New Jersey Lien Law.(CONSTRUCTION CORNER)(Construction Lien Law )

New Jersey's Construction Lien Law ("CLL") offers statutory protection to contractors, subcontractors or suppliers who provide "work, services, material or equipment," pursuant to a written contract, (1) in connection with the "improvement" or repair of private realty. (2) The CLL allows contractors, subcontractors, and suppliers who are not compensated for their work to place liens on real property improved by their efforts, for the contract price of the work performed, or the unpaid portion thereof. (3) The lien serves as security for the unpaid debt. "Ultimately, the property can be sold to pay the lien claimant in an action to foreclose the construction lien," (4) with the proceeds from the sale, or a portion thereof, going to satisfy the debt secured by the lien. The CLL protects "first-tier" claimants (protected parties in direct privity with the owner), "second-tier" claimants (protected parties in direct privity with first-tier claimants), and "third-tier" claimants (protected parties within direct privity with second-tier claimants) but prevents "fourth-tier" claimants (parties in direct privity with third-tier claimants) from filing liens. (5)

Becoming effective in 1994, the CLL replaced the Longstanding Mechanics' Lien Law, which, while fulfilling the same general purpose of the CLL, was often overly complex and rendered filing lien claims difficult. (6) A rich body of New Jersey case taw exists addressing many of the specific idiosyncrasies of the Mechanics' Lien Law, and to a lesser extent, the CLL itself. This article does not seek to address all aspects of the CLL, but rather attempts to draw attention to its most distinctive features.

Deadline Summary

A lien claimant must file the lien within 90 days of the last work performed. (7) Within 10 days of filing, service upon all parties affected by the lien is required. (8) The CLL does not allow for pre-filing before construction, nor are there pre-filing requirements for nonresidential contracts. (9) A suit to enforce the lien must be brought within one year of the last work performed, or within 30 days of the written demand of the owner to file the suit. (10)

Where residential construction contracts are at issue, as a prerequisite to filing a lien, a potential lien claimant must also file and serve a Notice of Unpaid Balance and Right to File a Lien ("NUB"), as well as an arbitration demand. (11) Once received by the arbitrator, the arbitrator has 30 days upon which to issue a decision as to whether the lien claim is valid. (12) If the arbitrator acknowledges the validity of the lien claim, the lien claimant must then file the lien within 10 days of receipt of the arbitrator's decision. (13) It is important to note that these additional requirements for residential construction contracts do not operate to extend the applicable 90-day lien-filing deadline. In other words, a lien claimant must stilt file the lien within 90 days of the last work, despite having to procure an arbitrator's approval to file the lien within the same 90-day period. (14)

Defense Of Payment/Owner's Responsibility For Payment To Subcontractors

Generally, no party against whom a lien claim is asserted, including owners, will be forced to pay twice for work provided, services rendered, or materials provided under the CLL. (15) An owner is only liable on a lien in the amount of the "lien fund," defined as the difference between the owner-contractor contract price for said work and the amount the owner has paid for the contractor for the work. (16) When payment is made in full to the contractor, the lien fund is reduced to zero, precluding recovery from the owner via a lien claim. (17) In other words, if an owner pays a general contractor in full and in good faith, the owner's interest in the property is effectively freed from liens filed by subcontractors or suppliers who were not paid by the general contractor. (18) Although payment may typically serve to defeat alien claim under the CLL, it has no effect upon other remedies that may exist. (19) An exception to the general rule is applicable where an owner knowingly or negligently advances a general contractor payments which have yet to come due. In such a case, a subcontractor may stilt seek recovery against the owner via a lien claim, as the lien fund may not be reduced or extinguished by such premature payments. (20)