What is a Contractor’s Final Payment Affidavit?
A contractor’s final payment affidavit is a sworn and notarized document that certifies that the contractor has been paid in full and all sub-contractors and suppliers have also been paid in full. While it is rare, some contractors may not determine all supplied or sub-contractor are paid until after the Affidavit is prepared and submitted. Contractors should advice the homeowner of all amounts which are outstanding and direct the homeowner to obtain waivers and releases for any amounts not disputed.
The Affidavit should certify the following: The Affidavit becomes a public record available for inspection by the homeowner and other contractors who may have worked on the same project. If they choose , homeowners can request the Affidavit be provided and a stay placed on the contractor’s ability to collect the final payment. Issuing a "stay" or "withholding" is a procedure where the homeowner directs that lien or final payment be placed in escrow until a subsequent determination is made.
Failure to receive signed and completed lien waivers from sub-contractors and suppliers may result in a situation where the homeowner can elect to withhold this final payment and hold the contractor liable for any damages or rack for lien which could arise from the failure to provide these lien waivers.
Requirements for a Contractor’s Final Payment Affidavit
While each state is going to have some variation, the Contractor’s Final Payment Affidavit must typically include representations that: (1) the claimant has paid all known claimants; (2) there are no liens or claims on the Project created by the claimant; and (3) that there are no debts pending for the Project (this may or may not also be extended to all labor performed on the Project, since the definition of "Project" can vary.) Many states also require that a Claimant waiting on a payment create sub-releases from its sub-subcontractor, and so on down the line. Some states also have specific requirements for a Contractor’s Final Payment Affidavit, including a statement that the claimant has paid all lower tier subcontractors and furnished materials. Ohio law requires the precise disclosure of any persons that have supplied labor and/or furnished materials. Connecticut requires the claimant to provide proof of the payments made, and that it has fully paid all of its subcontractors and suppliers. Although there are many other such examples, I’ll leave it at that for now.
How to Prepare a Contractor’s Final Payment Affidavit
1. Confirm and Review All Required Documents
The sworn contractor’s final payment affidavit must be accompanied by the following documents:
a. Notarized Sworn Statement from the Subcontractors, suppliers, and Sub-subcontractors under Affidavit of No Liens;
b. Waivers of Lien from the Subcontractors, suppliers, and Sub-subcontractors or an Affidavit that they have been paid in full and/or that all claims of Lien have been satisfied; and
c. Sworn Proof of Payment and Releases Affidavit (same staff as in the contractor’s affidavit). This requires each of the Subcontractors, suppliers, and Sub-subcontractors to list all persons to whom any money was payable for labor or materials or contracted for by the Subcontractor, supplier or Sub-subcontractor, in connection with the work or service; and, to list all subcontractors, materialmen, and suppliers and the amount that each was entitled to as of the date of the contractor’s affidavit.
2. Determine Whether Waiver of Lien is Required
Florida Statutes Section 713.20(4)(a) indicates that any final payment affidavit given by a contractor for a residential construction project for an owner occupied single family residence shall include a waiver of lien for all labor and materials, and a waiver of all liens and claims deriving from a construction contract between the contractor and the owner.
3. Confirm Insurance Coverage
Typically a Contractor insured with Builder’s Risk, Workers’ Compensation and General Liability policies. It is recommended that once a final certificate of completion (a.k.a. "Certificate of Occupancy") has been received that the builder’s risk coverage be cancelled. However, the general liability policy and worker’s compensation insurance should remain in effect until all obligations of the contract have been fulfilled.
4. Ensure Proper Service of Affidavits of Non-Payment of Liens
A subcontractor, materialman, supplier or Sub-subcontractor is required to serve the affidavit of non-payment of lien in accordance with:
The affidavit generally may be served:
The best way to ensure that the affidavits of non-payment of lien are served is to send copies of those affidavits with a letter enclosing an affidavit of non-payment of lien with documentation showing that the recipient received each affidavit and a copy of the final payment affidavit; and, mailing the documentation to the recipient’s address.
5. Include Indemnification and Hold-Harmless Clause
The contractor’s final payment affidavit and the subcontractor’s affidavit of non-payment of lien should be accompanied by an indemnification and hold-harmless clause requiring the general contractor to hold all subcontractors harmless from any and all claims of lien and claims of all others deriving for any cause or from any sum of money owed by the contractor to anyone. Also, should a subcontractor fail to file an affidavit of payment of releases with the contractor’s affidavit, then the subcontractor is required to indemnify and hold the general contractor harmless from all claims of lien and claims of all others deriving from any unpaid labor or services, and from any claims deriving from an unpaid balance due on their contract.
Common Mistakes Filing a Contractor’s Final Payment Affidavit
One of the most common mistakes contractors make when filing a sworn contractor’s final payment affidavit is thinking that the affidavit doesn’t have to be notarized. A litany of cases starting in 1976 and going all the way up to the 2015 Florida Fifth District Court of Appeals case of Garcia v. Mier y Teran, 167 So. 3d 497 (Fla. 5th DCA 2015), have held that the final payment affidavit must be notarized by a notary public. While some courts have held that the notarization requirement can be waived, such as in the 1989 case of I & E Constr. Corp. v. Baton Rouge Manor, Ltd., 554 So. 2d 577 (Fla. 1st DCA 1989), where the defendant received the affidavit and did not question its validity, most courts have disagreed. The Garcia case updated these holdings by specifically holding the requirement is not waivable.
Another mistake is not filing an affidavit in the proper lien county. Courts have held that the Certificate of Substantial Completion in the Soloway case and Certificate of Occupancy in the Atlas case are sufficient instrument to trigger the countdown for filing a contractor’s final affidavit. If you miss that filing window you could lose you lien rights.
Don’t just complete the affidavit yourself and file it with the Clerk’s office. Any affidavit filed in the public records is fair game for attorneys who do construction litigation. If an attorney believes you misled them into believing that the contractor’s final affidavit was not going to be filed with the Clerk, they could add your company to their Complaint and have you testify about your actions in misrepresenting that the affidavit would not go into public records. In the Superior Air Handling case the court dismissed a mechanic’s lien claim because the construction manager misrepresented that the final contractor’s affidavit was not going to be recorded. While that case may not have been a prejudgment attachment, it shows that not all courts will protect contractors from fraudulent efforts by an owner to hold onto final payment.
Importance of a Contractor’s Final Payment Affidavit
In many states, a final payment affidavit is an important component of the type of contract used for publicly funded projects. A final payment affidavit is a sworn statement from the contractor and its subcontractors and suppliers that no liens have been filed or recorded on the project and that all lien rights have been waived through the stated period (e.g., final payment). While such affidavits are readily utilized in the public sector, the proper time to provide this same type of document for private projects tends is often an often overlooked or forgotten step in a project’s closeout process.
A final payment affidavit can facilitate the resolution of a construction payment dispute in two ways. First, it acts as a formal notice to all project parties that the contractor is requesting final payment and is requesting that all responsibility for the project is being passed to the owner. Second, by requiring each subcontractor and/or supplier who submits an affidavit to state under oath that it has received its final payment from the contractor and has paid all of its subcontractors and suppliers, a contractor reduces its own risk of non-payment. In other words , a contractor’s submission of its own final payment affidavit, when coupled by a subcontractor and supplier’s submission of its own final payment affidavit and its subsequent waiver of lien rights, is one effective way for a contractor to demonstrate that the contractor properly requested its progress payment and that it properly closed the project and passed its obligation onto its subcontractors and suppliers.
A contractor’s submission of a final payment affidavit, whether based upon an express contractual requirement or a project necessity, should be strictly adhered to as it closes the door for the reservation of rights in responding to any claims of subcontractors and/or suppliers. If a contractor omits to submit its final payment affidavit, then the contractor runs the risk of having to defend claims that are both passed up to it from its subcontractors (i.e., partially complete work claims) and those claims which the contractor defends on its own behalf (i.e., untimely performance claims). In addition, a contractor may be penalized through a setoff or other deduction from its remaining contract balance payment, such as liquidated damages assessed against the contractor for partial performance of the work.
Consequences of Not Filing a Contractor’s Final Payment Affidavit
One of the most important details a contractor must keep in mind under the Michigan Construction Lien Act is the requirement to file an affidavit with the Register of Deeds after a final payment has been made. Without this affidavit, or if the contractor fails to furnish the proper affidavit, the contractor may potentially be liable for statutory damages to the owner. Counsel should review MCLA 570.1109(3) " If an affidavit is not filed or a false affidavit is filed, the contractor… is liable to the owner for the greater of $500 or twice the actual damages caused by the filing of the affidavit…". This is not an insignificant amount when it comes to dealing with attorneys’ fees and damages.
Tips for a Contractor’s Final Payment Affidavit
For contractors navigating the post-decretory steps in the gatekeeping process, there are several regulatory bodies involved, and keeping track of the rules and requirements of each will be crucial to making sure that you get paid fully and timely, and protecting your claims of lien. Your contract may require you to furnish a final payment affidavit to the owner or property manager before your final payment will be released. Here, I’ve listed some specific tips and techniques that will help you successfully complete that final payment affidavit.
- When a contractor is asked for a Final Payment Affidavit, it is because the owner is looking to verify that the contractor has paid everyone they were supposed to have paid. As a result, you should also be prepared to furnish a full set of subcontractor and supplier lien waivers. These should be "partial" lien waivers which mean that you aren’t waiving your right to file a lien against the property in the event that they still owe you money.
- When furnishing sub-contractor and supplier lien waivers to the owner or its designee, you should not only include the unpaid balances for each subcontractor, but also the unpaid balances for the suppliers that your subcontractors hired. If your subcontractors have not paid their suppliers and you provide lien waivers that cover the unpaid amounts, your contract with the owner could become a lucrative target for subrogation action by the lien claimant as the property is subject to a valid lien. If possible , you should still obtain lien waivers from any suppliers who are going unpaid as a result of a non-payment in your project.
- In most states, the contractor is responsible for payment to its sub who is then responsible for payment to the sub-sub. So, if you don’t pay your sub, the sub could potentially file a lien against the project. And if that happens, the owner is usually required to withhold funds for the unpaid labor until the lien claim is resolved. In many instances these unpaid claims are usually what leads to a claim for breach of contract against the contractor. Thus, if you are going to file a breach of contract action against the owner (or any other breach of contract action for that matter) for failure to make the final payment – but you haven’t paid everyone you were required to pay – then you may want to consider posting a bond to clear the lien rights on the property.
- You may not be able to entirely prevent a third-party from submitting a lien claim against the property, but you can at least prevent the owner from failing to make payment to you. So it is in your best interest to hold them to that promise by submitting to the project owner a copy of the contractor’s final payment affidavit alongside the sub-contractor and supplier lien waivers. That way, you can increase your chances of receiving payment on time by showing the owner that you have already satisfied all of your contractual obligations under the contract.