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Amendments to Construction Lien Law in New Jersey
Copyright (c) 2011-2023 Steven Nudelman, Esq
Woodbridge, NJ, February 16, 2011 - After 16 years, a much needed revision to the New Jersey Construction Lien Law, N.J.S.A. 2A:44A-1 et seq. ("CLL"), was signed into law by Governor Chris Christie on January 5, 2011. The impetus behind the amendments was a report issued by the New Jersey Law Revision Commission in March of 2009 identifying several key problems with the statute as it was enacted in 1994. The amendments purport to clarify various provisions of the statute and conform it to numerous court decisions interpreting the CLL that have been issued during the past 15 years.
The amendments, which take effect immediately, include several significant changes which participants in the construction process -- owners, contractors, subcontractors, and suppliers -- must understand:
1. New Timing for Residential Construction Liens. Residential construction claimants must file a Notice of Unpaid Balance and Right to File Lien ("NUB") within 60 days from when the claimant last performed work or supplied materials. 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 is rendered, but within 120 days from when the claimant last performed work or supplied materials, the claimant must finally record the lien claim. The lien claim form must be stamped with the date and time when it was received by the county clerk in order for it to be served on the owner and any other interested parties.
2. Multiple Liens Against the Same Residential Project. The new law allows parties aggrieved by lien claims relating to the same construction project to be joined in a single construction lien arbitration proceeding. Moreover, the law requires that, if possible, the same arbitrator determine all such claims, even if joinder is not possible. Finally, arbitrator(s) must consider the outcome of all previous proceedings relating to the same construction project in rendering the arbitrator's determination. The primary purpose of these requirements is to avoid inconsistent arbitration awards.
3. New Forms. New statutory forms were created for the NUB, lien claim and amended lien claim. Significantly, the new forms clarify the manner in which the claimant calculates the amount of the lien. There is also a standard form of affidavit that is now used to summarily discharge lien claims which have been satisfied and a standard form for the bond used to discharge a construction lien claim.
4. New Definitions. Many definitions in the statute have been clarified or added. These include:
a. "Residential Construction" - A construction project which includes any residential units is deemed "residential" in nature. Therefore, a claimant must follow the special statutory requirements for residential construction projects.
b. Filing - The act of delivering a document to the County Clerk and that document being marked by the Clerk with a date and time stamp is now defined as "lodging for record." A claim that is "lodged for record" is enforceable against parties with notice of the document, even if it has not been "indexed." "Lodging for record" is distinct from "indexing," a term indicating when the clerk files or records the lien documents in a manner that puts the entire world on "record notice" of the lien.
5. Liens on Fee Interest. In the event that a tenant causes improvements to be made to real property, the leasehold interest is subject to attachment by a lien claim. The fee interest (held by the landlord) is only subject to a lien claim in a limited number of situations: If, in writing, the landlord expressly authorizes the construction and provides that the fee interest is subject to a lien, or; if the landlord has paid or agreed to pay the majority of the costs in writing, or; if the lease or sublease, where the landlord was a party, provides that the fee interest is subject to a lien for the improvement.
6. The Lien Fund. The lien fund is the "pool of money from which one or more lien claims may be paid. The amount of the lien fund shall not exceed the maximum amount for which an owner can be liable." The recent amendments to the CLL illustrate how to calculate the lien fund, thus ensuring than an owner will not pay more than once for the same work.
7. Liens Against Common Elements. For claimants against a community association, liens placed on common elements may not be enforced by foreclosure and sale. The only remedy for such a lien claimant is a court-ordered assessment against the unit owners.
8. 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. In most cases, the supplier does not have a formal contract, but rather a "delivery slip." Under the amended statute, in order to support a lien claim, a delivery or order slip must refer to the site or project and be signed by the owner or its authorized agent.
9. Enforcement by Summary Action. New procedures and parameters for enforcing a lien in Superior Court are spelled out in the amendments to the CLL. Additionally, the claimant must now also file a Notice of Lis Pendens once suit has commenced.
10. Residential Construction Liens and the Allocation of Partial Payments. A residential lien claimant who receives a partial payment must release a proportionate share of interest in the property. Moreover, in the absence of an agreement stating otherwise, if the encumbered property is divided into subdivisions or tracts then the allocation of released interest must be proportionate to each subdivision or tract.
11. Discharge of Liens by Owner. In situations where the lien claim has been paid in full, the claimant has failed to discharge the lien, and 13 months have passed since the date of the lien claim, the owner need only file a discharge certification and an affidavit to summarily discharge the lien without court intervention. However, before doing so the aggrieved party must notify the claimant by certified mail. Thereafter, if no written objection disputing complete payment of the lien claim is received in 90 days, the owner may proceed with the expedient discharge procedure. In situations where the claimant has forfeited its lien claim and neglected to discharge the lien upon demand, an owner may file an order to show cause to have the lien claim discharged.
Although the above amendments attempt to eliminate the ambiguities that were contained in the original CLL, there are still issues which are undecided or which were determined by prior Court decisions but were not incorporated into the amendments themselves.
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Stephen Nudelman, Esq. writes for Greenbaum, Rowe, Smith and Davis LLP who, in 2010 celebrated its 96th year of building business in New Jersey. The firm has over 100 attorneys in four main practice departments, and 19 practice areas offering comprehensive legal services, including construction litigation. The firm has offices located in Woodbridge and Roseland, New Jersey. For more information, visit the firm's web site at http://www.greenbaumlaw.com/
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