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A claim of lien is a specific type of legal claim against property to secure a debt. The claim can be for any amount of money, or the specific value of services rendered. In most cases, the claims of lien are handled when the debt is taken out and agreed upon by all parties involved. A common mortgage, for example, has the mortgage lender putting a claim of lien against the property so they can claim it if the borrower fails to make their payments as agreed.

The party that is owed money can place a claim of lien on a property, even if the person owing the money doesn’t approve it. To get a claim of lien applied to a property, the party owed the money will need to work through the courts to get it approved. There are certain requirements that must be met in order to successfully make a claim of lien.

Prove the Debt

The first thing that must be done is you need to have proof that there is a valid debt that needs to be paid. This is easy enough to do as a contractor or construction company as the work agreements, purchased materials, and other expenses should be clearly documented. It is also necessary to show that these debts have not been paid already.

File the Documents

Next, you need to file the correct documents with the courts and county clerk office. This process must be done correctly to avoid delays or potential disputes against the claim of lien. Filing this type of document may require that you present evidence with the court, or even make arguments against the other party. If the debt is undisputed, however, it can be possible to simply file the necessary paperwork along with the proof.

Serve Notification

It is necessary to serve the debtor with proper notification that a claim of lien has been made against their property, what the claim is for, and other details surrounding the situation. When you file the proper documents with the courts, the notifications will typically be sent out as part of this process. You may need to pay to have the debtor served these documents, especially if there will be a court case.

Avoid Potential Problems – We Can Help

The best way to make a claim of lien is to have an experienced attorney help you along the way.  Here at Florida Construction Law Group, we have helped contractors, construction companies, and more prepare and file claim of liens before, during, and after the work is done to help protect their financial interests. Contact us to see whether now is the time for you or your business to seek a claim of lien, and what needs to be done to accomplish that goal.

When planning a new construction project, getting the needed financing is one of the most important steps. Most lenders aren’t going to want to simply ‘write a check’ for the full amount of the entire project before it has even begun, however. This is where a document known as a draw schedule comes in.

A draw schedule is an agreed upon schedule of when money will be released to the construction company (or contractor), to complete the work. As the job progresses, the needed finances are provided to keep everything progressing forward. Lenders may have someone inspecting the project along the way as well, to ensure there aren’t any problems. Some things to consider when drafting up a draw schedule with the lender include the following:

Schedule of Values

One key document to use while creating a draw schedule is commonly called the schedule of values. This will list off all the major steps that need to be completed for the project, their approximate cost, and the approximate percent of the total cost of the project that makes up. These items will then typically be combined into ‘groups,’ which will be when each draw is made.

Number of Draws

A draw schedule can have any number of draws that is appropriate for a project, and is agreed upon by the relevant parties. A typical new home construction project, for example, will usually have 5 to 7 draws. Larger projects may have more, and each one will be for a higher dollar amount. When determining the number of draws, it is important to balance the convenience of having the cash that is needed on hand, with the risk being taken on by the lender.

Inspections

If the lender is going to require inspections of the work that has been completed prior to releasing funds for a draw, that should be agreed upon while making the draw schedule. When working on large construction jobs, unexpected delays can cause serious complications. Being aware of the need for inspections, and knowing who to contact to schedule them, can help ensure progress can continue on schedule.

What to Do with Changes in the Job

Another challenge that should be addressed is what to do should there be significant changes in the cost of a job. For example, if a contractor is hired to build a new home, they will make up all the plans and cost estimates with the owners, and present it to the lender when making the draw schedule. In many cases, the people who are having the home built, may change their minds on certain aspects of the project. If, for example, they decide to move from a traditional bathtub, to a high-end whirlpool style tub, it can add many thousands of dollars on to the project. The added costs either need to be paid for by the people who want the project, the contractors, or the financers. Knowing where the money will come from up front is something that should be settled along with the draw schedule.

Contact Us

If you need assistance negotiating a draw schedule with a lender, or you would like to have a draw schedule written up to present to a lender, please contact Florida Construction Law Group. We can go over your options, and help ensure you have an effective draw schedule that will meet all your needs.

Major building projects typically cost millions of dollars to complete and they won’t start making any money until sometime after the construction has been finished. In order to finance these large-scale projects, a funding agreement needs to be in place between the people or company who needs the construction done and the financial institution(s) who will be providing the capital for the project.

These agreements are necessary to get the loan because of the complexity of the work being done and the amount of money involved. A good funding agreement will include many different elements, including the following essential details.

Purpose Clause

The purpose clause will identify what the money is going to be used for. It is not enough to simply say that the financing is to be used for ‘an office building located at X location.’ Instead, financial institutions will need to know how much is used for each major area. Some examples of what can be identified in this clause would include payments for licensing, architect fees, equipment costs, employment costs, and more.

Drawdown Requirements

For many funding agreements, the funds will only be made available as they are needed. Financial institutions may approve a total loan for $100 million, for example, but release it in phases. The drawdown requirements list out these phases and any requirements that need to be met in order to get the funds. A simple example of this is requiring proof that all licensing, inspections, and regulatory approvals must be met before the financiers will release the funds to purchase the supplies needed to begin the actual construction.

Repayment Information

While all loans have detailed instructions on how and when the money must be paid back, large construction loans will often have much more complex repayment details. Since the project won’t generate any revenue until it is completed, there might not be any payments necessary until that point. The agreement may also dramatically reduce the payment amounts up to a certain date, and then have them increase once revenue is being generated.

Events of Default

While most construction projects get completed without issue, there are times when it becomes impossible to continue with the construction. This typically leads to a default on the financing. The funding agreement will lay out how this will be dealt with based on the cause of the default.

Some examples of things that should be covered under this element of the funding agreement would include what happens if the project is not completed on time, if the project sponsors or investors fail to meet their obligations, if government action is taken that disrupts the construction, if there is an employment strike, or if there is a terrorist attack. These are just a few examples, and the specifics in an agreement should be tailored to the risks of a project.

Get Help with Your Funding Agreement

Funding agreements can get very complicated. Making sure they are written up properly so that all the necessary information is in them is very important. Having an attorney available to write up the agreement, or review a proposed agreement, can help avoid issues with the project. Contact Florida Construction Law Group to speak with an attorney with experience in this area.

Getting a construction loan can be more complex than most other types of loans, even for construction companies. Financial institutions often require a lot of information and requirements because of the fact that their collateral is often not in existence until after the construction project has been completed (a building, home, ect). One important part of most construction loans are the ancillary agreements, which identify how certain things must be done throughout the course of the construction project. The following are some common examples of ancillary agreements for construction loans.

Construction Loan Agreement

This agreement will go over the main details of the construction loan, including what the loan will be used for, how much it will be for, and other common details. Providing the lender with information about where the construction is taking place, what type of project it is, what its purpose will be, and other relevant information will help them evaluate risk. In addition, it will give them a timeline and other information on how to measure progress on the project, which is important for ensuring repayment.

Funding Agreement

Many construction loans are issued in small amounts as things progress. A loan for $1 million, for example, may be spread out over the course of the project. The first installment of the loan could be received for paying for the initial materials and labor, the second installment for completing the infrastructure of the project, and so on. This type of ancillary agreement helps the lender understand the timeline better, and also reduces further risk.

Construction Supervision Agreement

Many lenders will require that a construction company has a trusted supervisor on site to ensure things are progressing as planned. This supervisor may be an employee of the lender or a trusted third party. The supervision ancillary agreement will identify who will be doing the supervising, what role they will have, and any other relevant details.

Design Certification Agreement

If the full design of the project has not yet been completed, there may be an ancillary agreement related to this important aspect of the project. A loan may be contingent on having the project design approved by an assigned design certifier.

Contact Us

Ancillary agreements are an important, but often complex, part of a construction project. Having an attorney write up or review the agreements can help ensure everything is set up properly before any documents are signed. Contact Florida Construction Law Group to go over your construction loan needs and get everything handled properly.

When beginning most types of construction projects, it is a good idea (if not a requirement) to have assurances in place that the job will be completed properly, and that everyone involved with the project will get paid properly. There are a variety of ways to do this, the most common of which are to use performance and/or payment bonds. These bonds are issued by a Surety Company prior to the start of any job.

Understanding what each of these two types of bonds are, what protections they offer, and which ones should be used in a given situation is important for all construction companies, and those who hire construction companies.

What is a Performance Bond?

A performance bond acts as a guarantee that the project in question will be completed properly, according to the details laid out in the construction contract. In the event that the construction teams (the Principal listed in the bond) fails to complete the project according to the agreements, the Surety Company that issued the bond will need to step in to have the job completed.

What is a Payment Bond?

A payment bond is issued as a guarantee that those who are involved with the construction project will receive their payment from the principal. This protection extends to any workers, subcontractors, equipment or supply providers, and others who are directly or indirectly involved with the project. Should the principal named in the bond fail to pay, the Surety Company will issue the payment.

Which One is Needed?

While some jobs will only need either a performance bond or a payment bond, the majority of them actually have both. Having both types of bonds in place offers the stability needed to ensure the job gets done properly. Due to the fact that many construction projects are not paid in full prior to the start of the project, these types of bonds are necessary for the different companies involved in the project to be able to finance the work being done.

A construction company being asked to build a bridge, for example, will need to invest potentially millions of dollars in labor, equipment, materials and more. Depending on the job, they will typically only receive a fairly small percentage of the payment for the job up front, which means they will be financing these expenses. Having both a performance and a payment bond in place helps to significantly reduce the risk involved, so the construction companies can get the financing they need without any trouble.

Avoid Problems with Surety Bonds

Performance and payment bonds are an important part of most construction projects. If these bonds aren’t handled properly, however, it can lead to many issues that can be very costly and time consuming. Contact the Florida Construction Law Group and will help ensure everything is set up and handled properly throughout the project.

Should you enter into a construction contract if you’re uncertain about the terms? You might prefer to trust that everything will go smoothly, but in reality, any number of things can go wrong when you start a new construction project. It’s worth checking your contract for any possible error or flaw. If you do, you could save yourself a great deal of legal trouble in the long run.

1. Time frame

Make sure the contract provides a time frame that works for both parties. As the property owner (or person receiving construction services), you may have a strict deadline in mind, with other scheduled tasks that depend upon timely project completion. For example, you may be a homeowner looking to finish an addition before you can list the property for sale. In turn, the contractor should only accept if the proposed time frame is feasible.

2. Prices and pricing scheme

While it may seem obvious to agree upon a price for the construction services, contractors sometimes include additional charges that were not initially discussed. You should ask about the possibility of extra fees and request an estimate. These details can be included in the contract to help you avoid any financial surprises. You should also specify the pricing scheme—in other words, whether the cost will be paid in a lump sum, a rate per unit, or another pricing method.

3. Payment terms

The contract should specify whether you will be paying a lump sum or in monthly installments. If you are making monthly payments, make sure the payment dates are practical for you, and decide whether the contractor should be able to issue late penalties.

4. Construction lien law protection

Florida law requires certain types of residential contracts to include a visible lien law notice. If you are engaging in a project that exceeds $2,500 and relates to the improvements of real property, your contract should include the lien notice. It essentially states that if your contractor fails to pay subcontractors, sub-subcontractors, or material suppliers, those parties are legally entitled to file a lien on your property. This means your property can be sold against your will to make sure everyone—including the original contractor, if you failed to pay them—is adequately compensated for unpaid labor, materials, or other services. You can add a stipulation to your contract in order to protect yourself from Florida lien law, but it’s best to consult an attorney to ensure that you understand every aspect of this provision.

5. Recovery fund disclosure

Most types of construction contracts that must include a lien notice must also include a recovery fund disclosure. It must be visibly placed within the contract. This disclosure outlines your right to seek compensation when a contractor’s unlawful actions result in losses on your end.

6. License number

The lien law notice, the recovery fund disclosure, and the contractor’s license number are all required by Florida statute. Make sure all of these elements are clearly visible on your construction contract, if applicable, before signing. Any violation could result in a hefty fine.

7. Disputes and termination

Your contract should also include specific methods that you and your contractor will use to resolve disputes or problems. For example, you may include an arbitration clause to avoid having to settle disputes in court. Contracts can be dissolved if one or more parties breaches the contractual terms. Mistakes in the contract can also lead to termination, so make sure all the information is correct. If you both mutually decide to terminate the contract for any reason, you can draft a document stating the contract has been voided.

A qualified lawyer can ensure that the terms of your construction contract benefit you as much as they benefit the other party. Call the Florida Construction Law Group to discuss your upcoming construction project and see how we can help protect your legal rights in the form of a contract.

The most important decision you’ll make during the renovation or home-building process is which contractor you choose to hire.

This decision can be as difficult as it is important. Choose the wrong contractor, and your project could be delayed and poorly executed. The work may even have to be redone entirely. Choose the right contractor, and ideally the work will be finished on time and done right, the first time. But how are you supposed to know how good a contractor is before they’ve even started working for you?

The following tips will help you find a contractor who can do the job right.

1. Don’t Stop After the First Interview

You might feel the urge to end your search immediately if your first interview goes well, but don’t give in to that temptation.

See multiple contractors and give yourself multiple bids to choose from. The first contractor might seem like a good option, but the second or third contractor that walks in the door might be just as skilled and even more affordable. There’s no way to know if you don’t look.

A good rule of thumb is to check out at least three contractors before you choose one.

2. Go Local

If you’re choosing between a contractor who works for a local company and one who works for someplace like Home Depot and all other factors are equal, go for the one from the local company. Companies that are more involved with the local community are more likely to go above and beyond for their local customers (that’s you!).

3. Make Sure They Are Licensed and Insured

Licenses confirm that a contractor can actually do what they say they can do (from both a practical and legal perspective), and proof of insurance gives you the peace of mind of knowing you won’t be financially responsible if some scaffolding falls on neighbor’s new Porsche.

4. Get Everything in Writing

Before the contractor starts working, you want to get everything in writing first so that there are no misunderstandings in the middle of the project, and there is documented evidence of your agreement and expectations should a lawsuit become necessary.

5. Pick A Contractor Experienced in What You Want to Do

Just because a contractor has a lot of experience doesn’t mean they have a lot of experience in the specific project that you’re working on. Make sure that they have that specific experience.

6. Take a Look at Work Samples

Of course, contractors are biased. They want the job. If you ask them how skilled they are in the kind of project you need them to do, many of them will reply “very” even if that’s not an entirely true answer.

So get proof. Ask to see images of projects they’ve completed in the past and judge their work yourself. If they’re not able or willing to provide examples of previous projects they’ve worked on, that’s a huge red flag and you should move on to another option.

If you have any questions about choosing a contractor, or you are having issues with a contractor you’ve already hired, contact the Florida Construction Law Group today and let’s talk!

As we have discussed in a previous blog, there are a number of pros and cons to utilizing arbitration as a means of resolving a construction-related dispute. In many circumstances, this type of Alternative Dispute Resolution (ADR) can be a highly effective means of achieving an efficient and effective resolution which is beneficial for all parties involved.

But how exactly does arbitration work? It is always useful to have a clear understanding of how the process will play out prior to invoking an Arbitration Agreement or suggesting arbitration as a potential option to an opposing party. Thus, we have provided a brief, step-by-step overview of what you can expect. Please be aware that this is just a simplified outline, and is not necessarily precisely how your unique case will play out. The terms detailed in an arbitration agreement may serve to modify the procedure followed.

Step 1 – Set the stage

In Florida, even if there is no arbitration agreement in place that legally necessitates the use of arbitration to resolve a dispute, the parties involved in a dispute can voluntarily agree to participate in binding arbitration.

Once it is established, either voluntarily or through contractual obligation, that arbitration is to be utilized, the parties may need to agree to certain aspects of procedure. For example, they may choose to utilize a single neutral arbitrator or a tribunal of arbitrators. They may decide to adhere to the standard American Arbitration Association rules of procedure, or they may choose to customize the procedure and rules to suit their unique dispute and circumstances.

Once all procedural elements are defined and agreed upon, the case can proceed to arbitrator selection.

Step 2 – Arbitrator selection

One of the key benefits of arbitration is the ability to select a neutral arbitrator who is knowledgeable about the subject matter at hand in your dispute. In a litigated case, there is no guarantee your judge will have a solid understanding of the unique nuances and issues inherent in construction. With arbitration, you can select someone who specializes in the area to help ensure a fair judgment. Generally speaking, arbitrators will be selected from a pre-approved list of neutral candidates. Once they are selected, a preliminary hearing will be held to finalize the procedural elements of the case and facilitate what can and cannot be included in the arbitration hearing (witnesses, evidence, etc).

Additionally, there may or may not be a discovery period prior to the hearing where all parties involved will be required to share their evidence and other information with opposing parties. The extent and rules of the discovery period will likely depend on your arbitration agreement or the terms you settled upon when you voluntarily agreed to arbitrate.

Step 3 – The hearing

Arbitration hearings are much less formal than litigation hearings, meaning their location and scheduling are much more flexible. Not unlike a trial, however, each party will have opportunities to present their case to the arbitrator(s). They may call witness to offer testimony and present whatever evidence they may have. Conversely, the opposing parties will be able to question and challenge the witnesses and evidence presented.  

Once the hearing is complete, the arbitrator(s) will retire in order to deliberate. In some cases, attorneys for either party may be allowed to submit post-hearing documentation to further support their case or challenge actions taken by the opposing party.

Step 4 – The award

Finally, the arbitrator(s) will issue a decision and dictate an award. Unlike mediation, the decision will be considered binding with very limited recourse for any sort of appeal. The parties will be required by law to adhere to the terms of the arbitrators’ decision, since Florida courts recognize a presumption of enforcement of arbitration. The courts will, however, review the case to ensure there was no fraud or misconduct at play.

If you are involved in a construction dispute, and you are either legally bound to utilize arbitration or you wish to voluntarily pursue this option, please do not hesitate to contact the Florida Construction Law Group today and let us fight to protect your best interests.

We live in a highly litigious society, and the complex nature of construction projects all but ensures a high probability that a dispute and potential litigation may occur. However, there are a number of different factors you should consider before jumping into a potential detrimental legal battle.

No matter your relationship to the construction project, if you are considering filing a lawsuit over some sort of dispute with others involved in the project, be sure to ask yourself the following five questions:

1) What is the cost/benefit?

The first thing you need to do when weighing the possibility of pursuing litigation over a construction dispute is conduct a cost/benefit analysis of the situation. Simply put, does the potential benefit you could possibly receive if you win a lawsuit outweigh both the potential detriments that would occur if you lose the case as well as the certain costs that will occur if you pursue the case. Generally speaking, the potential benefit of pursuing litigation should significantly outweigh the costs, including things like remobilization costs, potential damage to your reputation, interest, penalties, and legal fees. Thus, litigation is usually not worth it if your dispute—and the potential benefit should you win the case—is relatively insignificant.

2) Can you win?

This is going to be a major question to ask your attorney, but it is important to consider nonetheless. Based on the circumstances of your dispute and the evidence available, can you actually win the case? Even if you know you are in the right, if you do not have the evidence to prove it, the litigation is probably going to be a waste of time and money. Have your attorney analyze the facts of your case and advise you on your chances of winning a judgment should you pursue a lawsuit.

3) Do you want the attention?

Construction lawsuits usually draw significant public attention. Additionally, court proceedings are usually a matter of public record. Do you really want the details of your dispute being made available for anyone who wants to find them? Can you afford the potential negative attention that comes with being caught up in a public legal battle?

4) Can the dispute be resolved by other means?

Depending on the circumstances of your disagreement, litigation may be a necessary tool, but oftentimes the dispute can be resolved using some other means such as negotiations or even some form of alternative dispute resolution such as mediation or arbitration. Keeping your dispute out of court is particularly important if you want to maintain a working relationship with the opposing party after the issue is resolved, or you want to continue and finish the construction project.

5) If you win, can you actually collect?

When contemplating a potential lawsuit, especially in the construction industry, it is always important to assess your potential for actually collecting a judgment. If your dispute is over nonpayment of funding for the project, and the investor or owner did not pay because they are bankrupt, there may be nothing for you to collect even if you win the case.

Whether you are a lender, contractor, or homeowner, if you are considering pursuing litigation over a construction project, please contact the attorneys at the Florida Construction Law Group today and let us analyze your unique circumstances and advise you on the best course of action.

Our law firm works hard to keep construction contractors well-informed of the various steps they can take to mitigate the numerous legal risks inherent in the construction process. On this blog we often write about the contracts and other types of documentation you should use as well as the various potential mistakes and pitfalls you  must work to avoid. However, there is one key risk management element that far too many construction contractors overlook. It is one that does not get talked about enough, and it is perhaps the simplest measure of all: good customer service.

The fact of the matter is, reasonable people do not seek to sue people whom they like. Of course, there are many unreasonable people in the world, and there is nothing you can do to 100% guarantee you will not get sued, but working hard to keep your customers happy is a great place to start.

Below are five easy things every construction contractor can and should do to improve their customer service, improve their customer morale, and help minimize the risk of litigation by an angry and vindictive client.

Listen – Take the time to truly listen to the wishes and needs of your customers. Hear what they have to say and never assume. If your customer is unhappy, most of them will tell you so, giving you the chance to remedy problems before they get out of control.

Understand – Not only do you need to listen to your customer, but you should try to understand where they are coming from. You may recognize that their request is unreasonable, but that does not mean they do. Take the time to ensure that all communication between you and the customer is clear and that everyone involved truly understands what was said.

Be Responsive – Make yourself available to the client. Give them your personal number if possible, and be sure to respond in a timely fashion when they contact you. Few things frustrate a customer more than an ability to communicate or get in touch with their contractor.

Be Friendly – A little kindness goes a long way. Make an effort to get to know the clients as people. Be polite and friendly. As we mentioned before, the simple truth is that if they like you they will be far less likely to sue you.

Try to Accommodate – Do your best to give your clients what they ask for. It can be frustrating when a customer tries to change things at the last minute or makes difficult requests, but when you go above and beyond to make their vision a reality, you are also insulating yourself and your business from potential legal issues brought on by a dissatisfied customer.

For all of your construction and real estate-related legal needs and more, contact the Florida Construction Law Group today.

If you work in construction, there is no doubt that you probably have a massive workload. And no matter your profession, no one likes to exacerbate their workload with extra paperwork. However, when it comes to construction contracting, whether you are a prime or subcontractor, there are certain field documents that are absolutely vital to maintain.

Keeping a thorough record of your work and other important information is the most important thing you can do to mitigate your risk of losing a lawsuit, aside from utilizing strong contracts to begin with. Below we have outlined a few of necessities when it comes to your construction field documents. Please keep in mind that this blog is not intended as legal advice for your specific situation. Every project is unique and you should always have a skilled attorney review your project and advise you on the steps you should take to protect your business and your best interests.

Daily Logs

No prime contractor or subcontractor should ever conduct work without keeping meticulous daily logs. Your daily logs are one of the most important protections you can utilize to mitigate your risk of lawsuits. They should be thorough and accurate. Every day, your log should provide details of any and all activities that occurred at the construction site that day. This means detailing things like the location, the number of personnel, who was managing the personnel, tests and inspections that were performed, important meetings and conversations that occurred between key players in the construction process (owners, engineers, subcontractors, etc), and of course, the work that was actually completed that day.

Keeping track of all of this information every day may seem daunting, but you will be grateful that you have all of this information on record when a legal challenge inevitably arises.

Field Reports

You may be thinking, “You already said I have to fill out extensive daily logs, and now you want reports on top of that?” Unfortunately, field reports are nearly as important as daily logs. While the daily log is your big picture record of the work being conducted, your field reports are detailed records of specific things that require more in depth record-keeping than a daily log would include. For example, any time an accident occurs you should create an incident report. You should maintain periodic progress reports that help keep the property owner informed of how things are proceeding without all the superfluous extra information included in the daily logs. You will also want to write up inspection reports to record the results of any tests or inspections that were performed.

Force Account Records

If you have to procure parts and materials outside of the scope of costs included in the prime contract, you may need to utilize a force account. It is vital that you keep meticulous field documentation of all information relevant to your force account costs such as labor, parts, overhead, etc.

Change Orders

As a construction contractor, if you need to propose a change order you will likely need solid documentation to back up you claim that the contract should be amended. You cannot obtain a change order without the agreement of the other party to the contract which you wish to change. Keep field records identifying the exact change you are requesting, why you are requesting the change, and relevant details such as the impact on costs or deadlines. These records will be important in order to have a chance of succeeding in achieving a change order.

Proper field documentation can help you mitigate your risk and hopefully avoid legal challenges as a construction contractor. Our firm can help you with the necessities of risk management such as contract drafting and review. However, if you’re facing legal challenges relating to any construction or real estate matter, we are here to help. Contact the Florida Construction Law Group today.

Getting funding for a construction project, residential or commercial, is quite a different process than obtaining a standard mortgage on an existing property. That’s because funding a construction project is much more complex than a relatively cut and dry purchase of property.

A construction project will have its own requirements and needs for financing—which is usually disbursed on a draw schedule—based on sometimes difficult to predict costs for materials, labor, etc. Then, once the construction is completed, the project will usually be subject to a mortgage.

Generally speaking, there are two main types of construction loans which owners, lenders, and contractors can choose to utilize: One-Time-Close loans or Two-Time-Close loans.

As the name indicates, the main difference between these two construction loans is the number of closings that will have to occur. A closing is the final step in a real estate transaction.

Thus, one-time-close loans will only involve one closing. What this means is that the financing for both the construction and the mortgage on the completed project will be wrapped into one loan.

The terms of the loan, though not necessarily the final rate, will be decided upon before any construction begins. Once the loan is settled with the lender and closed, the construction can begin. Usually, one-time-close loans allow for a period of 12 months for the construction to be completed. Most owners will either pay interest on funds as they are released in accordance with the construction draw schedule, though some may begin making mortgage payments right away.

Once construction is completed, the loan will usually convert into a 29 year mortgage (accounting for one year of construction out of a standard 30 year mortgage). Depending on the lender, the rate may remain the same as it was during the construction period, or you may be able to pay to have the interest rate reduced.

A two-time-close construction loan is actually two separate loans. It involves obtaining financing for the construction project, and separately obtaining financing for the mortgage on the finished project. Since you will be seeking out two loans, there will be two closings as well which will mean you will have to pay closing costs twice instead of just once. The first closing will occur prior to the construction and it will detail the terms and draw schedule of the construction project. Owners will only have to make interest payments that will increase as construction progresses.

Once the project is completed, the loan will be refinanced with the lender into a permanent mortgage. Doing so usually allows the owner to obtain a better interest rate on the final mortgage compared to the construction interest rate. Two-time-close loans benefit from increased flexibility compared to one-time-close loans. If there are construction cost overruns, you can account for them in the second phase of financing.

If you are interested in obtaining a construction loan, or you are facing a construction loan dispute or foreclosure, please contact the Florida Construction Law Group today.

Arbitration is increasingly being adopted and accepted in the construction industry as the go-to for settling disputes due to perceptions regarding the benefits of arbitration over litigation.

Chapter 682 of the Florida Statutes governs the state’s Arbitration Code, and it grants authority to voluntary binding arbitration. Generally speaking, this means that if two or more parties in a construction dispute agreed to arbitrate any disputes in their construction contract (known as an Arbitration Agreement), then the courts will likely enforce mandatory arbitration if and when a dispute arises.

In case you are not aware, arbitration is a form of alternative dispute resolution in which the dispute will be heard by a certified, neutral arbitrator or tribunal of neutral arbitrators. Arbitrators will hear evidence from all parties involved in a relatively informal hearing, and they will then make a binding decision to resolve the case.

Below we have detailed some of the pros and cons of arbitrating a construction dispute as opposed to litigating the case.

Pros

Cost – This is likely the most frequently cited benefit of arbitration over litigation. The perception is that, due to a lack of court fees and a full discovery period, as well as an expedited procedure, arbitration tends to be far less expensive than litigation. However, this is often disputed. We will keep cost as an arbitration pro, but keep in mind that arbitration costs can soar for more complex cases.

Timeliness – The second most frequently cited benefit of arbitration is that it tends to be much faster than litigation. Hearings do not have to be fit into a crowded court docket, arbitrators are generally juggling far fewer cases than judges, rules of procedure are simplified, and there is usually no appeal. Thus, arbitration is usually much faster than litigation.

Privacy – While litigated cases are public record, arbitration is a private process. You can generally resolve your disputes without the details of the case becoming public knowledge.

Expert decision-maker – While it is unlikely that a judge or jury deciding a litigated case will have any expert knowledge of the construction industry, arbitrators will be selected who are best suited to understand the case, meaning they will likely have a great deal of experience with construction and be better suited to resolve the dispute.  

Schedule flexibility – As previously stated, arbitration hearings tend to be much less formal than litigation, and they can essentially be scheduled to occur at any time in any place to better suit your availability to attend.

Finality – Arbitration decisions are binding and there is usually no potential for an appeal. This means the arbitrator’s decision will usually be enforceable by a court, and you won’t have to spend time and money dealing with a lengthy appeals process.

Cons

Finality – No, you are not seeing double. The finality of arbitration can also be a detriment if you lose the case. There are very limited grounds in which a court will overturn an arbitrator’s decision—usually only based on corruption or fraud. A legal error made by the arbitrator or counsel will not qualify you for an appeal when it comes to arbitration, as it would in litigation.

Lack of transparency – While the privacy may be nice, it also means there will be no oversight or transparency in the process, and therefore less incentive to ensure that the arbitration is fairly handled.

All-or-nothing – Oftentimes arbitration is an all-or-nothing system, meaning there is no middle ground between winning and losing the case. In litigation, there is a full discovery process and perhaps even mediation before the actual trial in which parties can assess the strength or weakness of the opposing party’s case and may have an opportunity to settle based on that evaluation. This is usually not the case in arbitration, and parties will likely see evidence for the first time during the hearing. The case becomes black and white, with a complete win in the case being the only chance for a positive outcome.

Evidence – In litigation, there are very strict rules regarding the presentation of evidence. Evidentiary requirements in arbitration do not adhere to most of these legal principles, meaning evidence may be prejudicial or misleading in nature, and there is little the opposing party can do to combat such issues.

Subpoenas – While arbitrators may issue subpoenas in order to force a witness to participate in a hearing, they tend to be much more difficult and laborious to enforce than a judge’s subpoena in litigation since arbitration occurs physically outside the court system.

If you are considering adding an arbitration agreement to your construction contracts, or if you are facing arbitration, please contact the Florida Construction Law Group today.

When it comes to getting everyone paid on a construction project, there can oftentimes be a significant amount of risk and potential for nonpayment. In general, there is a hierarchy of who is most likely to get paid, and subcontractors are usually at the bottom of the totem poll.

This is especially true if the contract signed by the subcontractor includes a “Pay-if-Paid” or a “Pay-When-Paid” clause.

These clauses are stipulation in construction contracts that protect the contractor in case of nonpayment by the property owner by shifting the risk to the subcontractor.

The pay-if-paid clause expressly states that the contractor will only owe payment for services to the subcontractor if the contractor gets paid by the owner of the property. If the contractor does not get paid, then they have no obligation to pay the subcontractor for the services he or she provided on the project.

Similarly, the pay-when-paid clause states that the subcontractor will be entitled to payment for the work performed, but only in a specific period of time following the receipt of payment by the contractor from the owner.

These are oftentimes contentious clauses between contractors and subcontractors, and the enforceability of these type of clauses has been challenged on numerous occasions. As it stands, the enforceability varies from state to state.

In Florida, pay-if-paid clauses have been found to be enforceable through case law, but ONLY if they are clear and unambiguous. As long as the contract makes it clear that a pay-if-paid clause sets the precedent for payment, and does not attempt to mislead, then there is very little potential for a subcontractor to challenge the contract once signed.

Pay-when-paid clauses are generally always enforceable in Florida.

If you are a contractor and you want to include either a pay-if-paid or a pay-when-paid clause in your subcontractor agreements, you should always consult with an attorney to ensure that the wording is very obvious, and be clear in negotiating with the subcontractor about these terms for payment.

If you are a subcontractor, it is important to always make sure you completely understand the terms of the agreement you are signing with the contractor. If you overlook a clear pay-if-paid or pay-when-paid clause, you could potentially be waiting for a very long time before you receive payment for the work you did, if at all. Subcontractors should also seek out the services of a skilled and knowledgeable construction law attorney to ensure that their interests are protected.

In either case, please contact the Florida Construction Law Group today to learn more.

Whether you own a construction company that has been contracted to perform a job, or you are a property owner who has hired a contractor, there may come a time where you need to terminate your relationship with the other.

Construction projects can go bad for a number of reasons. There may be financial difficulties, there could be disagreements over the nature, quality, and timing of the work, or you simply may not get along with the other party.

However, there are numerous risks involved in terminating a construction contract, and it should only be used as a last resort when all other remedial measures have failed. When a termination becomes necessary, you also need to follow the termination provisions set forth in your contract to the letter.

A termination will end the contractual rights and obligations of one or both parties prior to the completion of the project, and any construction contract should include detailed provisions that describe the circumstances under which either party can terminate the contractual relationship.

There are two different kinds of construction contract terminations that can be executed by either party: “for cause” and “for convenience.”

A termination for cause can only occur when one party fails to adequately fulfill their contractual duties with regard to the project. For example, the property owner could conceivably terminate a construction contract for cause if the contractor was failing to perform the work in accordance with an agreed upon timeline. Alternately, the contractor could terminate a contract for cause if the owner failed to pay on time. Potential material breaches could be explicitly defined in the contract, or one could also terminate for cause based on general contract law.

If an owner terminates a contract for cause, he or she generally has a right to seize the building materials for use to complete the work, and the contractor could be held liable for any costs that it takes to complete the project above the original contract costs. The party that is responsible for the default will almost always have some sort of financial penalty or liability if the termination for cause is found to be valid.

Alternately, a termination for convenience is when a contract is terminated when there is no default or breach of obligations by the other party. A termination for convenience can be lawful only when defined explicitly in the contract. They are usually included in contracts as a way to allow each party to end their obligations in a manner which does not significantly harm either of them. In a termination for convenience, the contractor will usually be able to collect payment for work already completed as well as any demobilizing costs, while the owner will be able to avoid paying damages or anticipatory costs for cancelling the work.

However, if a party terminates for cause, but the cause is not found to be valid, then the termination will likely be considered one of convenience. If the factors that led to the termination for convenience are not allowable by the contract, then whoever instigated the termination would likely be liable for considerable damages to the other party.

Terminating a construction contract is an incredibly complex and risky proposition. It is vital that you utilize the services of an attorney who is well versed in construction law to guide you and ensure you are complying with all terms of your contract and your legal obligations. If you are considering terminating a construction contract, whether you are the owner or the contractor, please contact the Florida Construction Law Group today.

When a construction material supplier’s has not been paid for the work done on a construction project, the material supplier may seek remedies through lien rights under Florida’s Construction Lien Law, Section 713.001-37, Florida Statues.  The purpose of the Florida Construction Lien Law is to protect construction material suppliers from nonpayment, but strict compliance with the statutory law is required.

The first thing to understand is that a Notice to Owner is a prerequisite to perfecting a lien, unless you are in direct privity with the Owner.  However, if you are furnishing materials under an order by someone other than the Owner such as a general contractor or subcontractor then a Notice to Owner must be served.  Failure to properly and timely serve a Notice to Owner is an absolute bar to your lien.The second thing to understand is that a Notice to Owner is not a lien. The Owner can prevent paying twice for work by verifying pursuant to a lien waiver that money paid to the contractor ends up paid. The third thing you must understand is that the Notice to Owner must be served timely.  The Notice to Owner must be served within 45 days of first delivering materials to the jobsite.

The fourth thing you must understand is that the Notice to Owner must be served properly.  The Notice itself must be proper, and the service must be proper.  For the Notice to Owner to be proper, it must be in substantially the form, and include the information and warning, set forth in Fla. Stat. §713.06(2)(c). To prepare the Notice, you should use the information contained in the recorded Notice of Commencement.  If there is no recorded Notice of Commencement, then you should use the information contained in the building permit application.  Make sure to properly describe the services or materials that you are supplying; make it broad enough to cover all materials that you may supply for the project.

As to proper service, you must make sure to send the Notice to all required recipients and use the proper method of delivery.  The Notice must be sent to the Owner at the address stated on the Notice of Commencement.  If you are aware of additional addresses for the Owner, send the Notice to those addresses as well. The proper method of delivery is set forth in Fla. Stat. §713.18.  Always keep evidence of delivery of Notice whether through certified mail or photos of posting Notice to the jobsite.

Ray Garcia, Esq.

Board Certified in Real Estate Law

by the Florida Bar

www.floridaconstructionlawgroup.com

Typically, when a general contractor is approved for a construction loan, that does not mean the lender is going to disburse the entirety of the loan at once. The loan disbursement process for construction loans is incredibly involved, and will usually follow a predetermined scheduled based on milestones in the construction project.

Contractors will be required to submit a draw request to the lender for review and approval each time they need to receive a progress payment to fund various stages of the construction.

Any experienced general contractor knows how important it is to receive the money you need for your project when you need it in order to stay on track, on time, and on budget with your schedule.

Thus, a draw request dispute can derail the timing and efficiency of your project as quickly as any issue. You need the money you’ve been promised, and when a lender tries to withhold that money for any reason, it can be ruinous.

In this blog, we have detailed five potential negative impacts that a draw request dispute with your lender can have on your construction project.

1) Timeliness

It will always be a constant struggle to stay on schedule with your construction projects. There is a practically endless list of things that can throw off your timing, and draw request disputes are extremely high on that list. If you don’t have the money you are expecting from the lender on time, most other aspects of your plans will have to be pushed back as well until the dispute is resolved. This not only impacts your reputation, but it can also severely hurt your bottom line when it comes to other costs associated with falling behind schedule, including the following…

2) More interest payments

Delays caused by draw request disputes will force you to pay more interest payments on your loan. That’s more money out of your pocket the longer you have to wait to resolve a dispute.

3) Loss of labor

A lack of funds will prevent you from moving forward with your project, which will directly lead to a costly loss of labor productivity. An unexpected loss in labor productivity can cause your labor costs to skyrocket well beyond what you anticipated.

4) Remobilization costs

There will be unexpected costs involved both in having to cease construction, as well as remobilizing once your draw request dispute is resolved.

5) Failure to continue funding the project

The worst case scenario of a draw request dispute is that the lender will refuse to continue funding the project. Obviously, the weight of this negative impact is pretty clear. No more funding means no more construction, at least until you can find someone else to fund the project.

If you are in the process of negotiating a draw request schedule with your lender, or if you are already facing a draw request dispute, you need an experienced and knowledgeable attorney representing your interests and protecting you from the severe costs and issues associated with a lender’s refusal to pay what you were promised for your project. Please do not hesitate to call the Florida Construction Law Group today.

We’ve said it before and we will say it again: if you are a contractor, hiring a contractor, or you are involved in the business of construction in any way, you cannot afford to neglect utilizing strong, thorough contracts in your business dealings.

There is simply too much at stake and too much that can go wrong for you to not have a solid legal foundation supporting your actions and your interests. Construction contracts cannot guarantee that you will never have to deal with a lawsuit, but they will mitigate your risk and give you something legitimate and legally defensible for you to fall back on if things go awry.

Payment for a construction job in particular can be a lightning rod for people to attempt to take advantage of a situation by underpaying or overcharging. A good construction contact needs to explicitly detail how and when payment will occur and make provisions for unexpected developments or changes in the way the job will be completed.

Generally, there are three main classifications of payment for a construction job that need to be detailed in your contracts, depending on the circumstances of the work. We’ve detailed these three classifications below:

Lump-Sum

A lump-sum contract places almost the entirety of the risk on the contractor. This is the most common form of payment classification in construction contracts and is characterized by an agreed upon fixed price for an agreed upon amount of work. If the contractor is able to do the job for less than the lump sum, he or she will still be entitled to full payment of the lump sum, which means an increase in profits. Conversely, if they are not able to complete the work within the lump sum budget, he or she must foot the bill to cover the difference. When calculating a lump-sum payment contract, the contractor needs to plan for any contingencies or unexpected costs and build them into the fixed price.

Unit Price

This form of payment classification is normally utilized when there is easily quantifiable work that needs to be completed, as opposed to more complex construction projects. Unit price payment is when a specific price is known for a task, but not necessarily the quantities of the product needed to complete the task. The owner agrees to pay for however much of the unit is used to complete the scope of work. For example, the contractor may know the price for certain quantities of concrete needed to complete a project, but not exactly how much concrete he or she will need. Thus, the owner agrees to pay an amount of money per an amount of concrete up to however much it takes to complete the job. Unit price payment could be combined with other forms of payment, like lump sum, to cover one particular aspect of a job.

Cost-Plus (with or without guaranteed maximum)

In a cost-plus arrangement, the owner agrees to pay the contractor for the actual cost of work, plus a fixed fee or percentage of the overall costs. This way, the owner will not be paying for contingencies that were built in to the price but never used, as he or she would in a lump-sum contract. However, without a defined guaranteed maximum amount, there is little to no incentive for the contractor to keep his or her costs down. It is wise to include a guaranteed maximum price (GMP), which shifts the risk of additional, unexpected costs onto the contractor rather than the owner, which incentivises them to keep their costs down. GMP may also include provisions for sharing savings should the contractor complete the job for less than the expected costs.

If you are dealing with payment issues that have arisen from a real estate or construction dispute, or if you need help developing contracts for your jobs and deciding which form of payment to utilize, please contact the Florida Construction Law Group and let us work to protect your interests.

Hiring a contractor to perform serious renovation work on your home can be an unnerving prospect for many people. You want to ensure that you are getting the best work at a fair price, but if you choose a bad or unscrupulous contractor you will probably get neither.

A poor job by a contractor could end up costing you a great deal of time and thousands of dollars more than you intended to spend, so it is essential that you choose your contractor wisely.

Keep an eye out for these 10 red flags when choosing your contractor or when they are just starting their project. If you do choose a poor contractor, it’s important to move quickly to let them go as soon as it becomes clear they are not living up to your expectations.

1. Be vigilant of scammers

Particularly if you’ve been the victim of a widespread natural disaster, be wary of profiteers and those who would prey on your vulnerability. Some signs that a contractor could be trying to scam you include a lack of contact details like a phone number and business address. They may also be going door-to-door soliciting their services.

2. Upfront payment

Avoid contractors who require 100% upfront payment for the job as well as cash-only payments. This could indicate a lack of legitimacy or skill, and could leave you high and dry if the contractor never comes back to finish the job.

3. High-pressure sales

Another red flag is those contractors who try to push you into signing a contract on the spot. They may offer you a “great deal” but only if you agree to use their services right then and there. Any legitimate contractor understands you need time to think through such a big decision so don’t be pressured to act hastily.

4. No references

If the contractor cannot refer you to another satisfied customer, then do not give them the job. You want a proven track record to ensure they actually have the ability to perform the work well.

5. Lack of permits, license, or insurance

If the builder asks you to obtain the building permits for the job yourself, this may indicate that they are not properly licensed or registered locally and want to avoid detection. Always verify their relevant licenses with the proper authorities, and only give them the job if they have proof of valid insurance as well.

6. Unsatisfactory answers to questions

Whether the potential contractor is overly vague, unwilling, or simply unable to answer your questions about the proposed work or contract, don’t accept unsatisfactory answers to your questions. You are entitled to details and a contractor who is willing to give them to you.

7. Lack of contract

This one is simple, never allow a contractor to complete a job without signing a thorough and legal contract. Period.

8. Lack of communication or poor communication

If you find you can never get in touch with your contractor and he or she doesn’t return your calls, this is a sign that you should not hire them or that you might need to fire them.

9. Solicits a job for you based on leftover materials

We already mentioned avoiding door-to-door contractors, but some may offer you a great deal because they’ve just completed a job for a neighbor and have leftover materials. This could indicate that the contractor is not local or legitimate.

10. Deal too good to be true

If the deal sounds too good to be true, it probably is. Avoid it altogether or make sure you conduct thorough research on the contractor to make sure you aren’t being taken advantage of.

Do your best to avoid contractor red flags when hiring for your renovation or construction project. If you believe you have been the victim of an illegal or illegitimate contractor, call the Florida Construction Law Group to talk about your options and give yourself a chance to recoup some of your losses.

By definition, a construction defect is a condition that reduces your home’s value. There are two primary categories of defect: “patent” defects, which can be spotted right away, and “latent” problems that don’t appear until years after your home was built.

What causes defects?

These problems typically occur if inferior materials were used or the construction work was not completed in accordance with good practice. Other leading causes include:

• Improper site selection and planning
• Civil or structural engineering errors
• Problems with soil analysis and preparation

What are the most common types?

The construction defects most commonly involved in litigation include water problems, faulty drainage, mold, dry rot, and cracks that appear in the roof, walls, or foundation. For a claim to succeed, a homeowner must have an expert examine the defect, determine its source, and recommend ways to remedy it. This expert will then testify in court to back the plaintiff’s claim.

Who is responsible?

Most times, the responsibility lies with the developers, builders, and general contractors. Designers and architects can also be held liable for construction defects.

What damages are recoverable?

If your home shows a patent or latent defect, the amount of damages you will recover will depend on the circumstances of the case. Recoverable damages include:

• Repair costs
• Decline in the value of the property
• Cost of temporary housing during the repair
• Court costs

If anyone was injured due to the defect, the party responsible may be liable for associated damages. Punitive damages could also be levied if the court decides that their conduct was reckless or willful.

Is there a time limit for filing?

Laws will vary from state to state, but in Florida, construction defect lawsuits must generally be filed within four years from the latest of the following situations:

• The date you actually took possession of the home
• The date that a certificate of occupancy was issued
• The date that construction was stopped (if the work was never completed)
• The date of completion or termination of the contract between the engineer, architect, or contractor and the employer

If a latent defect is involved, § 95.11(3)(c), Fla. Stat. states that “the time runs from the time the defect is discovered or should have been discovered with the exercise of due diligence.”

Can repairs be made while a lawsuit is in progress?

As a homeowner you are required to prevent further damage to your property, so repairs may be made and the costs are recoverable. Otherwise, the defense may argue that you failed to mitigate damages.

Can a home be sold while it is the subject of a construction defects lawsuit?

While you are allowed to sell your home during the litigation process, Florida’s disclosure law requires you to inform potential buyers of all known facts about the property, such as taxes, past and present condition, and need for repairs. Litigation over construction defects arguably falls in this category.

If you have any questions on the subject, or if you need assistance with any aspect of construction law, we can help. Please contact us today to learn more!