Florida Construction Lending Requirements

Florida Lien Law Overview

Florida’s Construction Lien Law (Chapter 713) is a highly procedural, strict-compliance statute. It creates a robust framework relying heavily on the Notice of Commencement (NOC) and Notice to Owner (NTO) systems to balance the rights of the supply chain with the owner’s protection against double payment.

There is no major procedural distinction between commercial and residential properties regarding the general mechanics lien framework, though the NOC threshold strictly applies across all properties. A Notice of Commencement is required (Fla. Stat. § 713.135(1)) for any project where the direct contract is greater than $5,000 (increased from $2,500 in October 2023). Unlicensed contractors and sub-sub-subcontractors have absolutely no lien rights in Florida.

Florida Mortgage Priority

Will a Florida Lien have priority over pre-existing mortgages or construction loans?

Generally, no, provided the construction mortgage is recorded before the Notice of Commencement.

Florida utilizes a strict “relation-back” doctrine predicated on the Notice of Commencement (NOC).

• Establishing Priority: Under Fla. Stat. § 713.13, all mechanics liens recorded on a project relate back to, and take priority as of, the exact date and time the NOC was recorded. To establish absolute first-lien priority, the construction lender should record its mortgage/deed of trust in the public records before the NOC is recorded (priority rules governed by Fla. Stat. § 713.07(3)).
• Loss of Priority: If the NOC is recorded before the mortgage, or if physical work commences before either document is recorded, all subsequent mechanics liens will leapfrog the mortgage and take superior priority over the lender’s security interest.

Lien Hierarchy Among Claimants (Pro-Rata Distribution)

If the funds remaining on the project are insufficient to pay all valid lienors who have given notice, Florida law (Fla. Stat. § 713.06(4)) dictates a strict hierarchy for how those funds must be distributed. Funds must be paid by class, either in full or pro-rata, before any subsequent class is entitled to receive payment. The classes are strictly ordered as follows:

1. Class 1: Liens of all laborers.
2. Class 2: Liens of all persons other than the general contractor (e.g., subcontractors, material suppliers).
3. Class 3: Lien of the general contractor.

Florida Retainage Overview

Florida heavily regulates retainage on public works but takes a hands-off approach for private construction.

• Private Projects (Residential, Multi-Family, Commercial): Florida statute does not regulate or cap retainage on private construction projects. The percentage of retainage withheld (typically 10%), the terms of its withholding, and its release are governed entirely by the negotiated terms of the private construction contract and the loan agreement.
• Escrow: There is no statutory requirement in Florida that private retainage be held in a separate interest-bearing escrow account.
• Lender Impact: Lenders should strongly adhere to the holdback percentages established in their loan agreements to ensure sufficient completion capital remains available.

Florida Prompt Payment Act

Florida’s Construction Contract Prompt Payment Law (Fla. Stat. § 715.12) applies strictly to written private contracts for Multi-Family (5+ units) and Commercial properties.

• Owner to GC (Commercial/Multi-Family): If the contract does not specify a payment timeframe, the owner must pay the contractor within 14 days after receipt of a proper payment request (Fla. Stat. § 715.12(7)(a)). For final payment, the balance (including retainage) must be paid within 14 days after substantial completion, occupancy, or completion of punch-list items.
• GC to Subcontractor (Commercial/Multi-Family): The contractor must pay subcontractors within 30 days of either the date payment became due or the receipt of the invoice, whichever is later (Fla. Stat. § 715.12(5)(b)).
• Penalties: Late payments accrue severe interest. Under Fla. Stat. § 715.12(5)(a), late payments bear interest at the statutory judgment rate plus an additional 12 percent per annum (resulting in compounding rates often over 16%).
• Lender Impact: Draw administrators managing commercial and multi-family loans should process draws efficiently. If the lender delays funding, causing the owner to miss the 14-day payment window, the commercial project is subjected to massive interest penalties and the risk of contractor walk-offs.

Florida Title Practices

Under Florida law, title companies are not required to administer construction loan disbursements; therefore, lender-managed disbursements (or third-party draw administration) represent the standard industry practice.

Verifying title and monitoring for liens at each draw is the primary best practice for maintaining first lien priority. Construction lenders have three primary options to achieve this:

1. Lien monitoring subscription services: Automated tracking of public records for filed liens or NOCs.
2. Title updates: Routine checks of the public record by a title agent (which identify encumbrances but provide no indemnification).
3. Title endorsements: Obtaining actual insurance coverage for the lender.

Lender Risk Mitigation Strategy: It is highly recommended that lenders utilize ALTA 32 (Construction Loan) and ALTA 33 (Disbursement) title endorsements (or their Florida-specific equivalents). Because Florida utilizes a strict “relation-back” doctrine tied to the Notice of Commencement, obtaining ALTA endorsements shifts the liability of undiscovered “gap” liens from the lender to the title insurer. Regardless of the chosen method, leveraging these tools to clear encumbrances and verify public filings prior to releasing every single draw is crucial to mitigating priority risk.

Florida Lien Waivers

Lien Waiver Summary

Florida’s treatment of lien waivers is strictly regulated to protect contractors.

• Advance Waivers Strictly Prohibited: Under Fla. Stat. § 713.20(2), a right to claim a lien may not be waived in advance. Any waiver of a right to claim a lien that is made in advance of furnishing labor or materials is completely unenforceable and void against public policy.
• Conditional vs. Unconditional: The statutory templates provided by Florida are inherently unconditional on their face. However, under Fla. Stat. § 713.20(7), a claimant who executes a waiver in exchange for a check or funds may explicitly condition the waiver on the actual payment of that check or receipt of funds by adding conditional language to the form.
• Lender Best Practice: Because advance waivers are void, lenders should enforce a strict draw-by-draw exchange. Lenders should collect the waivers conditionally for the current draw request, and collect unconditional confirmation (cleared funds/subsequent waivers) for the previously funded draw.

Statutory Lien Forms

Florida provides specific statutory templates for lien waivers, but does not strictly mandate their identical use.

Under Fla. Stat. § 713.20, parties may use forms that are “substantially similar” to the statutory templates. If a party utilizes a completely different, non-statutory custom form, it remains enforceable, but it will be enforced strictly according to the specific terms written within that document (Fla. Stat. § 713.20(8)).

The “safe harbor” templates provided in the statute include:

1. Waiver and Release of Lien Upon Progress Payment
2. Waiver and Release of Lien Upon Final Payment

Lien Waiver Notarization

Not Required. Florida law does not require lien waivers to be notarized to be considered legally valid and effective (Fla. Stat. § 713.20).

(Note: Conversely, any Satisfaction and Release of Lien recorded in the public records to remove an already-filed lien must include the lienor’s notarized signature, official reference number, and recording date per Fla. Stat. § 713.21).

Florida Notices

Notice of Commencement (or similar like event)

Recognized by State?

Yes.

Who Files

The Owner, or the Owner’s authorized agent. However, under Fla. Stat. § 713.13(6), a lender must record the NOC prior to the disbursement of any construction funds to the contractor if providing a construction loan.

When Must it be Filed

Before commencement of improvements. If construction does not begin within 90 days of recording, the NOC is void.

Appoint a Designee

Yes. The owner can legally appoint a designee in the NOC to receive all NTOs and correspondence.

Posted on Jobsite

Yes. A certified copy of the NOC (or a notarized statement that it has been filed) must be posted in a conspicuous place on the jobsite (Fla. Stat. § 713.13(1)(g)).

Effect

It establishes the project in the public record and creates the “relation-back” date for all mechanics liens. If a lender fails to record the NOC before disbursing funds, the lender is strictly liable to the owner for any claims or damages resulting from that failure.

Preliminary Lien Notifications

Florida relies heavily on the Notice to Owner (NTO).

• Who Must Send: Any subcontractor, material supplier, or laborer who does not have a direct contract with the property owner is legally required to send this notice (Fla. Stat. § 713.06(2)). (General contractors do not send an NTO).
• Deadline: The NTO must be served within 45 days of the claimant’s first furnishing of labor, services, or materials, but in any event, before the owner makes the final payment (Fla. Stat. § 713.06(2)(a)).
• Implications of Failure: Failure to serve the NTO within the 45-day window is fatal; the claimant permanently forfeits their right to claim a mechanics lien.

Notice of Completion (or similar like event)

Florida does not utilize a document called a “Notice of Completion.” Instead, it uses a Notice of Termination.

• Recognized by State? Yes (Notice of Termination).
• When Must it be Filed: It is filed by the owner when a project is completed or a contract is terminated early. Under 2023 updates to Fla. Stat. § 713.132, an owner must serve a copy of the Notice of Termination on each lienor with a direct contract and each lienor who timely served an NTO before recording the notice (Fla. Stat. § 713.132(1)(c)).
• Effect: If properly served and recorded, the Notice of Termination officially terminates the existing Notice of Commencement 30 days after recording, forcing claimants to perfect their liens or lose their relation-back priority status.

Additional State-Specific Notices & Lien Resolution

Florida provides lenders and owners with aggressive tools to resolve recorded liens and clear title:

• Transfer of Lien to Security (“Bonding Off”): If a lien is filed, it halts construction draws. Under Fla. Stat. § 713.24, an owner or lender can transfer the lien from the real property to a cash deposit or a surety bond. This immediately clears the title of the property, allowing the lender to safely resume disbursements while the contractor and owner litigate the payment dispute.
• Notice of Contest of Lien: Under Fla. Stat. § 713.22, an owner or their attorney can record a “Notice of Contest of Lien.” While a standard Claim of Lien is valid for 1 year, recording this Notice drastically shortens the claimant’s statute of limitations, forcing them to file a foreclosure lawsuit within 60 days, or the lien is automatically extinguished.
• Notice of Lender Ceasing Disbursements: This is a critical statutory mechanism for lenders. If a lender decides to stop advancing construction funds prior to the completion of the project, the lender must notify the general contractor and any lienor who has served an NTO. This notice must be served within 5 days of the lender’s decision to cease funding (Fla. Stat. § 713.3471). Failure to send this notice renders the lender liable to the contractor and sub-tiers for the labor/materials furnished after the funds ceased.
• Notice of Disbursement Warning Text: Under Fla. Stat. § 713.3471(1)(a), if a lender makes a loan disbursement on a residential construction loan directly to the borrower, or jointly to the borrower and another party, the lender must provide a specific written warning. This warning must be in bold type, no smaller than any other type on the page, and include the exact statutory phrasing: “WARNING! YOUR LENDER IS MAKING A LOAN DISBURSEMENT DIRECTLY TO YOU AS THE BORROWER, OR JOINTLY TO YOU AND ANOTHER PARTY. TO PROTECT YOURSELF FROM HAVING TO PAY TWICE FOR THE SAME LABOR, SERVICES, OR MATERIALS USED IN MAKING THE IMPROVEMENTS TO YOUR PROPERTY, BE SURE THAT YOU REQUIRE YOUR CONTRACTOR TO GIVE YOU LIEN RELEASES FROM EACH LIENOR WHO HAS SENT YOU A NOTICE TO OWNER EACH TIME YOU MAKE A PAYMENT TO YOUR CONTRACTOR.”
• Demand for Copy of Contract and Statements of Account: An owner or lender can make a written demand to a lienor for a written statement of account showing the nature of the labor/materials, amounts paid, and amounts due (Fla. Stat. § 713.16). If the lienor fails to provide this statement within 30 days, they lose their lien rights.

Florida Document References

Florida Contractor Licensing & Bond Requirements

Florida strictly regulates construction contractors at the state level through the Department of Business and Professional Regulation (DBPR).

• State-Level Licensing: General Contractors, Building Contractors, and Residential Contractors must hold active state licenses issued by the DBPR to operate legally (Fla. Stat. § 489.113). Specialty trades (plumbing, electrical, HVAC, roofing) are also strictly regulated and require state certification or registration (Fla. Stat. § 489.113). As of 2023, the definition of “contractor” was expanded to explicitly include entities providing construction management or program management services.
• Monetary Thresholds: A license is legally required (Fla. Stat. § 489.113) for any construction, repair, or alteration work where the scope of work dictates a building permit, regardless of project cost.
• Surety Bond: Florida does not have a blanket statewide mandate for a surety bond for all private contractors to operate, though bonding may be requested for specific license approvals (e.g., if a contractor’s credit score is low) or by local municipalities.
• License Lookup: Lenders should aggressively verify credentials via the official state portal: Florida DBPR Licensee Search. Unlicensed contractors possess zero lien rights under Florida law and contracts with them may be unenforceable.