In January, 2011, New Jersey enacted revisions to the New Jersey Construction Lien Law ( N.J.S.A. 2A:44A-1, et seq.) including several significant changes in the residential and tenant contexts. Most of these changes benefit contractors, subcontractors and suppliers entitled to lien rights. This article focuses on the most critical of those changes and the importance of implementing business practices to assure lien rights are preserved when appropriate.
Most significantly, the time for filing a construction lien on a residential project has been enlarged. A claimant must now file a Notice of Unpaid Balance and Right to File Lien (“NUB”) within sixty (60) days from when it last performed work or supplied materials. This extends the time frame by 30 days, a significant improvement to claimants that were often either prematurely required to file a claim, thereby heightening tensions with the homeowner, or foregoing the right to do so altogether. The new law provides time for a “cooling off” period to resolve disputes without unnecessarily forcing the issue.
After the NUB is filed, the claimant has ten (10) days within which it must serve a demand for arbitration in order to determine the legitimacy and amount of the claim. Ultimately, if the arbitrator determines the right to a lien exists and sets the amount, the construction lien must be filed within 120 days from when the claimant last performed work or supplied materials, an extension of the former 90 day period. Claimants should take note of these changes in the time requirements and be sure to document the last day work was performed or material supplied to ensure the right to file does not lapse due to the passage of time.
The new law makes other positive changes in the residential context helping to avoid inconsistent arbitration awards in the event of more than one claim on the same project. Multiple lien claims may now be joined in a single construction lien arbitration proceeding, with if possible, the same arbitrator. The new law requires arbitrators to consider all previous proceedings relating to the same construction project.
Claimants must also be aware of one negative change regarding the new definition of what is considered residential, which requires that the NUB procedure to be followed rather than the less stringent commercial lien claim scheme. Now any mixed use property that includes residential units is now deemed a “residential” construction project. Thus, knowing whether a project ordinarily considered commercial may be considered residential due to mixed use in the development becomes of critical importance, and thus care in assessing whether the project is a mixed use site at the outset of a job are of critical importance.
The revisions include clarifications with regard to when a lien against a landowner may be pursued when the work was done for a tenant. In most contexts, a claimant prefers to lien the owner’s property rather than simply the tenant’s interest in their lease. Prior law provided that a lien could attach to the owner interest only if the landlord gave written permission for the improvements. The revisions still allow a lien claim against the tenant’s interest and somewhat expand the right to lien the owner interest which is limited to a few circumstances: (a) if the owner authorizes the construction in writing and provides that the ownership interest is subject to a lien; (b) if the landlord agrees to pay (or has paid) the majority of the costs in writing; and (c) if the lease agreement provides that the owner interest is subject to a lien for the improvement. It is suggested that the a copy of the lease be reviewed prior to construction, not only to provide information as to whether such lien rights exist, but also to address additional concerns relative to a tenant’s rights to construct in the leasehold.
One final note: Claimants should be aware that new forms were created for the NUB, lien claim, and all related documents. The new lien forms help to clarify how the claim is calculated, so that the lien equals only the unpaid amount due the claimant for work actually performed. Since the revisions to the law take effect immediately, the new forms are to be used now and claimants should become familiar with them.
The above described revisions to the lien law represent a few of the more important changes which were enacted to correct perceived deficiencies in the prior lien law. Contractors, subcontractors and suppliers should familiarize themselves with these changes and adopt business practices consistent with the above suggestions to ensure they take full advantage of the protections afforded by the lien law.
Jared M. Lans is a lawyer in Hackensack, New Jersey. His firm engages in corporate and commercial transactions and litigation, with a focus on the construction sector, and wealth preservation through business succession and estate planning.