[RPPTL-constructionlaw] Legislative Subcommittee Report - amendment to 713.10 proposal

Mon Sep 12 07:43:32 PDT 2011

Folks,

My report is that the Executive Council approved the proposed glitch fix
for 713.10 at the August meeting at The Breakers.  A copy of that bill
is attached.  During the discussions leading up to the adoption of this
bill, a point was raised by the title insurance committee that the
procedure for demanding a verified copy of the lien prohibition in the
lease could have the effect of allowing construction liens to "pop up"
after the closing of a sale to a bona fide purchaser for value without
notice of the potential lien due solely to the owner's failure to
respond timely to such a demand.  Specifically, upon the sale or
refinancing of any property on which there is one or more outstanding
notices of commencement for tenant improvements, and for which there is
a blanket notice recorded, the title companies are refusing to rely upon
the blanket notice to remove any exception from the title commitment for
these notices of commencement.  The reason is that there is no record
evidence as to whether a demand for a verified copy of the lien
prohibiting language ("DVC") was served or whether the owner responded
timely, with the result that liens literally could "pop up" that
otherwise would be invalid solely due to owner non-compliance with the
DVC.  The result has been that these deals cannot close unless the
landlord goes to the cost and expense of terminating these notices of
commencement.  By one report, these costs added between $15,000 and
$20,000 to the cost of one transaction alone.  And that does not include
the disruption to the tenants making the improvements and their
contractors.  So the folks on the title insurance committee requested a
fix which would allow title companies to rely upon the blanket notices,
at least with respect to bona fide purchasers for value without notice
and lenders for value and without notice.  It was agreed at the
Executive Council meeting that we on the CLC with work with the title
insurance committee and the landlord tenant committee to find such a
solution.

The solution they proposed (see the second attachment for the context)
reads as follows:

If there is already a recorded lease, short form lease, memorandum of
lease or notice of lease under s. 713.10(2)(b) with language prohibiting
the lien against the lessor, any bona fide purchaser, mortgagee or other
third party who takes any right, title or interest by an instrument
executed by the lessor takes free of any recorded claim of lien for
noncompliance with a demand made as stated above, if such claim of lien
is recorded after the execution and delivery of the instrument to such
bona fide purchaser, mortgagee or other third party, notwithstanding the
previous recording of a notice of commencement, if any. 

Some concerns have been voiced that landlords somehow could manipulate
this provision to avoid liens.  It should be noted, however, that a bona
fide purchaser, by definition, is not an alter ego of the owner
landlord.  The net effect of this change would leave the lien still
enforceable against the owner not complying with the DVC.  It would only
be unenforceable against innocent third parties.

A solution was proposed by Larry - to require a DVC to be served within
45 days of first furnishing - that would arguably reduce the risk of a
lien "popping up", but it would not eliminate the problem and, from what
I understand, would not convince title underwriters to insure over an
outstanding notice of commencement.  So owners would still but stuck
with the transaction costs of terminating every outstanding NOC for
tenant improvement work in order to get title insurance on a sale or
refinance transaction.  

This language has been outstanding since last month and, frankly, we owe
a response to the other committees.  I would propose moving forward with
the suggested language quoted above as a reasonable compromise of
several competing interests.  

Reese

From: Silvia Rojas [mailto:SRojas at TheFund.com] 
Sent: Friday, August 12, 2011 4:56 PM
To: 'Arthur J. Menor'
Cc: Reese J. Henderson, Jr.; 'fred.dudley at hklaw.com'; 'Kristopher
Fernandez'; 'leiby at mkpalaw.com'; 'Weintraub, Lee'
Subject: Construction Liens

As a recap, attached is the original email attachment I had sent.
Below is some additional alternative language to the third paragraph
that I proposed after the feedback I received from some of you in this
email:

If there is already a recorded lease, short form lease, memorandum of
lease or notice of lease under s. 713.10(2)(b) with language prohibiting
the lien against the lessor, any bona fide purchaser, mortgagee or other
third party who takes any right, title or interest by an instrument
executed by the lessor takes free of any recorded claim of lien for
noncompliance with a demand made as stated above, if such claim of lien
is recorded after the execution and delivery of the instrument to such
bona fide purchaser, mortgagee or other third party, notwithstanding the
previous recording of a notice of commencement, if any. 

A number of the construction law committee members would rather not have
the third paragraph altogether - but that would leave a
purchaser/mortgagee from the lessor completely unprotected.  The first
two suggested paragraphs on the attachment are merely procedural. 

Another suggestion from Larry Leiby with a different focus:

I prefer leaving it at the first two paragraphs and, for your benefit,
add that the request for lease must be made within 45 days of first
work.  It is no panacea but is certainly a middle ground that has the
least opportunity for harm in my opinion.

Kris will be attempting to obtain feedback from several title insurance
committee members by the end of the day on Monday.  I hope that we can
agree on some sort of protection to third party bona fide
purchasers/mortgagees that relied on the original notice/memo/lease
indicating the prohibition against liens on the owner's interest.   

We do need a fix to this.  The current language allows the request to be
given even after the sale/mortgage of the property and allows the claim
of lien to revert back to a previously recorded NOC by a lessee despite
third party reliance on the previously recorded notice/memo regarding
the prohibition in the lease. 

Thanks to all who have participated in the discussions. 

Silvia B. Rojas

Sr. Underwriting Counsel

Miami-Dade Branch

Attorneys' Title Fund Services, LLC

8200 NW 52nd Terrace, Suite 300

Miami, Florida 33166-7763

Tel: 800-432-9594 x 7713

Fax: 305-459-2676

email:  srojas at thefund.com <mailto:srojas at thefund.com> 

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its attachments. 

Reese J. Henderson, Jr.
Board Certified Construction Attorney

707 Peninsular Place
Jacksonville, Florida 32204
Phone (904) 354-5200
Facsimile (904) 354-5256
Reese.Henderson at atritt.com
www.tritthenderson.com

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