When an owner in a construction project does not comply with the proper payment rules under §713.06 Fla. Stats., he/she may be required to pay subcontractors or suppliers twice for the same work performed. Here is an example:
The agreement between the contractor and owner provides for periodic payments (“draw requests”) based on completion of specified work at each phase of construction. During the construction of the owner’s home or commercial building the owner receives in the mail a Notice to Owner from a few subcontractors and suppliers.
Each time the owner pays the contractor, the owner receives paper work from the contractor including a partial release of lien from the contractor. Half way through construction, the contractor and owner begin to disagree on several construction matters and the contractor refuses to return to work. Shortly thereafter the owner is served with several claims of lien from subcontractors and suppliers.
Well, the owner should not worry because he/she paid the contractor for all work performed and received release of lien documents signed by the contractor each time – right? Unfortunately the owner may have to pay twice for some of the work performed and paid for.
Why? Because §713.06 gives an owner protection under the proper payment defense ONLY if the owner obtains from any subcontractor or supplier who sent the owner a “Notice to Owner” a release of lien signed by those subcontractors and suppliers.
You may ask, “Why can’t the owner sue the contractor”? The answer is that the owner can. However, the owner still has a lien or liens on his/her property and has to pay the lienors the amount of the lien in order to satisfy the liens. AND–the contractor may not be financially strong and the owner’s suit will ultimately collect nothing from the contractor?
The good news: it is simple to protect yourself. At minimum, never pay a contractor without receiving a release of lien from every trade from whom you have received a Notice to Owner. My recommendation is that you obtain from your contractor, a list of all trades (i.e. subcontractors, suppliers, laborers, etc.) before commencement of the job. Then each time the contractor delivers to you a draw request, require of him a list of all trades who performed work on the job for which that specific draw request is made. Then you can require not only releases from the trades who served you with a Notice to Owner, and the contractor, but you can also require releases from ALL trades who performed work on the job. This is especially beneficial since sometimes you may receive a Notice to Owner after you have made payment to the contractor; or you may have paid the contractor a larger amount of the contract price than the amount of total work performed. By obtaining lien releases from all trades you further ensure you will not pay twice.
If your contractor advises that he cannot obtain releases from his trades until you pay him, then simply require that he deliver his release and list of trades who have performed work at the time you pay him; AND require that all other releases are delivered to you within 10 business days of your payment. Further, DO NOT pay another draw if you have not received all prior releases.
The proper payment defense is your friend if you just remember – get your releases when you pay the contractor.