Licenses, Permits, Zoning and Enforcement: What Business Owners Need to Know About Administrative Law

When starting a new business in Florida, there are several legal considerations that need to be addressed. While some of these considerations are the same for all new businesses (such as choosing a business entity and preparing contracts for use with vendors and customers), certain legal requirements will vary from one business to the next.

One area where this is the case is administrative compliance. Depending upon the nature of your business, the size of your business and where you will operate, your company may be subject to a host of licensing, permitting and zoning conditions. The following is a non-exclusive list of administrative requirements that apply to businesses operating in Florida:

1. State and County Tax Registrations

Florida law imposes a variety of different taxes that apply to different types of businesses. From selling physical products to disposing of hazardous substances, various business practices can trigger special tax obligations in Florida, including:

  • Communications services tax
  • Discretionary sales surtax (a county-level tax similar to sales and use tax)
  • Fuel tax
  • Pollutants tax
  • Reemployment tax
  • Sales and use tax

2. Department of Business and Professional Regulation (DBPR) Licenses

The Department of Business and Professional Regulation (DBPR) regulates businesses operating in Florida, and many businesses are subject to licensing requirements imposed by DBPR. The following types of businesses are all subject to DBPR licensing requirements:

  • Alcoholic Beverages and Tobacco
  • Architects
  • Asbestos Contractors and Consultants
  • Athlete Agents
  • Auctioneers
  • Barbers
  • Boxing, Kickboxing and Mixed Martial Arts
  • Building Code Administrators and Inspectors
  • Certified Public Accounting
  • Community Association Managers
  • Construction Industry
  • Cosmetology
  • Drugs, Devices and Cosmetics Program
  • Electrical and Alarm Contractors
  • Elevators and Other Conveyances, Technicians, Inspectors and Companies
  • Employee Leasing Companies
  • Geologists
  • Harbor Pilots
  • Home Inspectors
  • Hotels, Motels, Apartments and other lodging
  • Interior Design
  • Landscape Architecture
  • Mold-Related Services
  • Pari-Mutuel Wagering Facilities
  • Real Estate
  • Restaurants, Take-outs, Delivery, Caterers and Mobile Food Vendors
  • Talent Agencies
  • Veterinary Medicine
  • Yacht and Ship Brokers and Salespersons

3. Permits and Zoning

Cities and counties throughout Florida require local business to obtain various types of permits and zoning approvals before opening for business. Some of the most-common permitting requirements include:

  • Alarm permits
  • Building permits
  • Health and safety permits
  • Local business licenses
  • Occupancy permits
  • Sign permits
  • Tax permits

4. Trade Name Registrations

If your business operates under a name that is different from the legal name of your corporation or limited liability company (LLC), you will need to register your “trade name” (also known as a “fictitious name” or “doing business as” registration) with the Florida Division of Corporations.

5. Workers’ Compensation Insurance (or Self-Insurance)

Before hiring employees, your company must purchase workers’ compensation insurance from the Florida Workers’ Compensation Joint Underwriting Association or a commercial insurance carrier. Alternatively, your company can self-insure; or, if your company is eligible, you can file for an exemption.

Speak With a Fort Lauderdale Administrative Lawyer About Your Company’s Needs

If you are starting a business in South Florida and need help making sure your company is legally-compliant, we encourage you to contact us for an initial consultation. To speak with a lawyer about your company’s needs, please call (954) 767-9662 or inquire online today.

So, Your Client Wants to Negotiate. What Contract Changes Should You Consider?

As a business owner, at some point you are likely to come across a client (or perhaps multiple clients) that want to negotiate the terms of your standard agreement. You are open to negotiating, but you do not want to give them everything, so how do you decide where to draw the line?

While each business (and, really, each transaction) calls for its own unique analysis, here are some preliminary considerations for negotiating the terms of a client or customer contract:

Negotiating Your Client or Customer Agreement: Considerations on Key Provisions

1. Delivery Schedule

Your client wants to shorten the deadlines for submitting deliverables. Can you realistically meet the client’s expectations? Even if you can, it may be worthwhile (and it should be understandable for your client) to include certain protections. For example, if you miss a deadline because you were waiting on information from the client, this should excuse your delay in contractual performance.

2. Service Level Agreements

Many business clients like to include service level agreements (or “SLAs”) in their vendor contracts. If a client is requesting the addition of SLAs (or revisions to your standard SLAs), you need to focus on the details, and you need to think carefully before agreeing that missing an SLA will constitute a default under the agreement.

3. Intellectual Property (IP) Rights

If you will be supplying custom deliverables, you may or may not be willing to give up the intellectual property rights in your work product (ownership of IP rights and ownership of a physical deliverable are two very different things). At a minimum, you will likely want to reserve the right to display your work for portfolio purposes.

4. Remedies for Breach

What does your client expect if you happen to come up short? What are your rights if the client is noncooperative or refuses to pay? Clients often like to try to negotiate these provisions, but their requests will often be unreasonable in the context of the substantive contractual relationship.

5. Representations and Warranties

If a client is asking for additional representations or warranties, it is important to critically assess the request with a focus on the proposed language and its potential interpretations and implications. Representations and warranties can have significant legal ramifications, and you do not want to make a representation or warranty without first carefully thinking it through.

6. Indemnification

Although business owners will often overlook indemnification clauses as “boilerplate,” these are actually critical legal provisions that can have significant implications for a company’s liability exposure. Before considering any changes to your company’s standard indemnification clause, you should be sure to discuss the implications with an experienced contract lawyer.

7. Dispute Resolution

Finally, if your client is located outside of South Florida, it may be requesting changes to your agreement’s dispute resolution provisions. While you may think you are willing to accept the risk of litigating out of state or to change your agreement’s choice of governing law, once again, these are important decisions that should be made with the advice of legal counsel.

Contact the Fort Lauderdale Contract Lawyers at Michael L. Feinstein, P.A.

If you need legal advice for negotiating a contract in South Florida, we encourage you to get in touch. Our lawyers have extensive experience in contract negotiations, and we can help you make informed decisions about protecting your company. To speak with one of our contract lawyers in confidence, please call (954) 767-9662 or request a consultation online today.

Protecting Your Company: When is it Time to Consider Legal Action?

If a supplier, competitor, business partner or former employee is interfering with your company’s operations, it is important to know when is the right time to consider legal action. While litigation can be disruptive, it can also be necessary, and in some cases aggressive action can be critical to mitigating any economic or reputational harm. Here are seven examples of legal issues that will often require use of formal or informal dispute resolution methods to protect a company’s long-term interests:

1. Breach of Contract

Contractual disputes can take a variety of forms; and, while renegotiation and other alternatives to litigation can provide cost-effective solutions in many circumstances, there are also many circumstances in which litigation will be the best – if not the only – option. Click to learn about common claims in business contract disputes.

2. Indemnification, Representations and Warranties

Along with substantive contract issues, issues involving the “boilerplate” terms – including indemnification, representations and warranties – will often lead to litigation as well. In fact, these often-misunderstood contract provisions are at the center of many complex commercial disputes, and companies that know how to use them effectively can significantly reduce their exposure when things go wrong.

3. Shareholder, Officer and Director Liability

Despite best-laid plans and careful corporate documentation, disputes will often arise between companies and their shareholders, officers and directors. Breaches of fiduciary duty, corporate fraud and other issues can cause substantial harm, and insurance and indemnification issues can escalate already-complex disputes.

4. Unfair Competition and Tortious Interference

Litigation between competitors often involves claims for unfair competition and tortious interference. When one company seek to take advantage of another company’s goodwill or unlawfully harm its reputation, the long-term impact can be substantial, and immediate action can be crucial to curtailing any losses.

5. Non-Compete Violations

Non-competition clauses are ubiquitous in commercial contracts; however, in practice, they are not often enforced. Should your company take action to enforce a non-compete? Here are some legal and practical considerations to help you weigh your options.

6. Protecting Your Company in a Third-Party Bankruptcy

If your company is facing substantial losses as a result of a third-party bankruptcy, you could potentially have a number of different options for avoiding discharge of your debt. Here are five examples of unlawful practices that can justify a denial of discharge in bankruptcy.

7. Issues Unique to Real Estate and Construction Disputes

From landlord-tenant disputes to construction defects, there are a variety of legal issues that are unique to the real estate industry. In addition to business and commercial issues such as those listed above, litigation between landlords, tenants, property owners, developers, contractors and subcontractors will often involve issues such as:

Speak with a Fort Lauderdale Commercial Litigation Attorney in Confidence

If you are facing a potential dispute and would like to discuss your options with a commercial litigation attorney, you can contact our offices in Fort Lauderdale, FL for a confidential consultation. To schedule an appointment at your convenience, please call (954) 767-9662 or inquire online today.

Understanding Unfair Competition and Tortious Interference Claims in Florida

Legal disputes between business competitors can involve a wide range of legal claims, including claims for unfair competition and tortious interference. While both of these claims can be used to seek legal remedies against competitors that are attempting to gain an unfair advantage in the marketplace, they are focused on different practices, and understanding the differences is important for executives and company owners who are evaluating their options in the face of a potential dispute.

Unfair Competition

Unfair competition law focuses on business practices that seek to illegitimately take advantage of another company’s intellectual property or other intangible assets. Causes of action for unfair competition exist under state and federal law (including the Florida Deceptive and Unfair Trade Practices Act and the U.S. Lanham Act), and can be used to take legal action against competitors engaged in activities such as:

  • Unlicensed use of a company’s trademarks
  • Unauthorized use of a company’s trade secrets
  • Price fixing or other antitrust violations
  • Fraud, false advertising and other misrepresentative practices
  • Business defamation

When a competitor is engaged in unfair competition under state or federal law, a prompt response can be critical to mitigating any potential harm. While informal methods of resolution may be sufficient in some circumstances (for example, if a company executive was not aware that one of the company’s employees was making use of another company’s trademark), it will often be necessary to seek preliminary injunctive relief in court to prevent further damage.

Tortious Interference

In contrast to unfair competition, which encompasses a variety of unlawful business practices, tortious interference is a specific type of legal claim focused on wrongful obstruction or intervention in an existing business relationship. This relationship can either be contractual or non-contractual. In order to pursue a claim for tortious interference against a competitor, a company must be able to prove that:

  • The company had a valid contractual or non-contractual business relationship;
  • The competitor knew of the business relationship;
  • The competitor deliberately took action to disrupt the contract or induce one party to end the relationship;
  • The competitor lacked legal justification for the interference; and,
  • The interference resulted in commercial harm.

Depending upon the factual circumstances involved, tortious interference claims can often be difficult to prove. Competitors can avoid liability by demonstrating that any one of the five elements listed above has not been satisfied, and questions of fact can lead to complex business litigation. However, due to the potential economic impact of tortious interference, companies concerned about competitors’ actions affecting their commercial relationships should promptly seek legal advice. Similar to unfair competition, tortious interference can quickly lead to long-term (and potentially-irreversible) damage, and seeking preliminary relief in the courts may be the only way to prevent unnecessary harm.

Speak with a Business Litigation Attorney at Michael L. Feinstein, P.A.

Our Fort Lauderdale business litigation lawyers provide experienced legal representation for unfair competition and tortious interference claims throughout South Florida. If you have concerns and would like to speak with an attorney about protecting your company’s interests, you can call (954) 767-9662 or contact us online for a confidential initial consultation.

Evictions and Accelerated Rent: What Commercial Landlords and Tenants Need to Know

In a typical commercial lease, the landlord will reserve the right to accelerate the tenant’s lease obligations in the event of a material default and eviction. This means that, upon issuing a declaration of material default or issuing an eviction notice, the landlord can also seek immediate payment of all future amounts owed under the rental provisions of the lease. However, there are certain exceptions, and the exercise of a landlord’s right to accelerate rent is often fertile grounds for litigation – particularly where the alleged default is in dispute or the tenant has defaulted on its rent obligations due to an inability to pay.

One seemingly-obvious exception is where the lease does not actually include an enforceable accelerated rent provision. Tenants with sufficient leverage may be able to negotiate these provisions out of their agreements, and ambiguity can lead to unenforceability – particularly in archaic lease forms that rely on outdated legalese. In some cases, disputes over accelerated rent will begin with questions of whether there is even a dispute to be had at all.

Another exception exists where the landlord retakes possession of the leased premises for its own account.

The Landlord’s Options Upon Default and Their Impacts on Rent Acceleration

When a tenant defaults under a commercial lease, the landlord has three basic options under Florida law. The landlord can either:

  • Evict the tenant, terminate the lease and take possession of the premises for its own account;
  • Evict the tenant without terminating the lease, and take possession on the tenant’s account; or,
  • Not evict and continue to hold the tenant liable for its contractual obligations under the lease.

Each of these options has its own implications for the acceleration of rent. With the first option, the Florida courts have held that taking possession for the landlord’s own account has the effect of waiving the landlord’s right to accelerated rent. With the third option, the landlord can generally seek to enforce the tenant’s obligation to pay rents accrued, but cannot accelerate the tenant’s future rent obligations. It is the second option where Florida law recognizes a right to accelerate rent (once again, assuming the lease includes an acceleration clause). However, even here, the landlord has an obligation to attempt to re-let the premises; and, once a new tenant has been secured, the defaulting tenant’s accelerated rent obligations are subject to offset by the new tenant’s paid rent.

The risk of rent acceleration for tenants (and the risk of losing the right to accelerate rent for landlords) is a critical issue to consider when facing a potential default under a commercial lease. Mandatory arbitration, jurisdiction and venue, and other pertinent negotiated provisions will also require careful consideration. Tenants may also need to consider the impact of a possible termination or eviction on any other business relationships (such as a franchise agreement) as well.

Speak with a Real Estate Litigation Attorney in Fort Lauderdale, FL

Our real estate attorneys provide experienced representation for commercial landlords and tenants in South Florida. If you are facing a commercial lease dispute and need legal advice, you can call (954) 767-9662 or contact us online to schedule a confidential consultation.

Potential Options for Businesses Struggling to Meet their Contractual Obligations

As a business owner, foreseeing a possible financial shortfall can raise a host of concerns. From failing to make payroll to risking default under a commercial lease or other key contract, in these circumstances there are several issues that require careful prioritization and a proactive approach in order to mitigate any potential business or reputational harm.

Depending upon the circumstances, while there are several concerns to be addressed, there may also be several options available. From a legal perspective (setting aside options such as securing financing or bringing a consulting team on board), some potential options for preventing costly contract breaches include the following:

1. Seek to Renegotiate Key Agreements

One option may be to renegotiate. If your business is facing a default, revisiting the terms of the deal may be preferable to both parties when faced with the alternative of non-payment and potential litigation. Even if a complete renegotiation is not on the table, a landlord or supplier may be willing to delay collection without fully waiving its rights of enforcement.

2. Explore Ways to Cut Unnecessary Costs

Are there contracts you can terminate without penalty that are not business-critical? Alternatively, can you terminate or suspend non-essential services under a managed services or diversified services agreement? While many service and supply contracts include minimum-term commitments, in some industries and under certain contract models, business clients can retain broad termination rights as well.

3. Identify Potential Grounds to Pursue Litigation

Is your business struggling because a supplier is failing to uphold its end of the deal? Or, do you have a major client (or multiple clients) that are behind on payment? If your company has rights it is not currently enforcing, it may be time to consider legal action, including possible litigation.

4. Consider Your Options for Bankruptcy

Federal bankruptcy laws provide relief to struggling businesses under prescribed circumstances. Due to its implications, businesses often should consider bankruptcy only as an option of last resort. But, if bankruptcy is your best option, filing under Chapter 7 or Chapter 11 (or another applicable section of the U.S. Bankruptcy Code) can provide necessary relief from unsustainable financial obligations.

5. Consider a Buyout

A fifth option may be to consider a buyout. If a venture capitalist, competitor or other potential suitor believes that it can reverse your company’s fortunes, exploring potential acquisition opportunities may produce viable and favorable solution.

Of course, this list is not exclusive, and each set of business circumstances requires its own unique assessment. If you have questions about your company’s legal options, we encourage you to contact us for a confidential consultation.

Michael L. Feinstein, P.A. | Fort Lauderdale Business Litigation Lawyers

If you would like to speak with a lawyer at our Fort Lauderdale law offices, we encourage you to schedule an initial consultation. To speak with one of our experienced attorneys in confidence, please call (954) 767-9662 or inquire online today.

Incomplete Arbitration Provisions: Can an Arbitration Clause Apply to Only a Portion of a Commercial Dispute?

As a general rule, mandatory arbitration clauses are supposed to consolidate the dispute resolution process and minimize the financial burdens involved. The whole idea behind arbitration is that it is offers a streamlined process without the strictures and protracted timelines of litigation.

But, the benefits of mandatory arbitration presume that the parties’ arbitration clause is enforceable. While there are recognized judicial standards for the enforceability of arbitration clauses, many commercial disputes end up in litigation not over the substantive issues underlying the dispute, but over whether the arbitration clause itself is legally binding.

This was the issue in a recent case that made its way to Florida’s Second District Court of Appeal.

Multiple Agreements Create Question of Which Claims are Subject to Arbitration

In LTCSP-St. Petersburg, LLC, et al. v. Johnnie Earl Robinson (Fla. 2nd DCA Case No. 2D11-3473), the question was whether the parties’ entire dispute – or only a portion of their dispute – was subject to mandatory arbitration. The case involved a surviving husband’s negligence claims against a nursing home for wrongful death.

In order to admit the decedent to the nursing home, the husband signed an admission agreement under the authority of a power of attorney. The admission agreement included a mandatory arbitration provision. While the decedent was subsequently discharged, she was later re-admitted on several occasions, and each time she personally signed an agreement which stated, “THIS AGREEMENT MUST BE SIGNED BY . . . THE SAME PERSON [] WHO SIGNED THE ORIGINAL ADMISSION AGREEMENT, OR A NEW ADMISSION AGREEMENT MUST BE SIGNED.”

The nursing home never required the decedent to sign a new admission agreement, and the husband never signed anything after the initial admission.

As a result, when the husband sued for wrongful death, the question arose: Were the parties required to arbitrate? The nursing home argued that all claims should be arbitrated, while the husband argued that, at most, only claims arising out of the initial visit should be subject to mandatory arbitration.

The Second District Court of Appeal concluded that, based on the limiting language contained in the documents signed by the decedent, the nursing home could only compel arbitration for claims arising out of the initial admission.

While the husband’s filings did not differentiate between the various admissions, it is probably a safe bet that at least a portion of the parties’ substantive dispute will be resolved through litigation.

Lessons Learned: The Importance of Careful Contracting

This case provides an important lesson for commercial parties: If you want to compel arbitration, you need to make sure that all of your contracts: (i) are with the appropriate parties, and (ii) contain appropriate mandatory arbitration language.

Schedule an Initial Consultation at Michael L. Feinstein, P.A.

Michael L. Feinstein, P.A. is a team of experienced business litigation lawyers who represent companies throughout South Florida. If you have questions about the enforceability of a mandatory arbitration clause, or if you need legal representation for a commercial dispute, call our Fort Lauderdale law offices at (954) 767-9662 or contact us online for an initial consultation.

Common Issues in Condominium Litigation

For condominium developers and associations, litigation is almost an inevitability. From construction defect litigation and contract disputes to foreclosure actions against homeowners, developers and associations face litigation risks in virtually all aspects of their operations. Here are some of the most common issues and causes of action in condominium litigation:

Construction-Related Condominium Litigation

1. Construction Defects

Construction defects are among the most-common causes of action in condominium litigation. From failure to meet local building code requirements to negligent window or roof installation leading to water intrusion, there are countless construction defects that can lead to costly, and potentially-dangerous, issues.

2. Contract Disputes

Disputes with contractors, subcontractors, engineers, architects and other parties involved in the construction process will often lead to condominium litigation. While payment and performance (or non-performance) disputes are perhaps most common, warranty claims, indemnification claims and other contract-based claims are all common as well.

3. Professional Malpractice

Malpractice is a specific type of negligence-based claim involving allegations of substandard service by architects, engineers and other professionals. When a faulty condominium design leads to structural or other issues, the developer and association may be entitled to seek remedies for professional malpractice.

4. Implied Warranties

In addition to express contractual warranties, condominium construction projects and building materials may be subject to certain implied warranties as well. Assuming that these implied warranties have not been validly disclaimed (which is not always a safe assumption), they can provide additional causes of action for developers and associations.

5. Fraud, Deceptive Trade Practices and Other Claims

Depending upon the circumstances involved, developers and associations can potentially have a variety of other causes of action as well. From fraud and deceptive trade practices to surety bond issues and products liability, when considering legal action against a contractor, subcontractor or other provider, it is critical to assess all potential causes of action and assert the strongest possible case for recovery.

Litigation Involving Condo Associations and Homeowners

1. Responsibility for Common Elements

While condominium declarations should ordinarily include clear provisions regarding liability for common elements, it is not unusual for disputes over the definition of certain common elements to arise.

2. Accountings and Financial Disclosures

Generally speaking, condominium associations are required to provide accountings and certain other financial disclosures to the owners of individual units. Failure to do so, or alleged failure to provide full and accurate disclosure, is a common issue in condo litigation.

3. Liens and Foreclosures

When homeowners fail to pay dues or other amounts due to the association, the association will – subject to the satisfaction of certain conditions – have the right to place a lien on the owner’s unit and eventually foreclose on the property. Developers can face foreclosure actions for unsold units and shelf condominiums as well, often creating complex and challenging situations for associations and residents.

Contact the Fort Lauderdale Real Estate Attorneys at Michael L. Feinstein, P.A.

The attorneys at Michael L. Feinstein, P.A. represent condominium developers, associations and other parties in complex litigation involving properties throughout South Florida. If you are anticipating or facing a dispute and would like to speak with an attorney, please call (954) 767-9662 or contact us online today.

Are You Liable? Understanding Shareholder, Officer and Director Liability

One of the key features of the corporate legal structure is that it provides liability protection for the company’s owners, officers and directors. For legal purposes, the corporation is an independent legal entity – its own “person” – and it exists separately from the real-life people who keep the wheels turning and the money flowing. When the company gets sued, it is the company’s assets that are at risk rather than each individual owner, officer and director having his or her personal finances on the line.

However, this liability protection is not absolute. In fact, there are many circumstances in which individual shareholders, officers and directors can face personal liability in relation to their corporate duties.

Fiduciary Responsibilities of Shareholders, Officers and Directors

Shareholders, officers and directors in for-profit and non-profit entities all owe certain fiduciary obligations to the corporation. In broad terms, these obligations require that decisions be made in the corporation’s best interests, and not with competing interests or ulterior motives in mind. When a shareholder, officer or director breaches his or her fiduciary responsibilities, such action may be deemed a personal act – as opposed to an action on behalf of the company – and this can create exposure to personal liability.

Examples of actions that can constitute breaches of corporate fiduciary responsibilities include:

  • Engaging in conflict-of-interest transactions
  • Improper use or disclosure of inside information
  • Misappropriation of corporate assets
  • Misuse of corporate authority
  • Neglect of corporate duties

The specifics of these examples can vary widely. For example, while the directors of a condominium or homeowners’ association could face legal action based upon an alleged failure to fairly and equally apply the governing rules of the association, officers in large publicly-traded corporations will often face shareholder lawsuits alleging regulatory shortcomings and other violations that negatively impact the performance of the company’s stock. In small privately-held companies, shareholders can face liability in disputes that involve issues ranging from financial mismanagement to operation of competing businesses.

Indemnification and Insurance

While direct personal liability in these cases is a possibility, shareholders, officers and directors will often have two layers of protection available. The first is what is known as, “indemnification.” It is commonplace for corporations to cover (i) the costs of defending against, and (ii) any settlements or judgements resulting from, lawsuits against shareholders, officers and directors in their individual capacities. The second layer of protection is insurance. Director and officer (“D&O”) policies can cover these individuals directly or reimburse the company for satisfying its indemnification obligations, while general liability coverage and certain other types of insurance may provide protection as well.

Of course, there are exceptions. For example, indemnification obligations and insurance policies will typically exclude claims based upon fraud or personal profiting. Shareholder, officer and director liability claims can quickly become extraordinarily complex, and individuals facing potential liability will benefit greatly from experienced legal representation.

Speak with a Business Litigation Attorney in Fort Lauderdale, FL

With offices in Fort Lauderdale, the attorneys at Michael L. Feinstein, P.A. represent individuals and corporate entities in litigation throughout South Florida. If you are facing a dispute and would like to discuss your options, call (954) 767-9662 or contact us online to schedule a confidential consultation today.

Understanding “Pay-If-Paid” and “Pay-When-Paid” Construction Contracts

When are contractors required to pay their subcontractors? While this sounds like a simple question, determining the answer in any particular case can present unexpected challenges, and the timing of contractors’ payment obligations is a frequent issue in construction contract litigation.

“Pay-If-Paid” vs. “Pay-When-Paid”

In many cases, the issue arises out of the parties’ disagreement over whether their agreement’s payment clause is a “pay-if-paid” or a “pay-when-paid” provision. With a “pay-if-paid” provision, the general contractor is not under an obligation to pay unless and until it receives payment from the property owner (assuming the provision is properly drafted and legally enforceable). If the contractor does not get paid, then neither does the subcontractor—the entire payment risk rests with the subcontractor. This is typically reflected in contract language stating that payment from the property owner is a “condition precedent” to payment of the subcontractor, and an acknowledgement that the subcontractor is not relying on the contractor’s credit for payment.

By contrast, when a construction contract includes a “pay-when-paid” clause, the risk of non-payment ultimately shifts to the contractor. These clauses typically state that the subcontractor must be paid within a specific timeframe after payment from the property owner, or within an alternate timeframe if no such payment is received. This type of provision is clearly much more favorable to the subcontractor, although pay-when-paid clauses (or questions about whether a contract establishes pay-if-paid or pay-when-paid liability) also have a greater tendency to lead to litigation.

Related Issues in Contractor-Subcontractor Litigation

When analyzing contractors’ payment obligations and subcontractors’ payment rights, the parties will typically have a number of other issues to contend with as well. For example, in a typical contractor-subcontractor payment dispute, some of the key questions will include:

  • Does the payment clause contain a hybrid of pay-if-paid and pay-when-paid language? If so, what does this mean for the parties’ dispute?
  • If the parties’ contract has a pay-when-paid clause, when is the subcontractor entitled to seek payment from an unpaid general contractor?
  • Has the subcontractor satisfactorily performed under the contract? Or, is the contractor within its rights to withhold payment regardless of whether the agreement contains a pay-if-paid or pay-when-paid provision?
  • Is the property owner within its rights to withhold payment from the contractor? If so, what does this mean for the subcontractor?
  • If the property owner is improperly withholding payment, what remedies does the subcontractor have available? Can it take legal action against the property owner directly? Does it have the contractual authority to compel legal action by the contractor?

Contact the Fort Lauderdale Construction Lawyers at Michael L. Feinstein, P.A.

As you can see, the issues in contractor-subcontractor payment disputes can quickly generate complex disputes with high stakes for all parties involved. At Michael L. Feinstein, P.A., we have extensive experience resolving construction contract disputes through negotiations, alternative dispute resolution (ADR) proceedings, and state and federal litigation. If you are facing a potential dispute and would like to speak with an attorney at our offices in Fort Lauderdale, please call (954) 767-9662 or contact us online today.