Issue 4, 2010

Occasionally clients tell me that they cannot be present for a real estate closing, and ask if they can sign their documents in advance. Depending on the circumstances, particularly if the individual is the Seller, the closing agent may be able to accommodate this request and have the documents signed prior to the actual closing date. However, there are other situations where this cannot be done. In some situations, a duly prepared and executed real estate Power of Attorney can be used, whereby a second person is authorized to sign on behalf of the individual who cannot be present. In this column, I address the use of Powers of Attorney solely as they relate to the sale, mortgaging, and leasing of real property.

A Power of Attorney is a written instrument in which one person, known as the “Principal,” delegates his authority to another person, known as the “Attorney-in-fact,” to act as an agent of the Principal to sign documents on behalf of the Principal. This Attorney-in fact may execute only those documents that the Principal has authorized his agent to sign on his behalf. Powers of Attorney, or “POAs”, are recognized by chapter 709 of the Florida Statutes, which prescribes the types of POAs and the rules under which they can be used. POAs can be general or specific in nature.

A general Power of Attorney often includes language reciting the authority of the agent to “sell and convey any and all real property owned by me in the State of Florida.” This is generally recognized as sufficient authority for the Attorney-in-fact to sign a Purchase and Sale Agreement for property owned by the Principal at the time the POA was executed, and also to execute a deed and other documents necessary to transfer the property. The language in a POA must be sufficient to describe the acts which the Attorney-in-fact may undertake on the Principal’s behalf. If, in the above example, the POA only recites the authority to sell all real property owned by me, under Florida law this authority is not sufficient for the Attorney-in-fact to execute the deed to convey the real property. Additionally, in the above example, the authority to “sell and convey any and all real property owned by me in the State of Florida” does not include real property that may be subsequently acquired by the Principal. If the Principal intends to include subsequently acquired property, the POA must include this authority.

A Specific Power of Attorney is more detailed. It identifies the real property that is subject of the transaction, the documents that are to be signed on behalf of the Principal, and typically defines the duration of the POA. An example is a POA in which the Attorney-in-fact is authorized to execute a Mortgage, Promissory Note and other related documents for a loan from ABC Bank that does not exceed a specified amount, and which recites that the documents must be signed by no later than a certain date, after which the POA can no longer be used. Ideally, unless the Principal wants to provide blanket authority to his agent, the parameters of the authority should be limited to the particular transaction.

There are also execution formalities for a Power of Attorney. The general rule is that the POA must be executed with the same formalities as the document that is to be signed by the Attorney-in-fact. For example, a deed requires two witnesses and a formal notarial acknowledgement. A POA authorizing an agent to sign a deed on behalf of the Principal must therefore include two witnesses and the acknowledgment. There are, however, exceptions to this rule. Typically mortgages do not have to include witnesses. Florida law, however, provides that a POA used to mortgage homestead property must be executed with the formalities of a deed, i.e. also include two witnesses. Durable Powers of Attorney, which will be discussed in a subsequent article, must also be executed with the formalities of a deed.

There are preliminary issues to address when relying upon a Power of Attorney. If the POA is to be used for a mortgage, the Lender must first be contacted to determine if the Lender will allow its use. A number of Lenders, in fact, uniformly refuse to permit the use of any Power of Attorney. If a Lender authorizes use of a POA, oftentimes the Lender requires use of its own form of POA. In those cases it must also be determined whether the Lender’s POA is sufficient for the contemplated transaction. Lender’s forms are sometimes inconsistent with Florida law, and need to be modified, before a closing agent can rely on its use.

Another question to ask is why the parties want to use a POA. Although there are many good reasons why a person cannot be present at a closing (e.g. out of the country on military duty), a Power of Attorney should never be relied upon solely for the Principal’s convenience. The closing agent should determine the reason why the seller, purchaser, or mortgagor cannot be present for the closing.

Additionally, in today’s marketplace, there is an underlying concern whether the Principal is in fact who he says he is. There are numerous examples of “Sellers” or “Mortgagors” providing POAs – only to later learn that the POA is fraudulent. Even if it is determined that the Seller or Mortgagor is who he says he is, the better practice, which our office always follows, is to also obtain a copy of the Principal’s driver’s license or passport to support the fact that the Principal did in fact sign the POA.

Any individual wishing to create a Power of Attorney should always consult with his attorney to determine the appropriate scope of any grant, and that it is prepared with the appropriate formalities.

In my next column, I will describe the use of a Durable Power of Attorney, and the proper execution of documents by the Attorney-in-fact.

Visit our website for more information on this subject.

Frank Pohl founded Pohl & Short, P.A. based upon the belief that a high quality small commercial law firm was needed in the Orlando, Florida area as an alternative to the large commercial law firms. He still believes that client responsiveness and satisfaction has a place in a fast changing legal profession. Frank has been involved in the Central Florida community for more than twenty-five years. He has been a dedicated past board member of many local organizations over the years. Frank graduated magna cum laude with a B.G.S. Degree from the University of Miami in Coral Gables, Florida; attended the University College at the University of London as an undergraduate studying British literature and British history; obtained his Juris Doctorate Degree in 1979; and obtained a Masters of Law and Letters Degree (LL.M.) from New York University School of Law in 1980. Frank is a member of The Florida Bar, the California Bar, and the District of Columbia Court of Appeals. He is also admitted to the U.S. Supreme Court. He has served on the Orange County Bar Association Real Estate Committee and is a member of the The Florida Bar’s Real Property and Corporation and Business Law Section. He has also served on the Florida Bar Grievance Committee.

ASK A LAWYER-Brothers at odds over inherited home

Orlando Sentinel, September 20, 2010

Question:
My brother and I inherited my mother’s house, and our names are on the deed. I want to move in and live rent-free, but my brother and his son say I should pay rent. Since I am half-owner, does my brother have any legal way to prevent me from moving in?
G.M.
Orlando

Answer:
You each own the house equally as tenants in common, with an equal right to occupy the property. If you and your brother disagree as to the use and possession of the house, and you don’t want to sell the property, your brother has the right to file a partition action with the court to sell the property. As part of that suit he could seek an injunction preventing you from moving into the property.

In any case, as tenant in common you have no legal obligation under Florida law to pay rent to your brother. The only exceptions would be if you are also collecting rent payments, or if you are otherwise adversely preventing your brother from occupying and using the property.

Visit our website for more information on this subject.

Frank Pohl founded Pohl & Short, P.A. based upon the belief that a high quality small commercial law firm was needed in the Orlando, Florida area as an alternative to the large commercial law firms. He still believes that client responsiveness and satisfaction has a place in a fast changing legal profession. Frank has been involved in the Central Florida community for more than twenty-five years. He has been a dedicated past board member of many local organizations over the years. Frank graduated magna cum laude with a B.G.S. Degree from the University of Miami in Coral Gables, Florida; attended the University College at the University of London as an undergraduate studying British literature and British history; obtained his Juris Doctorate Degree in 1979; and obtained a Masters of Law and Letters Degree (LL.M.) from New York University School of Law in 1980. Frank is a member of The Florida Bar, the California Bar, and the District of Columbia Court of Appeals. He is also admitted to the U.S. Supreme Court. He has served on the Orange County Bar Association Real Estate Committee and is a member of the The Florida Bar’s Real Property and Corporation and Business Law Section. He has also served on the Florida Bar Grievance Committee.

The Right of Possession

Winter Park Home, Volume 8 / Issue 3, 2010

There are three principal ways in which individuals acquire ownership in real property–as tenants by the entireties, as joint tenants with rights of survivorship, or as tenants in common.

Tenants by the entireties is limited to ownership by a husband and wife, and provides for an equal right of possession, and for automatic transfer of all interest in the property to the surviving spouse upon the death of the other spouse. Judgments against one spouse do not attach to property owned as tenants by the entireties. Also, neither spouse under a tenancy by the entireties can convey the property without the joinder (formal agreement) of the other spouse. A husband and wife can acquire property as tenants in common–but the vesting deed must include and document this contrary intention. Due to the insulation offered from judgment creditors, as well as the survivorship feature, acquiring property as tenants by the entirety is almost always the recommend form of ownership for a married couple. If divorced, their interest automatically transfers to a tenancy in common.

Joint Tenants with rights of survivorship–To acquire property as joint tenants, the vesting deed must recite their ownership as “joint tenants with full rights of survivorship.” Each joint tenant has an equal ownership interest in the property, and an equal right to occupy and use the property. Each joint tenant may also subsequently convey his/her individual interest to a third party. Provided no action has been taken to terminate the joint tenancy, when one owner dies his/her ownership interest automatically transfers to the other owner, and no probate is required for the deceased’s estate. For example, if John and Jake purchase property as joint tenants with full right of survivorship, and Jake dies, John takes the whole. However, if Jake previously conveyed his interest to Mary, the joint tenancy is severed, and John and Mary own the property as tenants in common. If John and Mary now wish to create a joint tenancy between themselves, a new properly executed deed from John and Mary to themselves, with the recitation “as joint tenants with full rights of survivorship,” must be recorded in the public records.

Tenants in common is the most widely used form of individuals’ concurrent ownership of real property. Whenever two or more individuals (other than husband and wife) purchase real property, and no contrary intention is stated, each acquires an equal ownership interest in the property as tenants in common, with equal rights to occupy and use the property. Typically these individuals are related, or may be friendly business associates. When one of the tenants dies, his/her estate must be probated to determine the owners of the deceased’s interest in the real property - i.e. there is no survivorship feature.

Problems may arise when one of the joint tenants or tenants in common moves out and wants to sell the property, and the other does not. Although each tenant/owner legally may separately convey his or her interest in the real property to another person, there are certain practical considerations. First, of course, the selling owner must find someone who is willing to own the property with the other tenant(s) in common. Second, even if the selling owner finds someone who wants to purchase his interest, they must address whether there are any mortgages on the property that contain a due on transfer clause. This provides that the lender must approve a transfer of any interest in the real property. Without that approval, the lender may declare the mortgage in default, and the property may be foreclosed.

The following example illustrates the due on transfer application. John and Jake currently have a mortgage on their house. The mortgage contains a due on transfer clause. If Jake were to convey his interest to his sister Mary without first obtaining the lender’s consent, the lender has the legal right to immediately foreclose on the house. The lender’s consent to the transfer, of course, would not by itself release Jake from his continuing obligations under the promissory note and the mortgage.

What are the rights of the tenants in common when one owner resides on the property, and the other owner lives elsewhere? For example, Peter and Steve, two college fraternity brothers, bought a home in Winter Park ten years ago. Peter continues to work locally and lives in the house by himself, while Steve recently moved out of the house to take a job in Miami. Due to the downturn in the market, neither wants to sell the house at this time, and Peter does not want to buy out Steve’s interest in the house. Is Peter obligated to pay Steve rent for his half interest in the property? Florida law clearly says no, provided Peter isn’t adversely preventing Steve from occupying the home, and Peter is not collecting rent payments on the property.

What recourse, does any out of possession tenant have if he wants the property to be sold, and the co-tenant refuses? Generally, a tenant in common has the absolute right to bring a court action to partition the property and sell it for its fair market value. The owners would then split the proceeds, after all costs and credits, if any, have been applied. In this example, Steve may choose to wait until the market values improve and, if Peter then refuses to sell, bring a partition action in the Orange County Circuit Court.

Any decision to purchase real property with another individual should be carefully considered by each of the parties, together with a determination of the best form of ownership. Each purchaser should consult with his/her attorney to determine whether the form of tenancy is consistent with each of their individual goals.

Visit our website for more information on this subject.

Frank Pohl founded Pohl & Short, P.A. based upon the belief that a high quality small commercial law firm was needed in the Orlando, Florida area as an alternative to the large commercial law firms. He still believes that client responsiveness and satisfaction has a place in a fast changing legal profession. Frank has been involved in the Central Florida community for more than twenty-five years. He has been a dedicated past board member of many local organizations over the years. Frank graduated magna cum laude with a B.G.S. Degree from the University of Miami in Coral Gables, Florida; attended the University College at the University of London as an undergraduate studying British literature and British history; obtained his Juris Doctorate Degree in 1979; and obtained a Masters of Law and Letters Degree (LL.M.) from New York University School of Law in 1980. Frank is a member of The Florida Bar, the California Bar, and the District of Columbia Court of Appeals. He is also admitted to the U.S. Supreme Court. He has served on the Orange County Bar Association Real Estate Committee and is a member of the The Florida Bar’s Real Property and Corporation and Business Law Section. He has also served on the Florida Bar Grievance Committee.

Don’t Pay Twice for Remodeling Jobs

Winter Park Home, Volume 8/ Issue 2, 2010

Clients frequently ask how they can protect themselves when they enter contracts for home improvements projects. The question often arises after they’ve seen a news story or heard from neighbors who have already become victims of situations in which property owners have had to pay material suppliers after the owner has already paid the contractor the full contract price for the completed project, including the cost of materials. They, in effect, have had to pay for the materials twice. When appropriate, I typically advise these clients that they should be protected if they file a Notice of Commencement and follow the guidelines provided by Chapter 713 of the Florida statutes, commonly referred to as the construction lien law.

Here is an example. Michael Jones hires Joe Roofer to put a new roof on his home. Joe is well established in the community, obtains a building permit, and has Mr. Jones execute a Notice of Commencement. The Notice of Commencement is then recorded in the public records, and a certified copy of the Notice is posted on the property. The job is completed three weeks later. No one has provided a written notice to Mr. Jones that they are supplying materials or work for the project. Joe Roofer signs a contractor’s final payment affidavit, together with an executed waiver and release of lien, reciting that everyone has been paid in full. Under these circumstances, Mr. Jones will not have to worry about paying any material supplier or subcontractor a second time. Florida law will protect the owner from paying more than the agreed upon contract price.

Now, consider a second scenario in which the facts are identical to the first example, EXCEPT this time Supply LLC provides a written notice to Mr. Jones (Notice to Owner) that it is supplying shingles for the new roof. Under these circumstances, when the work has been completed, Mr. Jones has an additional responsibility. In addition to obtaining the roofing contractor’s final payment affidavit, waiver and release of lien, the owner must ALSO obtain an executed waiver and release of lien from Supply LLC.

Florida’s construction lien law provides that, once a property owner has received a Notice to Owner pursuant to a recorded Notice of Commencement, that property owner has an affirmative obligation to confirm that the party giving the notice has been paid in full. In our example, if Mr. Jones fails to obtain this proof of payment from Supply LLC and pays the balance of the contract price to Joe Roofer, Mr. Jones will assume the risk of paying for the shingles a second time, if Supply LLC has not been paid. This is true even if Joe Roofer provides a final payment affidavit, waiver and release of lien, stating that everyone has been paid in full.

If Supply LLC did NOT provide Mr. Jones with a Notice to Owner pursuant to the recorded Notice of Commencement, the company effectively waived its rights to sue Mr. Jones for the cost of the shingles, in the event that Joe Roofer fails to pay for them.

Florida construction lien law is designed to protect the property owner, while also defining the rights and duties of contractors, subcontractors, material suppliers, and laborers. To obtain the benefits of a recorded Notice of Commencement, the cost of the improvements must first exceed a $2,500 threshold. In addition, the property owner, and any potential lienors providing a Notice to Owner, must use the forms provided by the Florida statutes for the Notice of Commencement, the Notice to Owner, the contractor’s final payment affidavit, the waiver and release of lien.

Once the Notice of Commencement has been recorded, a certified copy must be posted on the property. That certified copy must include the name of the property owner and the general contractor, along with their contact information. If a Notice of Commencement is not filed, then the property owner cannot rely on the statutory authority provided by the construction lien law. The recording and posting of the Notice of Commencement triggers the obligation of subcontractors and material suppliers to provide a formal Notice to Owner to protect their lien rights. If they fail to provide that notice, they will effectively waive their rights to sue the owner upon completion of the project.

If a Notice of Commencement is not recorded, the owner is not legally authorized to rely on the contractor’s final affidavit and lien waiver, creating a situation in which there may be hidden parties who subsequently sue to collect for their contributions to the project. There would be no sense of finality.

With a properly filed Notice of Commencement, once the improvements have been completed the owner must follow one of two procedures. First, if there are no Notices to Owner, he may rely on the contractor’s final payment affidavit and the executed waiver and release of lien. Second, if there are Notices to Owner, in addition to obtaining the final contractor’s affidavit and lien waiver, the owner must also obtain a written release and lien waiver from each party that has provided a Notice to Owner. As long as the owner complies with these guidelines (assuming that the owner does not have knowledge that any of the information provided is fraudulent), the property owner will not run the risk of paying a subcontractor or materials supplier a second time.

Construction lien law is complex, and this article is not intended to provide a complete analysis of the provisions of the Notice to Owner and its application. This article is designed to provide a basic understanding of the purpose of recording a Notice of Commencement, and the use of the statutory Notice to Owner. Property owners should consult with their real estate attorneys before undertaking a substantive home improvement project to review the home improvement contract and assist in the preparation and/or review of the Notice of Commencement and all construction lien law related documents.

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Frank Pohl founded Pohl & Short, P.A. based upon the belief that a high quality small commercial law firm was needed in the Orlando, Florida area as an alternative to the large commercial law firms. He still believes that client responsiveness and satisfaction has a place in a fast changing legal profession. Frank has been involved in the Central Florida community for more than twenty-five years. He has been a dedicated past board member of many local organizations over the years. Frank graduated magna cum laude with a B.G.S. Degree from the University of Miami in Coral Gables, Florida; attended the University College at the University of London as an undergraduate studying British literature and British history; obtained his Juris Doctorate Degree in 1979; and obtained a Masters of Law and Letters Degree (LL.M.) from New York University School of Law in 1980. Frank is a member of The Florida Bar, the California Bar, and the District of Columbia Court of Appeals. He is also admitted to the U.S. Supreme Court. He has served on the Orange County Bar Association Real Estate Committee and is a member of the The Florida Bar’s Real Property and Corporation and Business Law Section. He has also served on the Florida Bar Grievance Committee.