Service Area: Notice and Mechanic’s Lien Services

Serve Your Mechanic’s Lien in Accordance with Statute

Posted on October 27, 2017 by - In Other Commercial Credit News

Always Serve Your Mechanic’s Lien in Accordance with Statute

Just as with notice requirements, lien statute varies by state, which means the required method(s) for service of the lien can vary. In The Critical Importance of Properly Serving a Construction Lien Claim, author Adam Sklar reviewed a recent New Jersey Court of Appeals decision, where the claimant’s lien was invalidated based on “defective service” of the lien.

Case Snapshot

The claimant was a subcontractor, hired by the general contractor, for the improvement to a condominium property. When the GC failed to pay the subcontractor, the subcontractor filed and served a construction lien.

What Was Defective?

As I read the case, I was confused; after all, it appeared the lien claimant followed statutory requirements, including serving the document via certified & first class mail. Where did the claimant go wrong?

According to Sklar’s review, the claimant mailed its lien to the street address of the project. Unfortunately, the project street address was not the “…last known business or residence of the owner or community association” as dictated by statute.

Here’s a quick look at statute:

N.J.S. 2A:44A-7 a. Serving of lien claim by claimant.

(1)   simultaneous registered or certified mail or commercial courier whose regular business is delivery service; and
(2)   ordinary mail addressed to the last known business or residence address of the owner or community association, contractor or subcontractor.  A lien claim served upon a community association need not be served upon individual “unit owners” as defined in section 3 of P.L.1993, c.318 (C.2A:44A-3).

Therefore, service of the lien was defective. Sklar also noted the court opinion didn’t rely solely on service to an incorrect address “…even if service had been made to the Association’s proper business address, the certified mailing of the lien had been returned unclaimed and the subcontractor had failed to present any evidence relating to the status of the ordinary mail.”

Can’t the Claimant Serve the Lien Again, if the Lien Was Recorded Timely?

New Jersey statute states the lien must be served upon all parties within 10 days from the filing of the lien. Sklar mentions the lienmay be served late, but that wouldn’t have changed the outcome. Why?  Because New Jersey is an unpaid balance lien state and the owner, not having been properly served with the lien, paid the GC in full, leaving no funds to lien.

Best Practice: Serve the Address on the Corporate Certificate

A best practice from Sklar? Serve the document upon the address listed on the entity’s corporate certificate.

“When filing a lien … a claimant must do a corporate search with the State to ensure it has the proper business address for that entity.  Of course, there may be other ways to determine the proper last known business address … but the corporation’s registered agent address, as filed with the State, should always be deemed a valid address for service of a lien.”

Did You Know?

NCS also follows this best practice & encourages our clients to serve the registered agent whenever possible.

Can Your Mechanic’s Lien Rights Be Waived?

Posted on October 23, 2017 by - Mechanic's Liens & Bond Claims

Can Your Mechanic’s Lien Rights Be Waived within a Contract/In Advance of Furnishing? Maybe.

We are often asked whether a waiver of lien rights clause can be incorporated within a contract. In theory, anything can be included in a contract. The more specific question is whether a contractual waiver of lien rights is enforceable.

I feel like a broken record, but the answer is: maybe.

First, please understand the consequences of a waiver of lien clause. Essentially, if you sign a contract that includes a waiver of lien rights, you are forfeiting your right to file a mechanic’s lien in the event you are unpaid. This type of clause can put subcontractors & material suppliers at a significant disadvantage and increase their risk/exposure.

Fortunately, several states find these clauses to be unenforceable, permitting claimants an opportunity to file a lien.

Generally, each state falls in to one of three categories:

  • Lien rights can be waived within the contract in advance of furnishing
  • Lien rights cannot be waived within the contract in advance of furnishing
  • It is undefined whether lien rights can be waived within the contract in advance of furnishing

Yes, Lien Rights Can Be Waived Within the Contract/In Advance of Furnishing

First up are the states that find the waiver of lien rights within a contract to be enforceable. States such as Colorado, Nebraska and Virginia (general contractors only).

Nebraska’s statute seems straightforward.

52-144. Waiver of construction lien rights; what constitutes; validity; effect.

(1) A written waiver of construction lien rights signed by a claimant requires no consideration and is valid and binding, whether signed before or after the materials or services were contracted for or furnished. Ambiguities in a written waiver are construed against the claimant.

Virginia clearly states general contractors can waive their lien rights in advance of furnishing, but subcontractors or material suppliers cannot.

43-3 Lien for work done and materials furnished; waiver of right to file or enforce lien

1. Any right to file or enforce any mechanics’ lien granted hereunder may be waived in whole or in part at any time by any person entitled to such lien, except that a subcontractor, lower-tier subcontractor, or material supplier may not waive or diminish his lien rights in a contract in advance of furnishing any labor, services, or materials. A provision that waives or diminishes a subcontractor’s, lower-tier subcontractor’s, or material supplier’s lien rights in a contract executed prior to providing any labor, services, or materials is null and void.

No, Lien Rights Cannot Be Waived Within the Contract/In Advance of Furnishing

Several states, including states with a higher volume of construction projects, find a contractual waiver of lien rights to be unenforceable. States such as California, Florida, Nevada, New York & Texas.

In Florida, a potential lien claimant cannot waive their lien rights prior to furnishing.

713.20 Waiver or release of liens. —

(2) A right to claim a lien may not be waived in advance. A lien right may be waived only to the extent of labor, services, or materials furnished. Any waiver of a right to claim a lien that is made in advance is unenforceable.

According to New York statute, the contractual waiving of lien rights is “against public policy.”

34. Waiver of lien.

Notwithstanding the provisions of any other law, any contract, agreement or understanding whereby the right to file or enforce any lien created under article two is waived, shall be void as against public policy and wholly unenforceable.

Um, I Don’t Know, Maybe

The third set of states, including Arizona, Louisiana and Washington, fail to provide a firmly defined “yes or no” as to the enforceability of a contractual waiver of lien.

Arizona’s statute begins with “no, you cannot waive lien rights,” but you can waive your lien rights, if the proper documentation is executed.

33-1008. Waiver of lien

A. An owner or contractor by any term of their contract, or otherwise, may not waive or impair the claims or liens of other persons whether with or without notice except by their written consent… Any term of the contract to that effect shall be void. Any written consent given by any claimant pursuant to this section is unenforceable unless the claimant executes and delivers a waiver and release.

B. No oral or written statement purporting to waive, release or otherwise adversely affect a claim is enforceable or creates any estoppel or impairment of a claim unless it is pursuant to a waiver and release prescribed by this section or the claimant had actually received payment in full for the claim.

Washington doesn’t specifically say “waiver of lien” or “lien waiver” rather they deem an “act of coercion” as unreasonable.

RCW 60.04.035 Acts of coercion—Application of chapter 19.86 RCW.

The legislature finds that acts of coercion or attempted coercion, including threats to withhold future contracts, made by a contractor or developer to discourage a contractor, subcontractor, or material or equipment supplier from giving an owner the notice of right to claim a lien required by RCW 60.04.031, or from filing a claim of lien under this chapter are matters vitally affecting the public interest for the purpose of applying the consumer protection act, chapter 19.86 RCW. These acts of coercion are not reasonable in relation to the development and preservation of business. These acts of coercion shall constitute an unfair or deceptive act or practice in trade or commerce for the purpose of applying the consumer protection act, chapter 19.86 RCW.

Sign It or Not?

As a best practice, it’s prudent to carefully review all contractual agreements prior to signing. If you furnish to construction projects, you should carefully preserve your right to file a mechanic’s lien, and sometimes that may include modifying a contractual agreement to eliminate waiver of lien language.

If you have any concerns or doubts, seek legal guidance before signing any documents.

Bonus – Click here to download a Quick Reference Guide: Can Lien Rights Be Waived in Your Contract in Advance of Furnishing?

Is a Contractor’s License Required to File a Lien?

Posted on October 20, 2017 by - In Other Commercial Credit News

Are You Securing Lien Rights? Be Careful, a Contractor’s License May Be Required

As if understanding mechanic’s lien laws wasn’t complicated enough, it’s also vital that you understand and adhere to the licensing requirements for each state.

Did you know, an unlicensed contractor in California cannot recover unpaid monies via a mechanic’s lien? It’s true:

CA Bus. & Prof. Code 7031

(a) …no person engaged in the business or acting in the capacity of a contractor, may bring or maintain any action, or recover in law or equity in any action, in any court of this state for the collection of compensation for the performance of any act or contract where a license is required by this chapter without alleging that he or she was a duly licensed contractor at all times during the performance of that act or contract regardless of the merits of the cause of action brought by the person…

California is not alone. Arizona, Florida & South Carolina, to name a few, have similar statutory guidelines.

Arizona: 33-981 C. A person who is required to be licensed as a contractor but who does not hold a valid license as such contractor issued pursuant to title 32, chapter 10 shall not have the lien rights provided for in this section.

Florida: 713.02 Types of lienors and exemptions. — (7) Notwithstanding any other provision of this part, no lien shall exist in favor of any contractor, subcontractor, or sub-subcontractor who is unlicensed…

South Carolina: Section 29-5-15 (A) To file a mechanics’ lien, a contractor must provide the county clerk of court or register of deeds proof that he is licensed or registered if he is required by law to be licensed or registered. As proof of licensure or registration, the contractor must record his contractor license number or registration number on the lien document when the lien document is filed.

This week, we shared two articles which both address the consequences of failing to be a licensed contractor.

In “The Importance of Proper Licensing for Contractors”, author Jennifer Therrien, advises readers that licensing requirements not only vary by state, but also vary based on the type of work provided. Therrien’s article references several recent cases where contractors, of varying trades, learned the costly lesson of failing to comply with licensing requirements.

In one case, an unlicensed contractor who provided road work services had to pay back over $750,000 to the prevailing party.

Another case involved a homeowner & its landscaper. At the time of contract, the homeowner was aware the landscaper was not licensed. Prior to contract completion, the landscaper did obtain its license and some of its work was performed while licensed. Then, the homeowner filed suit against the landscaper to recover ALL monies paid. Unfortunately, California statute is unforgiving, and the landscaper had to refund the entire amount it received – even funds paid while their license was intact. Further, the court said it was irrelevant that the homeowner knew the landscaper wasn’t licensed! Talk about dirt-y.

The second article shared, Unlicensed Contractor Shoots for the Stars . . . Sputters on Takeoff, recaps a recent Appeals case involving Elon Musk’s Space X. In this case, the contractor argued, among other things, that it furnished non-construction services, relieving it of the requirement for a contractor’s license. Author, Garret Murai, reminds readers “…[I]f you are performing construction work in California (with a value of $500 or more) you are required to hold valid contractor’s license. If you don’t, there could be dire consequences.”

Owners Can Bond Off Liens & Contest Frivolous Liens

Posted on October 6, 2017 by - In Other Commercial Credit News

In Washington, Owners Can Bond Off Liens & Contest Frivolous Liens

In Washington Mechanic’s Liens: How Recent Changes Impact Contractors, author Marti McCaleb not only provides an overview of the steps required to secure a mechanic’s lien in Washington, but also answers the question “What if someone files a lien against me?”

Washington’s preliminary notice requirements may seem a bit confusing. Although today’s post isn’t going to review Washington’s statute in depth, here’s a quick look at information on the Notice to Customer and the Notice to Owner.

Information courtesy of The National Lien Digest©:

Notice to Customer: On small commercial projects (small = general contract value of $1,000-$60,000, or 4 or fewer unit residential projects where the general contract is more than $1,000), contractors who contract directly with the owner must serve a Notice to Customer upon the owner and obtain a signed copy prior to first furnishing materials or services.

Notice to Owner: On commercial, multi-family, or small commercial projects, serve notice upon the owner and prime contractor within 60 days from first furnishing materials or services. A late notice may be served, but the lien, when later filed, will only be effective for materials and services provided 60 days prior to serving the notice and thereafter. No Notice to Owner is required for subcontractors contracting directly with the prime contractor, laborers, and those contracting directly with the owner.

Beyond the basic information above, there are additional guidelines based on whether the project is new construction on a single-family residence or construction on an existing single-family residence.

The section of McCaleb’s article I found most interesting is the information she provides to project owners on what they can do once a lien has been filed on their property.

Up first: bond off the lien.

“An owner or prime contractor can bond around a lien by obtaining a surety bond under the following requirements:

– If the disputed amount is $10,000 or over, then 150% of the lien amount.

– If the disputed amount is $10,000 or less, then $5,000 or twice the amount of the lien.

The lien attaches to the bond and releases the property. The lien foreclosure proceeds as normal; however, the surety must be added as a party to the lien foreclosure action.”

McCaleb also explains frivolous liens and provides defense options. According to McCaleb, a frivolous lien is a lien that “presents no debatable issue and is devoid of merit that it has no possibility of success.”

“In response to a lien that appears to be frivolous, a party can request a show cause hearing where the applicant must show that the lien is frivolous and “made without reasonable cause” or is “clearly excessive.” If the lien claimant fails to show, the lien will be released.”

I’ve reviewed several cases where the lien was questioned based on an exaggerated or excessive claim amount. In a general sense, an exaggerated lien could be deemed a frivolous lien. This should serve as a reminder that a lien claimant needs to have documentation to support its claim.

How to Avoid Invalidating Your Mechanics Lien

Posted on October 3, 2017 by - Mechanic's Liens & Bond Claims

New York Mechanic’s Lien Invalidated for Failure to Provide a Statement of Account: Don’t Squander Your Lien Rights

If you take the time to properly secure a mechanic’s lien, don’t squander your security. Make sure you diligently take the appropriate steps to follow through with subsequent legal requests.

Earlier this year, the New York Supreme Court cancelled a claimant’s mechanic’s lien because the claimant failed to timely provide an itemized statement in response to a Demand for an Itemized Statement.

First, a Look at New York Mechanic’s Liens

When furnishing to private commercial projects in New York, there is no preliminary notice requirement and the mechanic’s lien deadline is 8 months from last furnishing materials or services. One year from the date of the mechanic’s lien filing, the lien claimant must file suit to enforce the lien or file an extension of lien.

New York is an unpaid balance lien state, which means the lien is enforceable for the unpaid portion of the contract. Therefore, as a best practice, potential claimants should file liens as soon as possible to trap funds.

The owner or contractor may serve a Demand for Itemized Statement upon the lien claimant. A formal response must be given within 5 days or the lien may be forfeited.

§ 38. In case the lienor fails to comply with the order so made within the time specified, then upon five days’ notice to the lienor, served in the manner provided by law for the personal service of a summons, the court or a justice or judge thereof may make an order cancelling the lien.

The Case of the Cancelled Mechanic’s Lien

In December 2013, Pizzarotti IBC LLC (Pizzarotti) contracted with Batirest 229 LLC. Then, in August of 2015, Pizzarotti filed a mechanic’s lien in the amount of $365,267. In response to the mechanic’s lien, Batirest, within its rights, served a Demand for an Itemized Statement.

Under New York mechanic’s lien law, section § 38, a lien claimant may be required to provide an itemized statement. Should the claimant fail to provide the statement within the allotted time, the lien can be canceled.

§ 38. Itemized statement may be required of lienor. A lienor who has filed a notice of lien shall, on demand in writing, deliver to the owner or contractor making such demand a statement in writing which shall set forth the items of labor and/or material and the value thereof which make up the amount for which he claims a lien, and which shall also set forth the terms of the contract under which such items were furnished.

In April 2016, Pizzarotti had yet to provide the itemized statement and by July 2016, Batirest petitioned the courts to have the lien dismissed. Then, in August 2016, Pizzarotti submitted the itemized statement, failing to include the terms of the contract as required, and boldly stated the statement was submitted timely (…a mere 5 months after the court order, and 12 months after the original demand.).

As you can imagine, Batirest argued the statement was untimely, not to mention incomplete, based on a separate argument over the terms of the contract.

Ultimately, Batirest was successful in its arguments and the court cancelled Pizzarotti’s mechanic’s lien.

“Instead of setting forth the terms of the contract, respondent argues that it need not comply with that portion of Section 38 because the terms of the contract are not disputed. Respondent does not provide support for this assertion, and petitioner contends that the contract is disputed. When respondent failed to comply with the order, petitioner appropriately sought cancellation of the lien under Section 38. Accordingly, it is ORDERED that the petition is granted and the lien is cancelled.”

The Takeaway

Securing lien rights is a process and the process doesn’t simply end once the lien is filed. Pay attention to actions required (or demanded) once the lien has been filed. Monitor correspondence and if you receive a legal document, ensure counsel reviews it to confirm whether any actions need to be taken.

You can read the legal opinion here: In the matter of Batirest 229, LLC (Pizzarotti IBC LLC), 2017 NY Slip Op 30111 – NY: Supreme Court 2017.

Despite Disputes, Release Retainage

Posted on September 29, 2017 by - In Other Commercial Credit News

In Tennessee, Retainage Must Be Released within 90 Days, Despite Disputes

Retainage is a familiar term in the construction industry: Retainage is an agreed amount of a contract price that is retained by one party from another, with an assurance that the party will be paid once the job is completed.

Retainage is common in construction contracts and is generally between 5%-10%.

For example, the owner may withhold 5% of the contract amount, then, once the project has been completed/accepted, the owner will release that 5% to the general contractor. Retainage is sometimes viewed as a bit of an insurance policy, or more aptly, it is leverage.

“…[T]he sole purpose of withholding retainage is to protect the project, so that if there is a dispute with the contractor, whether it is defective/incomplete work, or the project is late—assessment of delay or liquidated damages—retainage can and will be withheld from the contractor, used as leverage.” – David Taylor, author of What Lenders Need to Know

Many state statutes specifically address retainage. For example, Texas statute states the owner should withhold 10% retainage.

Sec. 53.101.  Required Retainage

(a)  During the progress of work under an original contract for which a mechanic’s lien may be claimed and for 30 days after the work is completed, the owner shall retain:

(1)  10 percent of the contract price of the work to the owner; or

(2)  10 percent of the value of the work, measured by the proportion that the work done bears to the work to be done, using the contract price or, if there is no contract price, using the reasonable value of the completed work.

In Tennessee, according to What Lenders Need to Know, retainage cannot exceed 5%, with a deadline provided for the release of the retainage. Per Taylor, retainage must be released within 90 days from substantial completion.

Taylor reviewed and addressed a specific Court of Appeals case which bucked the status quo on the release of retainage.

I admit, I would have assumed that releasing retainage would be conditioned on acceptance. Essentially, if the owner isn’t happy or if there is a dispute, the retainage would continue to be withheld until all issues are resolved.

Well, you know what happens when you assume…

Taylor states “The Court of Appeals ruled that, regardless of what the contract says about an owner withholding retainage, even if there is serious defective work which far exceeds the retainage amount, retainage must be released to the contractor within the 90-day period.”

Wait, does this mean what I think it means? Yes, Taylor warns “[B]e aware that even if there is a failed project, caused by the contractor, withheld retainage may have to be paid to that contractor.”

Now, this is based on a case in Tennessee, and, as you know, all states are different. But let it serve as a reminder to ensure familiarity with statutes for the states in which you furnish & if you are ever in doubt, seek a legal opinion.

NCS can help – contact us today!

Serve Notices via Certified Mail

Posted on September 18, 2017 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

The Value in Serving Notices via Certified Mail, Return Receipt Requested

In July 2012, various portions of California’s mechanic’s lien statute changed, including service and proof of service of a preliminary notice, specifically to prove service of preliminary notice via affidavit and a copy of the return receipt. (Civ. Code, former § 3097.1, subd. (a); Stats. 2010, ch. 697, § 16 [repealed])

From the appeals opinion:

“Civil Code former section 3097.1 provided that: ‘Proof that the preliminary 20-day notice required by Section 3097 was served in accordance with subdivision (f) of Section 3097 shall be made as follows: [¶] (a) If served by mail, by the proof of service affidavit described in subdivision (c) of this section accompanied either by the return receipt of certified or registered mail, or by a photocopy of the record of delivery and receipt maintained by the post office, showing the date of delivery and to whom delivered, or, in the event of nondelivery, by the returned envelope itself.’”

In March 2012, in compliance with California’s mechanic’s lien statute, a subcontractor served its preliminary notice via certified mail, with no return receipt requested.

The subcontractor eventually filed a lien for $81,857.55, because the general contractor failed to remit payment. The property owner argued the subcontractor did not comply with statutory requirements for service of the notice & the circuit court agreed, subsequently invalidating the subcontractor’s lien.

In 2016, an appeals court reinstated the lien rights for the subcontractor. Read on to learn more!

Bit of Background

Hub Construction Specialties, Inc. (Hub) furnished rebar to a private project owned by Esperanza Charities, Inc. (Esperanza). Hub served a preliminary notice via certified mail and could demonstrate, via the USPS website, that the notice was delivered & that Esperanza received the notice. BUT, Hub did not have a signed return receipt.

From the appeals opinion:

“Plaintiff ‘furnished postage to the U.S. Postal Service sufficient to serve all certified mail items and possesses a `Certified Mailer Manifest for: 3-16-12′ reflecting [the general contractor, defendant and the construction lender] as addressees and bearing an Official Stamp of the United States Postal Service.’

Plaintiff did not request, and did not pay a fee to the United States Postal Service for, a “return receipt” for the notices.

The U.S. Postal Service website tracks certified mailed items and the tracking for the certified mailed items indicates that they were all delivered. Further, [defendant] has acknowledged in verified discovery responses that it received the preliminary notice which [plaintiff] served. There is no signed return receipt.’”

In 2013, Hub filed suit to enforce its mechanic’s lien and the trial court invalidated Hub’s lien because “plaintiff ‘cannot provide sufficient proof of service by documentation of the return receipt of certified mail, [or] a photocopy of the record of delivery and receipt maintained by the post office, showing the date of delivery and to whom delivered … as required under the statute in effect at the time the effectiveness of the preliminary notice as given is sought to be established.’”

Then, in 2016, the appeals court determined Hub served the preliminary notice in compliance with the statute, and subsequently reversed the trial court’s decision.

“In short, in a case where defendant has admitted that notice was served in the statutorily prescribed manner, plaintiff need not comply with the statutory requirements for proving that notice was served in the statutorily prescribed manner.”

Takeaway & Best Practice

California statute has since changed and proof of document delivery is vital. Here’s an excerpt from current statute.

8110.

Except as otherwise provided by this part, notice by mail under this part shall be given by registered or certified mail, express mail, or overnight delivery by an express service carrier.

8118.

(b) If the notice is given by mail, the declaration shall be accompanied by one of the following:

(1) Documentation provided by the United States Postal Service showing that payment was made to mail the notice using registered or certified mail, or express mail.

(2) Documentation provided by an express service carrier showing that payment was made to send the notice using an overnight delivery service.

(3) A return receipt, delivery confirmation, signature confirmation, tracking record, or other proof of delivery or attempted delivery provided by the United States Postal Service, or a photocopy of the record of delivery and receipt maintained by the United States Postal Service, showing the date of delivery and to whom delivered, or in the event of nondelivery, by the returned envelope itself.

(4) A tracking record or other documentation provided by an express service carrier showing delivery or attempted delivery of the notice.

NCS always recommends serving preliminary notices via certified mail with return receipt requested (@ NCS, we serve notices via certified electronic return receipt). The additional cost to addon “return receipt” is significantly (an understatement) less than potential court costs & time trying to prove the document was received.

You can read the full appeals decision here: HUB CONSTRUCTION SPECIALTIES, INC. v. ESPERANZA CHARITIES, INC., Cal: Court of Appeal, 2nd Appellate Dist., 8th Div. 2016

Payment Bonds Can Be Conditional Too

Posted on September 15, 2017 by - In Other Commercial Credit News

Payment Bonds Can Be Conditional Too

Are you furnishing to a private Florida project where a payment bond has been issued? Then you should take a few minutes to review an article we shared this week, The Conditional Payment Bond Trap Facing Florida Subcontractors.

Types of Payment Bonds Available on Private Projects in Florida

First, a primer on the payment bonds available on a private, Florida project:

1 – The owner may require the general contractor to obtain a payment bond. If the payment bond is not properly recorded along with the Notice of Commencement, the payment bond would be a non-statutory payment bond.

2 – A conditional payment bond that is properly recorded along with the Notice of Commencement will be designated as such, and it will include the wording:

(§713.245) This bond only covers claims of subcontractors, sub-subcontractors, suppliers, and laborers to the extent the contractor has been paid for the labor, services, or materials provided by such persons. This bond does not preclude you from serving a notice to owner or filing a claim of lien on this project.

3 – An unconditional payment bond will prevent any liens from attaching to the property if the bond is properly recorded along with the Notice of Commencement. The unconditional bond will not include the conditional wording.

Conditional Payment Bonds Are Precarious

In the above article, author Ryan W. Owen, explains conditional payment bonds and their precarious nature. Owen advises that conditional payment bonds don’t provide the same protections as a standard payment bond.

“Conditional payment bonds do not provide owners or subcontractors with the same protections as standard payment bonds. The surety’s obligation under a conditional bond is only triggered when the owner pays the general contractor and the general contractor fails to pay its subcontractors.”

How can you avoid losing your bond claim rights? As a best practice, always serve the preliminary notice and bond claim upon all parties, and file the mechanic’s lien (when available). And, at the very least, read the terms of the bond!

“Florida subcontractors must carefully examine any bonds attached to a notice of commencement and remember to take all the appropriate steps necessary to protect their lien rights against the project and their claim against the bond when the bond is conditional.”

Owen’s article also includes a chart, which maps rights available if a standard payment bond, conditional payment bond or no bond is issued for a project. Included in the chart is whether a pay-when-paid clause is valid, and notice time frames for 1st and 2nd tier subcontractors and material suppliers.