Those involved in construction are likely familiar with a Notice of Commencement (NOC), a document typically required by Florida’s Construction Lien Law prior to constructing improvements.
Usually, this is an innocuous administrative procedure that accompanies permitting. However, not all construction requires a NOC, and problems can arise when one is erroneously recorded. As such, developers should educate their employees not to automatically record a NOC just because a contractor or someone at the permitting office tells them to.
Pursuant to Section 713.04, Florida Statutes, a NOC is not required for site work such as grading, leveling, excavating, filling (including providing fill soil); grading and paving of streets, curbs, and sidewalks; the construction of ditches and other area drainage facilities; the laying of pipes and conduits for water, gas, electric, sewage, and drainage purposes; and the construction of canals.
Many times, contractors or permitting representatives are not familiar with this provision of the statute and will pressure an owner/developer into recording a NOC by asserting that they cannot or will not start work until a NOC is recorded. Developers often think there is no downside to recording one and, therefore, find it easier just to comply with the request in order to start work and stay on schedule. However, the reality is that the recording of a NOC may ultimately cause greater delays and costs for the developer.
The issue arises when the developer subsequently seeks to finance or sell a lot or tract of the property being developed, both of which would require a title insurance policy. A NOC will appear as an exception to title on the title commitment. In order to issue clear title, the NOC will need to be removed as an exception. Unfortunately, the only way to do this is to terminate the NOC, which requires that the developer stop all work, pay all contractors in full for the work completed up to that point, and record a notice of termination. This is typically known as a “stop/start.”
Paying all potential lienors through the stop date can be particularly problematic when considering retainage requirements of lenders or construction contracts. Moreover, the notice of termination is not effective until 30 days after recording. As such, there could be at least a 30-day delay before the NOC can be deleted from title and work can resume.
Although it may take some time and communication with contractors and permitting staff up front to get them comfortable with proceeding with site work without recording a NOC, the effort in doing so will potentially save time, money and unnecessary headaches in the long run.
(Specializing in real estate law, Molly Maggiano’s practice focuses on residential and commercial property owners’ associations, property acquisitions and sales, real estate development, and contract preparation on behalf of property associations, governmental agencies, developers, builders, non-profit corporations, and individuals. She is a member of several professional organizations and serves on the board of the Sidney & Berne Davis Art Center. Maggiano may be reached at molly.maggiano@ henlaw.com or 239-344-1213.)