A glance at any urban skyline in Florida will confirm that construction is still big business. (1) Look again, and you might also see that it's chaotic and messy, characterized by one-off projects owned by short-lived one-asset entities, and built by a transient alliance of hundreds of vendors and thousands of workers. As a result, the money that is the life blood of a project travels a long and difficult path from the inevitable lender to a worker's weekly paycheck or a supplier's invoice. It doesn't always make it, and its failure to do so underlies the reason for Florida's construction lien law. (2)
Construction liens are a subset of a larger group of security interests encumbering property that are granted by property owners to those claiming a debt. These include voluntary liens imposed by contract, such as a mortgage. (3) Involuntary security interests against real or personal property are also available under Florida law, including the familiar retaining and charging liens, (4) as well as a variety of others, (5) including liens for labor on logs and timber, (6) on raising crops, (7) in ginning cotton, (8) or for furnishing locomotives, (9) material for vessels, (10) or pest control. (11) Liens are also available to the issuers of securities, (12) to real estate brokers, (13) to furnishers of aircraft fuel, (14) tax collectors, (15) and condominium associations. (16)
Of these, construction liens are certainly among the most common. They are also among the most Byzantine, and the complexity of their governing statute, Part I of Chapter 713, (17) is testament to the difficulty of balancing common law contract principles with the realities of the construction marketplace. One symptom of this complexity is the sheer length of Florida's lien law--it contains 47 sections and 29,925 words, (18) about the same as the amount of words George Orwell used to write Animal Farm. (19) We will see below why a statute governing a single form of security could grow to be as long as a novel.
Construction Liens and the Common Law
Large-project construction teams are usually headed by a general contractor, (20) who contracts with structural, roofing, electrical, plumbing, HVAC, and other subcontractors. (21) These entities are linked together by a series of contracts, starting with the direct contract, (22) and followed by a series of "downstream" contracts: subcontracts between the contractor and its subcontractors, and then contracts or purchase orders with sub-subcontractors and suppliers. (23)
Billing is usually monthly and is based upon the project's percentage of completion or upon actual costs incurred during the current period. (24) Each vendor sends its invoice (25) to its upstream customer, who then bills the next upstream level, and so on, up to the general contractor who invoices the project's owner. In many cases, an owner must then submit the invoice to a lender to obtain funding, adding yet another layer to the payment cycle. When the owner does issue payment, the reverse process takes place, with each vendor paying its downstream counterpart and collecting payment receipts at each step of the process. (26)
With projects often costing over $100 million, it is easy to see how this cumbersome process can fall apart. Owners or lenders may dispute the amount of the invoice or be slow to pay, lenders may require more paperwork, or subcontractors may simply fail to pay their suppliers.
So what's a subcontractor or supplier to do if some of that money gets lost along the way? How does one who supplies, say, lighting fixtures to a subcontractor collect payment for the products that it furnished?
Under common law contract principles, only the parties to a contract can enforce that contract, leaving unpaid third-tier vendors with no recourse against the owner whose property was improved by their efforts. The construction industry, uniquely fragmented (27) and mired in a tangle of short-term interrelationships, (28) might well collapse if a laborer or supplier knew that their only remedy lay against their employer or direct customer.
Enter the construction lien. Formerly known as a mechanic's lien, (29) the construction lien provides a vehicle by which an entity can enforce its subcontract or purchase order directly against an owner, even though that owner is not in privity with the vendor.
A Word on Privity
Although the term "privity" is not defined in the lien law, it is nevertheless used two dozen times. (30) Privity is generally considered to exist only between contracting parties, but the strictness of that relationship has been softening for quite some time. As early as 1658, a non-signatory was able to maintain an action to enforce the terms of a contract, (31) and by 1916, Cardozo's decision in MacPherson v. Buick Motor Co., 212 N.Y. 382 (N.Y. App. 1916), (32) had eliminated the privity requirement for negligence actions.
These prior expansions of privity have granted outsiders the right to enforce a contract against the parties to the contract. The lien law, on the other hand, uniquely grants a party to a contract the right to enforce it against an outsider, that is, it allows a party to assert contract claims against an entity with no actual or direct connection to the contract. (33) No other Florida statute has so expanded the reach of privity. Under the lien law, privity leapfrogs from the lower-tier vendors past the intermediate contracts directly into the owner's lap. This statutory scheme is a far cry from the common law.
The legislature recognized a void in the common law and invented a fictitious third-party privity between the owner and the project participants to create the lien law. The lien law limits its application to the improvement (34) of specific real property by third parties (35) who have timely notified the property's owner of their existence (36) and whose claim is made in accordance with Ch. 713. (37)
Moreover, privity under the lien law (38) does not simply mean that the parties are on opposite sides of a contract or simply privy to one another's existence. Privity carries with it the implication of "special knowledge showing active consent or concurrence" (39) and "an express or implied assumption by the owner of a contractual obligation to pay for the labor or materials furnished." (40) That is, Ch. 713's privity of contract implies that an owner has voluntarily assumed primary liability for payment of the supplier or laborer. (41)
Strict and Not So Strict Construction
Whether one believes that the lien law derogates the common law doctrine of privity (42) or that the legislature simply created non-privity lien rights out of thin air, (43) the practical consequences are the same--strict construction of Ch. 713. Florida's Supreme Court observed as early as 1926 that "[t]he lien is strictly statutory, and ... the claimant must allege and prove a strict compliance with every requirement of the statute," (44) and in 1992 noted that "[m]echanics' liens are purely creatures of the statute [and], [a]s a statutory creature, the mechanics' lien law must be strictly construed." (45) By that time, the legislature had already added [section]713.37 (46) to the lien law. This relatively late addition expressly states that the lien law "shall not be subject to a rule of liberal construction in favor of any person to whom it applies," thereby putting an end to the growing application of equitable principles that culminated in the holding of Crane Co. v. Fine, 221 So. 2d 145 (Fla. 1969). (47)
Although [section]713.37 cautions against liberal construction, courts nevertheless apply a hierarchy of strictness when evaluating the validity of a lien asserted against an owner's property. As more fully discussed below, lien claims must identify the lienor and its customer, the improved property and its owner, the type of work provided, the value provided to date and the amount unpaid, and the first and last dates of furnishing. (48) Each of these nine items is construed with a varying degree of strictness, allowing the greatest latitude where the errors have the least adverse effect on the lienee owner. Gross misstatements in the amount claimed or a misidentification of the encumbered property are generally fatal to a lien, but no cases have been found that discharge a lien for inadequately describing the type of work performed, for misstating the value of services furnished to date, or for errors in the name of the lienor's direct customer. (49)
Operation of the Lien Law
In principle, the lien law's operation is quite straightforward: establish privity with owner; perform the contract and get paid; if unpaid, record and enforce lien against owner's property. This principle is effectuated by a collection of procedures and documents that try to balance the interests of vendors in getting paid and of property owners in not paying twice. To curb potential abuses, the legislature attached numerous conditions to its gift of non-party privity. The result: an entire scheme has been created to provide safeguards at every step in the process.
The scheme starts with 29 definitions, essential to mitigating the vagueness that must be avoided when creating statutory rights. (50) Most importantly, a lienor is defined as a person (51) who is a contractor, subcontractor, sub-subcontractor, laborer, or a material-man (52) entitled to record a claim of lien against an owner's property and who contracts with the owner, a contractor, a subcontractor, or a sub-subcontractor. While...