Final Payment Is Final, Except When It’s Not Intended

How To Help Avoid Late Claims

By Michael J. Gelfand, Esq. / Published March 2023

What happens after a Florida association enters into a contract and makes a “final payment”? Can the contractor come back after the association and sue for more money? Does it make a difference if there was a dispute over the quality of the work and the amount that should be paid?

     Whether the payment is actually final or the contractor seeks to pursue more money may depend on your contract’s language, particularly how final payments are handled.

     Recently a Florida appellate court barred a lawsuit that sought to collect more money after a final payment, including interest on late payments. Why? The appellate court relied on the doctrine of accord and satisfaction, meaning that the parties had agreed to a resolution (the accord) and the monies agreed upon were paid (satisfaction).

     In a decision that could have just as easily arisen in an association context, the facts in Construction Consulting, Inc. v. The District Board of Trustees of Broward College, 47 Fla. L. Weekly D 1847 (Fla. 4th DCA, September 7, 2022), indicate Broward College entered into a construction contract with Construction Consulting Inc. to be the construction manager for several projects. The contract provided that “acceptance of Final Payment shall constitute an unconditional waiver and release of all claims by Construction Manager for additional compensation beyond that provided in the Final Payment.”

     After the College terminated the contract for one of the projects, CCI stopped work on all of the projects. The College mailed an itemization of what the parties discussed being due with three checks which were accepted and deposited by CCI. CCI thereafter submitted an invoice for additional amounts due for interest for not making timely payments.

     After the College refused to pay the additional amount of interest, CCI sued the College. The trial court entered final judgment for the College based on accord and satisfaction pursuant to the terms of the contract.

     The Florida appellate court agreed with the decision of the trial court. The appellate court explained that an accord and satisfaction results when

1. The parties mutually intend to effect a settlement of an existing dispute by entering into a superseding agreement; and
2. There is actual performance in accordance with the new agreement.

     Here, the court determined that an accord and satisfaction occurred because CCI accepted the final payment which was given on the express condition that its receipt was deemed to be a complete resolution of the outstanding invoices evidenced by the reconciliation report which accompanied the checks. In addition, the court noted that the claims were barred by the contract itself, which contained an unconditional waiver clause.

     This case highlights the importance of understanding contract wording during negotiations and before signing and when a dispute arises. Depending on the contract language and how the parties actually act, the contract may provide that a final payment is just that—final in providing a Florida association some protection from being sued for additional money. For questions about whether your contracts contain such language, contact your association’s counsel.

No “Kaufman” Language in Declaration: Association’s Claim is Unsecured

     Is your Florida association seeking assessments and attorney’s fees from an owner who has filed bankruptcy or after the property has been sold pursuant to a mortgage foreclosure judgment? Success may depend on the specific language, or lack of language, in the association’s declaration.

     Two different decisions from two different bankruptcy judges in two different cases in the Southern District of Florida recently determined claims filed by Florida associations were not secured because the associations’ declaration of covenants did not have Kaufman language, i.e., that it will be subject to Florida statutory association law “as amended from time to time.” Associations seek to have a claim designated as a “secured claim” which allows payment from the property liened, as opposed to sharing in the usually relatively little monies left for general creditors.

     In the recent case of In re: Clement, United States Bankruptcy Court, Southern District of Florida, No. 22-12385 (September 30, 2022), the association sued the debtors for an injunction to remove a fence installed in violation of the association’s declaration of covenants. The parties entered into a settlement agreement as to the fence dispute but put off addressing the issue of attorney’s fees to a later date.

     Before the issue of attorney’s fees was addressed, the homeowners filed for bankruptcy. The association filed a proof of claim in the Bankruptcy Court in the amount of $164,555.38 as a secured claim. The debtors did not dispute the amount of legal fees but argued that the claim was unsecured.

     The Bankruptcy Court first looked at the association’s declaration, which provided that the lien was effective from the time it was recorded. However, the association did not record a claim of lien before the bankruptcy was filed; thus, because a bankruptcy filing usually bars the recording of further liens against a bankrupt owner’s parcel, the association was not entitled to a secured claim.

     Next, the Bankruptcy Court looked at the Florida statute in effect at the time that the declaration was recorded. The statute at that time did not provide that the lien would relate back to the date the declaration was recorded. The court stated, “[i]f a declaration of covenants does not include the ‘Kaufman language,’ it remains subject to the substantive law in effect when it was created unless and until the declaration is amended.” Because the association’s declaration did not include the Kaufman language, and because the association did not record a claim of lien prior to the filing of bankruptcy, the court ruled that the association’s lien was not a secured claim.

     The second decision, holding similar to the first above, is In re: Adams, United States Bankruptcy Court, Southern District of Florida, Case No.: 22-10140-MAM, Chapter 13 (September 22, 2022).

     These cases highlight the importance for associations to not only update their lien and assessment provisions but also to include so-called Kaufman language in their documents. If your documents are not up to date, consider whether to undertake amendments now before an issue arises.

Michael J. Gelfand, Esq.

Senior Partner, Gelfand & Arpe, P.A.

     Michael J. Gelfand, Esq., the senior partner of Gelfand & Arpe, P.A., emphasizes a community association law practice, counseling associations and owners how to set legitimate goals and effectively achieve those goals. Gelfand is a dual Florida Bar board-certified lawyer in condominium and planned development law and in real estate law, a certified circuit and county civil court mediator, a homeowners’ association mediator, an arbitrator, and parliamentarian. He is a past chair of the Real Property Division of the Florida Bar’s Real Property, Probate & Trust Law Section, and a Fellow of the American College of Real Estate Lawyers. Contact him at ga@gelfandarpe.com or (561) 655-6224.