The Construction Lien Law - How Will It Impact Your Business?

In the last three weeks of the Florio administration, the Construction Lien Law was signed. The law repealed the century old Mechanic's Lien Law and eliminated the pre-filing requirements of a Mechanic's Notice of Intention, the filing of general contract documents, and the filing of a Stop Notice. The law took effect on April 22, 1994. Projects for which a construction permit had been issued prior to April 22, 1994 will continue to be governed by the Mechanic's Lien Law.

The predominant features of the Construction Lien Law include (1) the ability to file a lien within 90 days after last furnishing labor, materials, or services to a project without the necessity for any preliminary filing and (2) the prohibition of provisions requiring a waiver of lien rights. Special procedures are adopted within the Construction Lien Law governing liens on residential projects.

Because lien waivers were expressly allowed under the Mechanic's Lien Law, actual lien filings have been a rare exception on construction projects in the State. That will no longer be the case. All parties in the construction process -- owners, design professionals, lenders, general contractors, subcontractors, and suppliers -- have new rights and responsibilities under the Construction Lien Law that effect a dramatic change in the status quo.

The following are selected highlights of the new Construction Lien Law.

• Equipment used on-site for the improvement of real property, including rental equipment, can be the subject of a lien.

• Improvements are defined as any actual or proposed physical change to real property by the provision of work or services, whether or not any physical change is undertaken. Plans prepared by a licensed engineer will generally constitute an improvement and, regardless of whether they are actually used, can be the subject of a lien.

• The responsibility of the owner for one or more lien claims shall not be greater than the total amount of the contract price between the owner and the contractor, less the amount of payments made, if any, prior to the receipt of a copy of the lien by the owner.

• A lien claim filed by a subcontractor or supplier is limited to the amount of the subcontract or purchase order price, less payments prior to receipt of a copy of the lien, or the amount set forth above, whichever is less.

• All rights to enforce a lien are forfeited if suit is not commenced in the Superior Court within one year of the date of the last provision of work, services, materials or equipment or within 30 days following receipt of written notice from the owner requiring claimant to commence an action to establish the lien claim.

• Liens that are willfully overstated or are without basis expose the claimant to attorneys fees and the inability to assert future lien claims on the project for the work in question. Likewise, a frivolous defense to a lien claim may result in responsibility for attorneys fees.

• The Construction Lien Law dictates and sets forth a form of Notice of Unpaid Balance and Right to File Lien ("NUB"). This is a mandatory pre-lien filing on a residential construction contract; it is optional on other construction contracts. Its purpose is to advise the owner that a potential construction lien may be filed within the 90 day period following the date of the provision of the last work, services, materials or equipment. The filing of a NUB is not a lien claim, nor does it extend the time for the filing of a lien claim. A lien claim relates back to the filing of a NUB in establishing priority of the lien claim over other filings, including mortgages.

• The lien claim may be discharged (1) upon the filing with the County Clerk of a bond in the amount of 110% of the lien claim, (2) upon receipt of a certificate discharging the lien claim signed by the lien claimant, or (3) pursuant to an Order of discharge by the court.

• If required in the contract or upon written request from an owner to a contractor or subcontractor, the contractor or subcontractor shall, within 10 days, provide the owner with an accurate and full list of the names and addresses of each subcontractor and supplier who may have a right to file a lien.

• Waivers of construction lien rights are declared to be against public policy, unlawful, and void, unless given in consideration for payment of the work, services, materials or equipment provided or to be provided, and such waiver shall be effective only upon and to the extent that such payment is actually received.
  

For further information, contact Peter J. Smith at (973) 535-0500.