By Gary Strong Esq. of Tesser & Cohen
New Jersey has historically provided, by Statute, protection for certain construction contractors, sub-contractors, vendors and design professionals through the right to file a lien against privately owned property. Until April of 1994, these protections were provided through the New Jersey Mechanic's Lien Law, which is described later in this paper. In January 1994, the New Jersey Construction Lien Law was passed, effective April, 1994, and repealed and replaced the New Jersey Mechanic's Lien Law with respect to projects for which a construction permit was issued on or after April 22, 1994 and any improvements upon which work or services were commenced on or after April 22, 1994, if a construction permit was not required. With regard to any work for which a construction permit had been issued prior to April 22, 1994, or for which work had commenced prior to that date without the requirement of a construction permit, the provisions of the New Jersey Mechanic's Lien Law would continue to apply. Issues that would have arisen under the New Jersey Mechanic's Lien Law have now been effectively moot for the past four and a half years. The following shall concentrate on the current New Jersey Construction Lien Law (CLL).
NEW JERSEY CONSTRUCTION LIEN LAW
Neither the NJCLL nor its predecessor statute applies to public projects. Claims for which liens may be provided on public projects would be found under the New Jersey Municipal Mechanics Lien Law, which is discussed later in this paper.
Under the CLL (N.J.S.A. 2A:44A-1 et seq.), the filing of an MNI (Mechanic's Notice of Intent) is no longer necessary. To file a valid lien, it is simply necessary to file the prescribed information within 90 days following the date of last work, services, materials or equipment provision with the County Clerk of the county in which the property is located, owner and (if appropriate) the contractor/subcontractor who has failed to pay (N.J.S.A. 2A:44A-6). The Statute provides, within its language, a specific format and requirements for the lien claim notice (see attached forms).
The CLL has limited the amount of a lien claim by a number of parameters. Initially, a lien claim may only be filed when a written contract between the claimant and its customer (whether it be the owner, contractor or subcontractor) exists. In the event of a supplier, the written contract requirement may be satisfied by a purchase order executed by the owner, contractor or subcontractor or delivery tickets signed by an authorized representative of one of those entities (N.J.S.A. 2A:44A-2). The amount of the lien claim is then limited by the written contract amount for the work performed through the date of the lien, less credits for payments made. The lien claim may be expanded by the amounts of any written contract amendments or change orders which also must be reflected by written amendments to initial written contract. While the New Jersey Courts have not fully addressed the form in which an amendment to a written contract must exist, at the very least, a written work directive should be received from the claimant's customer. Recent cases have held that in the absence of a written contract or in the absence of written change orders, lien claims for monies that would be due are invalid. (Gallo v. Sphere Construction Corp., 293 N.J. Super. 558 (Ch. 1996) – where the Court held that the contractor had performed work during the pendency of negotiations for a written contract with the owner where the negotiations broke down and no written contract was entered, a lien claim cannot be filed for that work; Orefice v. ADR, 315 N.J. Super. 493 (A.D. 1998) – where the Court found that a lien claimant could not include within its lien claim, the amounts claimed to be due under change orders that were not reflected by any written amendment or agreement).
The amount of lien is further limited by payments that may have been made by the owner, contractor or subcontractor (N.J.S.A. 2A:44A-10). Obviously, any payments made to the lien claimant must be credited against the amount being claimed. Additionally, to the extent that the owner has made claims, has made payments to the contractor which have reduced the balance due under the contract with the prime contractor, the total amount of a lower tier lien claimants claim rights are limited to the contract balance due by the owner to the contractor. In other words, if the owner's contract balance obligation is $10,000 and a subcontractor's valid lien claim entitlement is $20,000, the total amount of the lien claim is limited to the $10,000 contract balance.
A party filing a lien claim is entitled to thereafter file amendments to that lien claim following the prescribed statutory form (N.J.S.A. 2A:44A-1). This most frequently arises in situations whereby a subcontractor or supplier has filed a lien claim for work performed, but continues to perform work under its subcontract or purchase order agreement. If the condition of non-payment continues, the cliamant entitled to amend its lien claim to include the additional value of that work performed.
Once a lien claim is filed on a private, non-residential project, a claimant is to serve that lien claim upon the owner and the party against whom it is claiming within ten (10) business days (N.J.S.A. 2A:44A-7). Service is to be made by personal service or certified mail, return receipt requested. Failure to so serve the claim within that period of time does not serve to discharge the lien claim, but an owner who may make payments between the time that the claim is filed and when it is ultimately served (if beyond the ten business days) may raise the claim that its rights have been prejudiced by the failure of the claimant to provide timely service. Additionally, the period of time within which the owner may have to seek response from the nonpaying contractor or subcontractor would not come into play in the absence of such service. Upon receipt of a lien claim, the owner is entitled to request that the contractor respond within twenty (20) days of service of the lien claim with any objection to payment under the lien claim (N.J.S.A. 2A:44A-12). If the contractor (or subcontractor in such event) fails to provide such written objection, the owner is thereupon entitled to make payment to the lien claimant and to receive a discharge of the lien. Such a payment can be credited by the owner to contract balance amounts that may otherwise be due to the contractor and the owner has a legal defense to any subsequent claims by the contractor that improper payment by the owner was made to the lien claimant.
A lien claimant will forfeit any rights that it may have to enforce the lien, and the lien itself is forfeited if legal action is not commenced in the New Jersey Superior Court within one year of the date of the last provision of work under its contract (N.J.S.A. 2A:44A-14). The one-year time period commences at the time of the provision of the last work or services, as opposed to the date of the filing of the lien. If such action is not brought within that time period, the lien rights are forfeited and the claimant is obligated to file within thirty (30) days a discharge of the lien (N.J.S.A. 2A:44A-30). Additionally, the owner or contractor against whom the lien claim is based, has the right to request, in writing, that the claimant commence legal action within thirty (30) days of the written request (N.J.S.A. 2A:44A-14). If claimant fails to file its legal action within that time period, notwithstanding that such time period may precede the overall one year limit, the lien rights are forfeited and the claimant is obligated to file the required discharge. If legal action filed by a lien claimant whether under the one year requirement or in response to a thirty day notice to be commenced in the Superior Court. The New Jersey Courts have been somewhat inconsistent with regard to division in which the action is to be commenced. There have been actions commenced within the Chancery Division as well as the Law Division with neither division taking a position that it lacks jurisdiction over the issues. A Notice of Lis Pendens must be simultaneously filed with the county clerk.
For the balance of this article, please call the POA at 732-780-1966.
Gary Strong, Esq., is an associate with Tesser & Cohen, a law firm that specializes in construction law. He can be reached at (201) 343-1100 or gstrong@tessercohen.com.