Usually, it is a good thing when an anchor tenant decides that it is time for a massive renovation that requires Landlord to totally renovate and redesign the shopping center. It should mean a good face lift and upgrades for the local tenants. However, there will be some challenges and pain suffered along the way, particularly if the tenant does not have protections built into its lease up front, but also if the tenant doesn’t seek and obtain protections prior to the commencement of construction.

This scenario is playing out for a local restaurant client of mine. The restaurant, a popular deli located in a Publix anchored shopping center is suffering through Landlord’s renovations of the Publix and the shopping center. To call the work “renovations” is an understatement as Publix, like it so often does with its older, smaller stores, is in the process of a total rebuild. Only the exterior walls remain. The interior has been totally gutted and the roof above the store is gone. Like so many old Publix centers, Publix sits in the middle of the shopping center, with small, local retail, including my restaurant, on either side. From the street, it looks as if Publix is not just closed, but demolished. Therefore, it looks as if the entire shopping center will also be demolished.

During the demolition work, the contractors have cut water, gas and electric lines multiple times causing my client to close down for several days. The client has suffered lost revenue and expenses including paid wages for closed days to employees, not to mention spoiled food and other lost expenses. Vibrations from construction activities, unclean work site (such as nails in the parking lot), unsafe sidewalks and no signage, have also adversely affected business. The client has contacted the Landlord through the property manager and so far, the property manager has deferred to the general contractor, arguing that all cuts in utility services are general contractor’s liability.

Client contacted me for help. The first thing to look to is the lease. The lease should have protections for disruption of utilities and services caused by Landlord, in this case through its contractors. It should have provisions regarding construction and renovation of the shopping center, maintenance of the common areas, access to the shopping center and Tenant’s premises, quiet enjoyment. signage and multiple other like provisions. Needless to say, I have seen better leases than this one.

The next question is whether Landlord approached Tenant prior to construction started. Landlord should have discussed its plans with all of the tenants and the accommodations Landlord would make to minimize disruption to each of the tenants’ businesses. Tenants could then outline their concerns so that Landlord could adjust. Expectations could be set and met. In this case, despite the fact that everyone knew Publix’ plans, work just started without any converations.

Now, here we are with loss of business damages to the client. This is a good reminder as to why it is important to consult with an attorney prior to signing any document. A properly drafted lease probably would not have stopped this Landlord from doing thing that disrupted Tenant’s business. But it sure would have given Tenant leverage and remedies when things got bad.

Florida Statutes Section 713.13 provides that an owner shall record a Notice of Commencement prior to commencing to improve real property, or recommencing completion of any improvements after default or abandonment of the construction. Without going into all of the details and nuances of Florida’s Construction Lien Statute, Chapter 713 is designed, overall, to protect owners from double paying contractors and subcontractors and to give those who work on or supply materials to a job site, protection that they will be paid. As long as owners and contractors follow the provisions of the statute, each side has protections. Owners know who is working on their property and are assured that the workers are getting paid and liens will be released. Contractors and suppliers have lien protection, evidenced by and relating back to the Notice of Commencement (NOC), no matter when they begin working on the project, so that the owner can’t foreclose out subcontractors and suppliers by taking out a junior mortgage.

But that is not what I want to talk about today. So much is written about Florida construction lien law and the perils associated with not following proper procedure. Instead, I want to focus on the end of construction and the termination of the NOC. When selling or refinancing a property, it is common to find outstanding Notices of Commencement in the title search. These affect the status of title because all contractors, subs and materialmen who worked on the job and who provided notices to owner have lien rights that relate back to the date of the NOC which will have priority over any newly recorded deed or mortgage. Therefore, in order to insure a new owner or mortgage, the NOC must be terminated. But, months later, this could be complicated.

The first thing to do is to check the date of the NOC. Has it expired? Notices of Commencement expire and automatically terminate 1 year after the date of recording (unless an earlier date is set forth in the NOC). If the NOC has expired, let the title company know and it will be deleted from the commitment as it is no longer an issue.

Second, if the NOC has not expired, before closing, you’ll need to obtain and record a Notice of Termination from the owner as well as a final contractor’s affidavit from the general contractor.   The contractor’s affidavit is prescribed by statute, yet many small contractors pretend not to know what they are required to do. The contractor must attest that all work has been completed and all subs and suppliers have been paid and the contractor must satisfy and release its lien. The affidavit should be recorded with the notice of termination. The contractor should also provide waivers of liens from all subs who have provided notices to owner.

Why wouldn’t an owner terminate a NOC when the work is done? Many times, for ordinary home repairs, such as the installation of a new AC unit or a new roof, the home owner doesn’t know to record a termination and the contractor doesn’t tell the owner to do so. That is why this is a common problem. In my own case, I installed a new roof on my house last year. I know that I needed a Notice of Termination and just never got around to it or asked for the contractor’s affidavit. And then, we decided to sell our house. I have had to get the contractor’s affidavit quickly. It wasn’t hard for me because I knew exactly what to do and what to ask for. But a typical homeowner might have had more difficulty.

Third, if construction is on-going and the contractor can’t say the work is complete, closings can still occur, but there are strict rules to follow. When a client is purchasing a condominium, for example, the association might be renovating common areas. In this case there might be multiple NOCs which affect title to all units. While each unit is specially assessed for the renovations, the association is responsible for payment of the work. Therefore, title to an individual unit or a unit mortgage can be insured if you obtain an affidavit from the association stating that the association has sufficient funds available and set aside to complete the work.

Sometimes developers will begin construction work on a site before obtaining construction financing. Therefore, a NOC is already recorded before a mortgage would be recorded. This would make the liens of the contractor and all subs and suppliers superior to the mortgage. Obviously, no lender would close on this bases. To remedy, the NOC has to be terminated, the mortgage recorded and the NOC re-recorded.

But it isn’t that simple. The owner has to pay the contractor for all work completed to that point, including retainage and the contactor must assure that all subs and materialmen are paid to date. That way, the contractor can provide a “final” contractor’s affidavit and release of lien and all subs and suppliers can provide lien waivers. They are final because all subs and suppliers will have been paid for all work rendered. In addition, work on the site must stop for at least 24 hours. Taken together, going forward, the new work is treated as a new contract and a new NOC for the work that will be done after the mortgage is recorded. However, owners don’t like to shut down a job site. To comply with the statute and guard against lost time, we try to close on Fridays so that the shutdown period can occur over the weekend when work isn’t generally scheduled, or only light work would have been scheduled.

With the exception of this final case where a termination and new NOC are required, I would say that most of the time, owners don’t record notices of termination and rely on the 1 year expiration period as they don’t intend on selling or refinancing for more than a year. In commercial practice, this is probably ok because construction loans are usually disbursed on a draw basis following title updates and upon receipt of proper documentation from the contractor and all subs, including upon the final draw. They will have the proper documentation on hand if necessary. However, if you are a homeowner doing a major renovation, it is not a good idea to wait to get the notice of termination, contractors affidavit and lien waivers (my own stupidity notwithstanding). You never know if there is a subcontractor out there who has a dispute with the contractor who will come back and cause you problems. Don’t make that last payment until the contractor can provide the affidavit and lien waivers and you can sign and record a Notice of Termination properly.

The intersection between intellectual property and construction contracts is quite unique. Intellectual property law practice involves the registration of patents, trademarks and copyrights, as well as litigation defending these same rights from infringement. Construction contract law mainly concerns agreements between property owners and architects, contractors, engineers and other construction related professionals or agreements by and among construction related professionals. More often than not, these seemingly unrelated fields of law intersect in ways that can be unexpected.

For instance, our firm recently represented an architect who prepared a conceptual set of plans for a magnificent high rise tower to be built on the New River in downtown Ft. Lauderdale for an upscale assisted care living facility. The project developer made a partial payment of the agreed upon amount for the initial set of plans and also made a promise in his contract with the architect to pay an additional fee if the design concept plans were given  to another architect to use in the development of the more detailed construction plans for the high rise project. As things turned out, the developer failed to fully pay the agreed upon fee for the initial set of plans and, when the initial set of plans were given to another architect to use as the basis for the more detailed construction plans, our architect client was not paid the additional fee that was due for the use of his conceptual plans in the subsequent, more detailed plans for this project.

Because the architect had neither been fully paid for the initial set of drawings or their later use by the architect who used our client’s design to create the construction drawings for the developer’s project, our client still owned his initial set of plans. Accordingly, the first thing our firm did when our architect client came to us for help was to copyright the architect’s design concept set of plans for the project. Only after first receiving federal copyright protection for these plans, was suit was filed against the developer to collect the amounts due the architect. However, because the developer and the subsequent architect who was using our client’s design in the later design phases of the project were violating the architect’s copyright protections created under federal law by registering the architect’s plans, suit was filed against the developer and the subsequent architect in Federal Court for damages arising from copyright infringement and for the amounts which remained unpaid under the architect’s contract.

The copyright infringement suit was field in the Federal District Court located in Miami, Florida at the very beginning of November, 2016. No sooner than all the defendants were served with the lawsuit did the settlement negotiations begin. In fact, by December 15, 2016 settlement funds and releases were exchanged. Also, because architects and other professionals who perform services in connection with the improvement of real estate have special protections under Florida’s construction lien law even if they have not dealt directly with the owner of the real estate to be improved with their services, our firm filed a claim of lien on behalf of the architect against the property the developer was under contract to purchase. The claim of lien in combination with the copyright infringement suit filed in Federal District Court proved to be just the right combination of remedies needed for a prompt resolution and prompt payment of the amounts owed to our client by his former client, the developer.

Now we are looking for other situations where we can give the same kind of assistance to architects or other construction industry professionals who may have a problem with a developer, contractor, building owner or property management company that has not paid them for the use of the professionals work product. If you are someone who fits this description or know of someone who who can benefit from having their intellectual property rights protected through registration and enforcement, please contact us.

00173370

        Some things are quite predictable. The Cubs will swoon in June. The stock market will drop on seemingly irrelevant factors. And hurricanes will wander the Atlantic and the Gulf of Mexico; regularly threatening the Continental US.

         While the weather person alarms for tropical storms and potential hurricanes are expected, the path of, and the potential havoc and destruction wrought by hurricanes and tropical storms are not quite so predictable. The record-setting number of hurricanes in 2004 far exceeded any predictions.  Katrina devastating New Orleans and its residents – well, that was predicted, but who could have guessed that FEMA would have been proven to so inept at its basic function?

             During the past decade, hurricanes have devastated Haiti and other Caribbean islands. Regardless of the impact of climate change on the strength of hurricanes, building and property owners may suffer serious damage and property loss from wind and rain even from a more moderate storm. Wilma crossing the state and extensive damage far was in excess of any predictions for a Category 1 storm, rendering 51,000 residential units in Palm Beach County, Florida at least temporarily uninhabitable.

             Dr. Philip J. Klotzbach of the Tropical Meteorology Project at the Department of Atmospheric Science at Colorado State University recently updated the 2016 Atlantic cyclone activity forecast in the “Extended Range Forecast Of Atlantic Seasonal Hurricane Activity And U.S. Landfall Strike Probability For 2016” on June 1, 2016 to provide for an average number of potential hurricanes and tropical storms in the Atlantic basin. The predictions for this hurricane season:

 Named Storms:                        12

Named Storm Days:                50

Hurricanes:                               5

Hurricane Days:                        20

Major Hurricanes:                     2

Major Hurricane Days: 4.4

       Of course, if few or none of these storms make landfall, the sheer number of hurricanes becomes less important. Can landfall be predicted? Predicting landfall on the continental United States cannot be determined by El Niño patterns, water temperature or the Long Island Medium.  The late Dr. William M. Gray had this to say based on historical patterns:

         The 2006 season was only the 12th year since 1945 that we have witnessed no hurricane landfalls along the United States coastline.  Since 1945, we have had only two consecutive-year periods where there were no hurricane landfalls.  The The dearth of landfalls in 2000 and 2001 was especially impressive considering that both of these seasons had above-average hurricane activity.  From Hurricane Irene in 1999 to Hurricane Lili in 2002, 21 consecutive hurricanes developed in the Atlantic basin without a single U.S. landfall. [see Extended Range Forecast Of Atlantic Seasonal Hurricane Activity And U.S. Landfall Strike Probability For 2007]

        If I was a Vegas odds maker, I would not want to take the bet for no hurricane landfalls in 2016. Historical patterns seem as good as any in addressing hurricane likelihood. While not a meteorologist. I grew up in Miami in the 1960s, which saw quite a few serious storms making landfall in Florida.  According to hurricane expert Dr. Gray, we should see an increase in storm activity through 2020. The storms are expected to cause 5 to 10 times the amount of damage on the Gulf and Atlantic Coasts than previously experienced, due to the massive increase in population and development along these coastlines:

       The hurricane activity of the next 20 years should resemble the period that began in the late 1920s and lasted through the 1940s. The increase is due to higher salinity content in the Atlantic Ocean, which alters its currents and increases average ocean temperatures, fueling more storms. Gray emphasizes that this is a cyclical trend and has nothing to do with global warming (CNN, April 22, 2000). [see Drought Cycles and Hurricane Cycles; CBS Hot Air Watch, Cooler Heads Coalition, May 17, 2000]

       Predicting climate and weather is fraught with difficulty. But given the long-term evidence, there is only one appropriate course of action, and that is preparation. If storm events cannot be predicted with accuracy, we must assume the worst case, and implement realistic and beneficial precautions based on the storm impacts of the recent three years.

        What can those in the real estate industry do to prepare and what can they do to help building owners, contractors and other customers take the appropriate precautions?

        As a lawyer with significant experience in construction, we have seen a growing number of insurance companies denying coverage under windstorm policies for design and construction defects, or maintenance failures. For example, a client’s apartment building was damaged by water vapor, being driven by 80 mile per hour winds, penetrating the window systems and pooling inside. An expensive post-storm forensic analysis showed that the windows were properly designed, manufactured and installed. After a year-long battle, the insurance company settled. A way to address the post-storm expense is with a pre-storm season building analysis showing code compliance and proper maintenance. This may not only reduce the likelihood of a post-storm dispute, it may be a key factor in obtaining windstorm insurance at all. Working with properly licensed professionals, building owners can reduce both the cost to collect under insurance and reduce the time for repair.

 What is important to preparation? A laundry list may spark some ideas:

In the multifamily rental or commercial rental setting:

  • Preemptive testing and proof of installation of windows, flashing and other leak prone components
  • Who is responsible to install shutters?
    • Is there a right to rent abatement in a commercial lease? If not, how can the tenant keep operating?
    • Are there termination rights for extended closure? If not what is the tenant’s business plan?
    • What happens to cleanup if there is an interruption of utilities?
    • Who is responsible to repair water damage?
    • Who is responsible for mold remediation? Does the landlord have a team under retainer?
    • Insurance coverages:
      • Rental loss
      • Mold
      • Windstorm
      • Gaps?
    • HVAC maintenance and cleanup
    • Property Manager responsibility
    • Are upgrades and deductibles a CAM Cost?

The condominium setting adds a few twists the previous list:

    • Preemptive testing and proof of installation of windows, flashing and other leak prone components
      • Failure of elevators/evacuation of residents
      • Interruption of utilities, including water supply
      • Who is responsible to repair water damage?
      • Who is responsible for mold remediation?
      • Who is responsible for Common Element repair and cleanup? Mandatory access rights
        • Property Manager responsibility
        • What happens if the Unit Owner fails to repair? Is there a potential cross-contamination risk?
        • Are Unit Owners required by the condominium documents to obtain insurance?
        • How are you to be paid if there are (and there will be) delays in insurance payment/Special Assessments?
        • Snowbirds? Contact addresses
        • Reminders of responsibilities before Hurricane Season/Special Needs Occupants
        • Securing of Limited Common Elements – balconies, HVAC, etc.
        • Identify contact person with impending storm
        • Pets?

 

Projects under construction present many legal concerns:

    • Disclaimers regarding hurricane impacts and design criteria
    • Specifications regarding wind and water resistance
    • Preemptive testing and proof of installation of windows, flashing and other leak prone components
    • Responsibility for securing of project during construction
    • Who is responsible for dryout?
    • Who is responsible for mold remediation?
    • Who pays?

 

Some special pre-storm preventative measures:

  • Inspect existing conditions for cracks, roof membrane, loose roof tiles, bad flashing, caulking issues
  • Check window conditions
  • Preventative testing?
  • Test fit shutters
  • Brace doors – including rolling doors
  • Trees and landscape hurricane prune
  • Antennas and masts
  • Generator risks
  • Commercial/Industrial Tenants with hazardous chemicals stored – pollution insurance coverage
  • Availability of workers to install shutters and protective equipment
  • Code compliance issues with older construction and insurance coverage v. code requirements
  • Dryout contractors engaged in advance?
  • Senior projects, health care facilities and evacuation plans
  • Special problems – EIFS and exterior drywall buildings

 

        While some of the checklist recommendations cannot be performed other than by a licensed contractor or engineer, a lawyer with practical experience in the construction industry can advise the building owner, landlord, developer or contractor in preparation and response to storm events.

           As a former Scout, the motto was “Be Prepared”. The same philosophy applies to the real estate and construction industries as well. By working in a team with attorneys, engineers, and other building experts, the members of both industries may reduce the risk of serious injury or property damage, and loss of income.

            No discussion of tropical weather should be concluded without extending our condolences to the family, friends and colleagues of Dr. William M. Gray, who is quoted in this article and was the dean of hurricane meteorologists for more than 60 years. Dr. Gray passed away on April 16, 2016. If you grew up in South Florida as did I, you cannot help but remember Dr. Gray’s sage and sane advice as storms approached.

        Image result for western palm beach housing images

        A housing boom is occurring in Western Palm Beach County in the Agricultural Reserve. Nearly 10,000 homes have been approved and are in various stages of construction and development within the Ag Reserve, which spans from Boca Raton through Delray Beach to Boynton Beach in the far western reaches of the county.  The boom looks much like the rapid rise of Weston and Western Pembroke pines in the 90’s and 00’s.  The Broward construction boom differs from the Palm Beach construction only because the Broward boom was made possible because of the construction I-75 and I-595 and necessary because of Hurricane Andrew.  No such compelling forces are driving the boom in Palm Beach except for the continued migration of Broward County and Miami-Dade residents north and the lack of availability of large tracts of land elsewhere in Palm Beach County or the southern counties.

        Like the expansion of Broward in the 90’s and Dade County in the 60’s and 70’s, the movement west has encroached into environmentally sensitive land. The Ag Reserve was created to preserve farmland and wetlands in areas to enhance agricultural activities, environmental and water resources and open space by limiting uses to agricultural, conservation, low density residential and non-residential uses which serve the needs of farmworkers and residents.  The land use plan requires developers to preserve 1 1/2 acres for ever acre developed.

         The major developers with approved projects in the Ag Reserve are GL Homes, standard Pacific Homes and Ansca Homes. GL Homes is currently developing 3 communities:  7 Bridges, Valencia Cove and Valencia Bay.  Standard Pacific is building Palm Meadows and Ansca recently received approval for a new community of 283 homes.

       Palm Beach’s land use plan and the Ag Reserve is an effort at smart growth management and to strike balance between development and environmental concerns in sensitive areas. As the projects proceed, we’ll see whether the plan is successful.

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