When handling real property transactions we often find outstanding Notice(s) of Commencement (“NOC”) when conducting the title search. The NOC is one of the first things an owner must complete and record in the public records prior to commencing construction or major repairs on a property. The NOC affects title to the property as it provides lien rights for all contractors, subs and materialmen who worked on the property and provided a notice to owner. The lien rights provided for by the NOC relate back to the date the NOC was completed and these lien rights have priority over any subsequently recorded deed or mortgage. Therefore, in order to properly insure a new owner or mortgage, the NOC must be terminated prior to closing.
To terminate the NOC, the property owner must execute and record a Notice of Termination (“NOT”) and a final contractor’s affidavit from the general contractor. In the contractor’s affidavit, the contractor must attest that all work has been completed, all subs and suppliers have been paid and the contractor must satisfy and release its lien. The affidavit should be recorded with the NOT. The contractor should also provide final waivers of liens from all subs who have provided notices to owner.
One common issue that we routinely see is when an owner fails to record the NOT and contractor’s affidavit upon the completion of the work. For example, for ordinary home repairs, such as the installation/repair of a roof, the home owner may not realize that they have to record a NOT in order to cut off the contractor lien rights. As you can imagine, the longer the owner waits on recording the NOT and getting the contractor to sign the contractor’s affidavit the more difficult it becomes to obtain from the contractor. Obviously, it is much easier to get the contractor to sign the affidavit when delivering final payment to the contractor than it is to track the contractor down months later!
Another common issue that we routinely see involves the sale of a condominium unit. For example, the condominium association might be renovating the common areas of the condominium property, and we have seen many instances where multiple NOCs are filed against the condominium property, which includes all of the condominium units therein. While each condominium unit is responsible for payment to the association for their respective portion of the renovations, the condominium association as a whole is ultimately responsible for payment of the work to be performed under the NOC. In order to get past this issue, the owner must obtain an affidavit from the association stating that the association has sufficient funds available to complete the work post-closing.
As a seller (or real estate broker/agent representing a seller) you are faced with a myriad of issues to resolve during the course of any sale transaction. Addressing the NOC properly can be a simple task if caught early on in the process and could be one less thing on your plate prior to closing. If work is currently being performed (or recently completed) on a property, we highly recommend obtaining the NOT and necessary affidavits immediately upon completion of the work. In our experience, the longer the parties wait to record the NOT and necessary affidavits the more difficult that process can become, which could ultimately result in a delay of the closing, and nobody wants that!
As always, if you have any questions regarding an NOC and its potential impact on your property, please contact your local real estate attorney.
Berlin Patten Ebling, PLLC
This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.
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