Those involved in construction are likely familiar with a Notice of Commencement (NOC). For those who aren’t familiar, a NOC is a document typically required by Florida’s Construction Lien Law to be recorded in the County land records prior to constructing improvements.
When Not to File a Notice of Commencement
This is typically an innocuous administrative procedure which occurs along with 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 as a matter of course, or 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 horizontal subdivision improvements (or “site work”) such as grading, leveling, excavating, filling of land (including the furnishing of 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. For the developer, the thought is often that there is no downside to recording one and, therefore, it is easier just to comply with the request so that they can commence development work and stay on schedule. The reality, however, is that the recording of a NOC in this instance can actually cause greater delays and costs for the developer down the road.
Consequences of Filing an Unnecessary Notice of Commencement
The issue arises in the situation where the developer subsequently seeks to obtain financing or to sell a lot or tract of the property being developed, both of which are transactions which necessitate the issuance of 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 remove the exception is to terminate the NOC, which is a burdensome task when you are in the middle of development, as it requires that you 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 thirty days after recording and can create additional delays. As such, there could be at least a thirty day delay before the NOC can be deleted from title and the transaction closed, and before you can recommence development work.
Although it may take some time and communication with contractors and permitting staff upfront 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.
If you have any questions or concerns regarding NOC, please feel free to contact me at firstname.lastname@example.org or by phone at 239-344-1213.
This article was originally published by Molly Maggiano in SuiteLife Magazine.