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Construction Law Authority / Bonds  / The Conditional Payment Bond – what is it and how does it work?

The Conditional Payment Bond – what is it and how does it work?

At times on a construction project, an Owner / Condominium Association is faced with claims for non-payment from lienors that had no contract with the Owner / Condominium Association. Instead these non-privity lienors had a contract or business relationship with the general contractor. Typically, if there is a payment bond provided by the general contractor, these lienors would look to recover against this payment bond, as opposed to filing and seeking to foreclose claims of lien. Not always so, however, when the payment bond is a “conditional” payment bond.

Florida Statute § 713.245 governs conditional payment bonds under Florida law. In short, the statute allows for a conditional type of payment bond, which is essentially conditioned upon the Owner having paid the Contractor for the amounts being claimed by the lienor. If, however, it is determined that the Owner has not paid the Contractor for the amounts being claimed by the lienor, the conditional payment bond would generally not be an available source of recovery for the lienor. Instead, the lienor would need to avail itself of any lien rights or other potential legal remedies.

There are, of course, certain statutory requirements to meet in order to have a valid conditional payment bond. For example, the conditional payment bond should be listed as a conditional payment bond on the applicable notice of commencement and recorded with the notice of commencement prior to commencement of the project. Certain language must also be included in the conditional payment bond in a specified bolded font size.

If a valid conditional payment bond exists, an Owner that receives a claim of lien should, among things, determine if the general contractor has already been paid for the monies being claimed by the lienor. If so, the Owner should be cognizant of and comply with the statutory procedures and deadlines for alerting the lienor to the existence of the conditional payment bond.

Similarly, a contractor who contests an Owner’s claim that the contractor has been paid for the amount of the lienor’s claim must also be cognizant of the statutory procedures and deadlines to challenge such a contention. If the contractor does not contest the Owner’s claim of payment, any claim of lien will be transferred to the bond to the extent of the stated payment by the Owner.

So, if you have a conditional payment bond and are faced with claims of non-payment and claims of lien, be mindful that the bond may not automatically apply to such claims and some analysis will be necessary to determine how to best proceed.

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