community magazine CAI community magazine December 2017 - Page 31

WWW.CAIWESTFLORIDA.ORG So what’s the difference, my project is bonded either way, right? Well yes and no. With a Section 713.23 bond, it’s a onceand-done kind of thing. If properly handled and recorded, the project is simply exempt from all future liens except for potentially the lien of the general contractor should the owner fail to pay the general. With the Section 713.24 bond, the project remains susceptible to liens, the owner continues to have a duty of making “proper payments” and obtaining releases of lien from subcontractors and suppliers prior to each disbursement, and the owner must issue and record a Notice of Bond when a lien is recorded to effectuate a lien transfer from the property to the bond. Further, the owner is much more likely to be swept up into any lawsuit to enforce the lien against the bond if for no other purpose than as a fact witness as to whether proper payments were made during the project or for strategic leverage. There is another risk. With an exemption bond, the bond amount is limited to the original contract price. With a Section 713.24 transfer bond, the owner potentially remains responsible to increase the amount of the bond to cover attorney fees at 25% of the claim or an amount which a judge might determine appropriate. If the owner does not increase the bond amount, in a less than fortuitous set of circumstances, the owner and the project may have potential exposure for attorney fees. Given the choice, an owner would benefit greatly having an exempt project under Section 713.23, rather than a transfer bond project under Section 713.24. So what does a wonderful 713.23 exemption bond cost compared to 713.24 transfer bond, you ask? This is the nice part, not a penny more, and in fact, potentially less. The bonds are the exact same bond. The difference is making sure you have a professional with the competence, skill, knowledge and foresight to obtain the bond prior to commencement, and to properly prepare the Notice of Commencement and to record it along with the payment bond. One other thing, you cannot count on the contractor or lender who are supplying or requiring the bond to see to it that the Notice of Commencement is handled correctly. At least 50% of the projects that I run across in my practice have not been properly exempted. The builder may lack the expertise or may have mishandled the bond and the lender simply expects the owner to properly supply the bond. Further, out-of-state lenders may not be familiar with Florida lien laws. It is the owner’s duty to record the Notice of Commencement. So on your next project, while you are doing a hundred other things trying to get your project off to a roaring start, you might pause and have an expert insure that your payment bond has been properly handled so that your project is truly exempt. You may sleep better at night knowing you did. community • December 2017 The wisdom of obtaining a bond is never more apparent than when problems arise & the owner has failed to obtain payment & performance bonds from their contractor. 31 So what’s the difference, my project is bonded either way, right? Well yes and no. With a Section 713.23 bond, it’s a once- and-done kind of thing. If prop- erly handled and recorded, the project is simply exempt from all future liens except for potentially the lien of the general contractor should the owner fail to pay the general. With the Section 713.24 bond, the project remains suscep- tible to liens, the owner continues to have a duty of making “proper payments” and obtaining releases of lien from subcontractors and suppliers prior to each disburse- ment, and the owner must issue and record a Notice of Bond when a lien is recorded to effectu- ate a lien transfer from the prop- erty to the bond. Further, the owner is much more likely to be swept up into any lawsuit to enforce the lien against the bond if for no other purpose than as a fact witness as to whether proper payments were made during the project or for strategic leverage. There is an- other risk. With an exemption bond, the bond amount is limited to the original contract price. With a Section 713.24 transfer bond, the owner potentially re- mains responsible to increase the amount of the bond to cover at- torney fees at 25% of the claim or an amount which a judge might determine appropriate. If the owner does not increase the bond amount, in a less than fortuitous set of circumstances, the owner and the project may have poten- tial exposure for attorney fees. Given the choice, an owner would benefit greatly having an exempt project under Section 713.23, rather than a transfer bond project under Section 713.24. So what does a wonderful 713.23 exemption bond cost com- pared to 713.24 transfer bond, you ask? This is the nice part, not a penny more, and in fact, poten- WWW.CAIWESTFLORIDA.ORG tially less. The bonds are the exact same bond. The difference is making sure you have a profes- sional with the competence, skill, knowledge and foresight to ob- tain the bond prior to commence- ment, and to properly prepare the Notice of Commencement and to record it along with the payment bond. One other thing, you can- not count on the contractor or lender who are supplying or re- quiring the bond to see to it that the Notice of Commencement is handled correctly. 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