New Jersey Governor Chris Christie recently enacted legislation revising the New Jersey Construction Lien Law, which was last amended in 1994. The amendments are effective immediately and include changes to critical timing, definitional, and enforcement requirements.
Please note that the changes affect only commercial and private projects and have no bearing on the Municipal Mechanics Lien Law, which pertains to only government projects.
The changes to New Jersey’s construction lien law include, but are not limited to, the following:
The Time You Have for Filing Residential Construction Liens Has Changed
Residential construction claimants must file a Notice of Unpaid Balance (NUB) and Right to File Lien within 60 days from when the claimant last performed work or supplied materials on the project. Within 10 days after filing the NUB, the claimant is required to serve a demand for arbitration for the purpose of determining the amount of the lien claim. This time may only be extended upon consent of the parties and arbitrator. Within 10 days after the arbitrator’s determination, but within 120 days from when the claimant last performed work or supplied materials, the claimant must record the lien claim.
Multiple Liens Against the Same Residential Project Are Addressed
Parties aggrieved by lien claims relating to the same construction project may, under the new law, be joined in a single construction lien arbitration proceeding in order to avoid inconsistent arbitration awards. The new law also requires that, if possible, the same arbitrator determine all such claims – even if joinder is not possible. In addition, the arbitrator must consider the outcome of all previous proceedings relating to the same construction project in rendering her determination.
You Must Use New Statutory Forms for the NUB, Lien Claim, and Amended Lien Claim
These new forms clarify the manner in which a claim is calculated. In addition, standard forms of affidavit to summarily discharge a lien claim and standard forms for the bond used to discharge a construction lien claim are provided.
You Must Understand Important New Definitions
Many definitions in the statute have been clarified or added including the often litigated definition of “residential.”
The Issue of Liens On Leasehold vs. Fee Interests is Discussed
When a tenant contracts for improvement to real property, the new statute clarifies that “the lien shall attach to the leasehold estate of the tenant.” The landlord’s fee interest will only be impacted where the landlord expressly authorizes the improvements in writing or pays or agrees to pay for the improvements. Also, where the landlord is a party to the document that created the leasehold interest and provides that the landlord’s interest is subject to a lien for the particular improvement, the lien will attach to the fee, not leasehold, interest.
The Mechanism of the Lien Fund is Clarified
The new statute defines the lien fund as the “pool of money from which one or more lien claims may be paid.” The statute provides: “[t]he amount of the lien fund shall not exceed the maximum amount for which an owner can be liable. The amount of the lien that attaches to the owner’s interest in the real property cannot exceed the lien fund.” The statute shows how to calculate the lien fund to ensure that an owner will not pay more than once for the same work. The statute provides that the fund will not be reduced by payments that do not discharge the obligations for work performed or materials provided (for instance, payment for liquidated damages or payments not in accordance with written contract provisions, among other things).
Suppliers to Suppliers May Now File Liens
A supplier to a supplier who falls within the first three tiers of the contracting chain and has a written contract may now file a lien under the amended law – even if the supplier does not have a “formal contract.” Delivery or order slips that refer to the project site and are signed by the owner or its authorized agent are sufficient.
New Procedures for the Allocation of Partial Payments Must Be Followed
When a residential lien claimant receives a partial payment, a proportionate share of interest in the property must also be released. Also, where a property is subdivided or separated into multiple tracts, the receipt of a payment must be allocated proportionate to each part of the property.
New Procedures for the Discharge of Liens May Expedite Discharge
The law streamlines how liens can be discharged. For instance, when a claim has been paid but the claimant has not discharged the lien (and 13 months has elapsed since the date of the lien claim), the owner may discharge the lien by simply submitting a discharge certificate and affidavit with prior notice to the claimant. Also, if a claimant fails to file the appropriate discharge certificate after an undisputed payment, any party in interest may proceed in “a summary manner” by filing an order to show cause why the lien should not be discharged.
In conclusion, all entities impacted by the filing of liens in New Jersey receive much-needed clarification of lien practice under the new law. Of course, the new statute, like the old, demands careful attention to the relevant deadlines; however, the recently enacted statute provides welcomed guidance. The above was simply a brief summary of most of the relevant changes. For more detail, consult your construction attorney.