While real estate developers should be well-versed in Florida’s construction laws, there are particular aspects of construction law that developers should know backwards and forwards. This blog post will discuss the top five things real estate developers should know about Florida’s construction laws including proper payment, warranty liability, claims under Florida Deceptive and Unfair Trade Practices Act (“FDUPTA”), claims under Chapter 558, Florida Statutes, and the timing limitations of claims imposed by the statute of limitations and repose.
- Proper Payment:
Ensuring proper payment may seem obvious as the very nature of the business is to make money. However, proper payment encompasses far more than a mere collection of money in construction law. Before exploring the actual payment aspect of this point, it is important to look at the background information that may have implications for the developer. First and foremost, a developer/owner must file a notice of commencement, record it in the public records, and post it on the job site prior to or at the time of commencing work on the project. After the notice of commencement, most lienors serve a notice of owner to the developer and all parties listed on the notice of commencement as the notice to owner is a prerequisite to perfecting a lien. A form of the notice to owner is provided by Section 713.06(2)(C), Florida Statutes. The statutory form contains mandatory language that must be included in the notice; moreover, failure to include such language precludes enforcement of the lien. Notwithstanding the foregoing, a notice to owner is enforceable if the form substantially complies with the statute. If a new notice of commencement is filed, there must also be a new notice to owner.
After sending the notice to owner, a party may file its claim of lien. The claim of lien is good for one year, and again, must contain the statutory warning language. The developer has several options when a claim of lien is filed, most often those options are: (1) the developer may file a notice of contest of lien to shorten the time in which the claimant must bring the action; or (2) the developer may file a notice of bond within 90 days where there is a conditional payment bond. Section 713.245, Florida Statutes. Once filed, the contractor has fifteen (15) days to contest the payment. Any material misrepresentation of the status of payment is a third degree felony in Florida.
As it specifically relates to the developer, upon payment(s) to the contractor, the developer must ensure that he/she receives a release of lien from the contractor and the other lienors if the lienors have served a notice to owner. The release of lien should include an effective date. In addition to the releases, it is suggested that the developer request and receive a progress payment affidavit from the contractor before making any payments to the contractor. The affidavit shall detail the unpaid lienors, which the developer is not required to pay unless a lienor has served a notice of owner to the developer. Along the same lines, before making the final payment to the contractor, the developer should receive the contractor’s final payment affidavit. This affidavit will contain a list all unpaid lienors, similar to the progress payment affidavit. The payment affidavits and releases of liens are important for the developer because they may prevent liens against the property, avoid unnecessary legal costs, and act as shield against deadbeat contractors who fail to pay their sub-contractors, suppliers, or materialmen.
Any lienor perfecting a claim of lien may also serve a written demand for written statement under oath showing the current status of payments due and to become due. Developer’s failure to comply within thirty (30) days will deprive the developer of entitlement to an attorney fee award in subsequent litigation on the lien.
- Warranty Liability:
Developers may be held liable for implied, express, or statutory warranties. The critical factor with regard to warranties is that developers should be cognizant of the contract, as some contracts include provisions expressly warranting that a building meets certain standards, whereas some contracts provide for a warranty against defects for one year. As a practical pointer, the idea behind the one-year period is that the building will have had time to go through an entire climatic period.
Aside from express warranties, there are certain implied warranties that accompany every new building, which stem from the common law. For residential buildings, the developer impliedly warrants that the residence is merchantable and fit for ordinary purposes. Leisure Resorts, Inc. v. Frank J. Rooney, Inc., 654 So. 2d 911 (Fla. 1995). For homes, the builder/developer warrants that the new home was built in substantial compliance with the plans and specifications. Conklin v. Hurley, 428 So. 2d 654 (Fla. 1983). The same is not necessarily true for commercial buildings as commercial buildings fall under caveat emptor. Haskell Co. v. Lane Co., 612 So. 2d 669 (Fla. 1st DCA 1993). Even with that being said, there are particular statutory codes that permit recovery for a construction defect in a commercial building. Furthermore, some Florida statutes have codified the implied common law warranties. As an example, Section 718.203(1), Florida Statutes, contains the implied warranties of fitness and merchantability for a condominium unit.
- Claims Under FDUTPA:
FDUTPA makes unlawful “unfair methods of competition or deceptive acts or practices in the conduct of any trade or commerce.” Section 501.022, Florida Statutes. This essentially incudes three elements: (1) a deceptive act or unfair practice; (2) causation; and (3) actual damages. KC Leisure, Inc. v. Haber, 972 So. 2d 1069 (Fla. 5th DCA 2008). As with all buildings and developments, the developer makes representations to as to the details of the project. In Florida, a cause of action may exist against the developer to the extent that the developer engages in the sale or advertising that is misleading or deceptive. Thus, if there is a misleading or deceptive representation, that a party relies upon to their detriment, the party may have a claim against the developer for a violation of FDUTPA.
Particularly, with developers of condominium buildings, the developer may be liable for failure to perform as represented in the offering prospectus or condominium declaration. A FDUTPA claim may be appealing for an association as Section 501.2105, Florida Statutes, would entitle the association to a recovery of attorneys’ fees. However, in Weaver v. Opera Tower, LLC, 2008 WL 4145520 (S.D. Fla. 2008), the court dismissed claims brought by buyers would alleged that the developer misrepresented the amenities by virtue of the inclusion of “over-sized Olympic style” pool in brochures when the pool was in fact 2,530 square feet “undersized,” as well as other lacking amenities that did not live up to the brochure claims. The court held that the reliance on brochures was unreasonable in light of the purchase and sale agreements that provided the developer authority to change the renderings and an acknowledgement that the renderings were merely promotional materials.
- Construction Defect Claims Under Chapter 558, Florida Statutes:
Chapter 558, Florida Statutes, was created to effectively handle constructions effects without the need of litigation. The applicability to developers is established in the statutory definition of “contractor,” which includes “any person that is legally engaged in the business of … developing real property.” Section 558.002(6), Florida Statutes. This also implicates that developers may be subject to a notice under Chapter 558, although this chapter is typically used in the context of claims against contractors. Section 558.003, Florida Statutes, requires conditions precedent to filing a claim and a failure to abide by the conditions results in the action being stayed and/or dismissed. Thus, the conditions precedent are important when there are claims against the developer, to ensure compliance thereto.
While it appears that Chapter 558 has negative ramifications for developers, it could actually benefit developers because of the following: (1) it provides an opportunity to inspect the site and cure defaults; (2) it allows developers to put contractors, design professionals, and other potential defendants of their responsibility for the alleged defects; (3) it establishes procedures by which developers may perform testing and may obtain discoverable material; and (4) it establishes a procedure by which developers may tender offers to repair or pay for an alleged defect, which could in turn lead to settlement negotiations prior to litigation.
- Statute of Limitations and Statute of Repose:
The general rule, found in Section 95.11(3)(C), Florida Statutes, the statute of limitations for bringing a cause of action for a construction defect is four (4) years from the latest of the following:
- the date of actual possession by the owner;
- the date of the issuance of a certificate of occupancy;
- the date of abandonment of construction if not completed; or
- the date of completion or termination of the contract between the professional engineer, registered architect, or licensed contractor and his or her employer.
However, if the action involves a latent defect, the time for bringing the action begins at the time the defect is discovered or should have been discovered. This is not to say that latent defects can be the basis of a suit for an unlimited period of time. The statute of repose places a cap of ten (10) years on actions involving latent defect; furthermore, the ten (10) year period starts at the latest of one of the aforementioned happenings. So let’s say it has been ten years from all four of the aforementioned occurrences – are you now in the clear? Based on the holding of Clearwater Housing Authority v. Future Capital Holding Corp., et al., 126 So. 3d 410 (Fla. 2d DCA 2013), a party may still potentially bring an action even after what appears to be beyond the ten (10) year limitation. In Clearwater Housing Authority, the parties disagreed as to the timing of the certificate of occupancy. Thus, the court held that where there was an issue of material fact as to the date of issuance of the certificate of occupancy, the plaintiff’s actions were timely, although defendant asserted that it was past the limitation imposed by the statute of repose.
What does this mean for developers? As discussed above, developers may be on the hook for construction defects in certain instances. Thus, it is critical that developers understand the time periods for the statute of limitations and statute of repose.
While this blog post does five areas of Florida law that developers need to be aware of, there are many nuances to the laws cited that may affect the legal issue presented. As with any rule of law, there are general rules, there are exceptions and there are exceptions to the exceptions. In the event you are unaware of what your rights and/or obligations may be in a specific circumstance, we encourage you to contact one of our Florida Bar Board Certified Experts in Construction Law for assistance.