Getting paid on time in construction can be hard, and slow payments are all too common. Charging late fees or interest penalties can be an effective way to get invoices paid faster. But contractors, subs, and suppliers need to understand how these contractual provisions work. You should know the rights and limitations that come along with it. If you file or foreclose on a mechanics lien these payment provisions can affect the amount of money you can claim under a mechanics lien. As a Florida material supplier learned, you can’t include late payment interest fees in a lien amount.
Florida mechanics lien limits
State law limits the amount that you can claim on a Florida mechanics lien (also known as a construction lien). The statute doesn’t allow for attorney fees, collection costs, or any other amount unrelated to the value of labor or materials you provide. However, Florida is one of the few states that expressly allows for the inclusion of “unpaid finance charges.”
This can be found in Florida Statute §713.06(1) which governs lien claims for those parties who aren’t in contractual privity with the property owner. The relevant section states:
A materialman or laborer, either of who is not in privity with the owner, or a subcontractor or sub-subcontractor… has a lien on the real property improved for any money that is owed to him or her for labor, services, or materials furnished in accordance with his or her contract and with the direct contract and for any unpaid finance charges due under the lienor’s contract.
What does “finance charge” actually mean? Does that include contractual late fees? And can that be included in a lien amount? A recent Florida Court of Appeals case helped clarify what a construction business can include in the lien amount.
Florida construction contract included late fees
The case in question is Fernandez v. Manning Building Supplies, Inc.
Project Snapshot
- Owners: Courtney & Ellis Fernandez (Fernandez)
- General Contractor: Unnamed (GC)
- Material Supplier: Manning Building Supplies, Inc. (Manning)
Fernandez hired a general contractor for renovation work on their residence. The GC, in turn, hired Manning to supply building materials to the project. The terms under the supplier agreement stated that there would be a 1.5% delinquency charge for late payments that were separate from any finance charges.
Supplier included late fees in mechanics lien
As the project reached completion, Manning filed a mechanics lien against the Fernandez property and initiated a foreclosure action. At trial, the court declared that Manning was entitled to the principal unpaid amount of $24,157.64, along with interest at a rate of 18% per year (1.5%/mo). The court also awarded attorney fees and costs. Fernandez appealed.
Appeals Court: Finance charges and late fees are different
Fernandez argued that the interest awarded under the mechanics lien was merely a delinquency charge, and shouldn’t be included as a finance charge. The court agreed. Although the mechanics lien statute doesn’t define what a “finance charge” is, they looked to other statutes and Black’s Law Dictionary to define the term.
Black’s Law Dictionary defines finance charge as “an additional payment, usually in the form of interest, paid by a retail buyer for the privilege of purchasing goods or services in installments.” So, a finance charge is the cost of credit and not the cost of late payment. The 1.5% interest, under the terms of the contract, would only be imposed upon default. Therefore, the interest accrued should not be included in the lien claim as a finance charge.
Read more: How much do late payments in construction actually cost you?
Calculate your lien claim amounts carefully
While Florida mechanics liens can include finance charges, they are limited to the interest applied to installment payments. Any other unrelated costs will not be allowed. Including these amounts can be a dangerous proposition, and could potentially make the claimant liable for filing an exaggerated mechanics lien (which can be a 3rd-degree felony in FL!). Be careful calculating your lien claim amounts.
But keep in mind, this decision doesn’t mean that the property owners were excused from their obligation to pay the late payment interest. The court remanded the case for the award of said interest. However, the amount included in the contract exceeded what is allowed under the Florida Prompt Payment laws. These statutes provide that interest can’t exceed the statutory interest rate set by the FL CFO; which, at the time of the appeal, was set at 6.77% per year.