We receive many calls from property owners who are in a dispute with a contractor. Most of them ask: can my contractor place a lien on my property? Unfortunately, the answer is yes. To make matters worse, even subcontractors or material suppliers with whom you never even entered a contract on the project may also have lien rights. Before panic sets in, you should know that these potential lienholders are subject to very strict limitations on both the timing and form of their filings. If they make even an honest or seemingly harmless mistake, their lien rights may be wiped out entirely. Let’s blog!
By way of background, we are dealing here with the New Jersey Construction Lien Law (formerly known as the Mechanics Lien Law). N.J.S.A. 2A:44A-1, et seq. It has two purposes: 1) to provide an orderly and fair lien resolution process for construction projects so that the owner is not faced with liens that are greater in amount than can be justified by the actual progress of the construction work or exceed the contract amount of their prime contract; and 2) to give contractors and suppliers rights against the property in the event that they are not paid for their work.
Rather than going provision-by-provision through the statute, let’s address some of the most common questions we hear from property owners:
1. Who is Allowed to File a Lien on my Property?
Generally, your contractor, his or her subcontractors and any material suppliers may be entitled to file a lien. The law refers to contracting “tiers.” Your general contractor (“GC”) is the first tier; his or her subcontractor(s) make up the second tier; any sub-subcontractors or suppliers to subcontractors are the third tier. Nobody below this third tier has any lien rights under the law.
Each of these possible lien claimants must have a written contract to enforce a lien claim. However, that contract need not be with you as the property owner to qualify. For example, if your GC subs out a portion of his or her work pursuant to a written subcontract, that subcontractor could have lien rights against your property.
Suppliers and equipment rental companies need not have a formal contract, but are at least required to have a signed delivery or order slip that refers to your specific project. For example, if your contractor frequently uses a large lumberyard and fails to pay the yard for supplies, the yard cannot file a lien based on a generic purchase order or delivery slip that refers to materials your contractor used on a number of different projects. The larger suppliers are aware of this issue, so tend to generate job-specific slips. The contractor must sign the slip to make it an enforceable “contract” under the lien law.
2. When are Liens Filed?
For commercial projects, lien claims must be filed within 90 days of the last date on which the lien claimant performed contract work on the project. Warranty repairs do not count. As an example, if your electrician finishes up on June 1, then comes back on July 1 to fix a faulty GFI outlet, any lien claim would have to be filed within 90 days of June 1, not July 1.
The timing rules for residential projects are a bit more complex. A lien claimant has 60 days from last work to file a “Notice of Unpaid Balance” (NUB) which sets forth his or her intention to file a lien claim and the amount sought. An arbitrator from the American Arbitration Association then reviews the documents submitted by the parties and decides within 30 days whether that claimant may file a lien and in what amount. If the arbitrator approves a lien, it must be filed within 120 days of the last date of work.
These time limitations are strictly construed and enforced by the courts and arbitrators. If a lien claimant files a NUB or lien claim even one day late, they have lost their lien rights.
3. How do I Know if There is a Lien on My Property?
Any lien claimant or NUB filer must serve those filed claims on the property owner (and others) within 10 days of filing. If you are not served with a claim, the claimant may lose the right to enforce that claim. Since these claims are recorded with the clerk or recorder in the county where the property is located, you could also search public records to confirm whether there are liens on your property.
4. What Happens After a Lien is Filed?
The easy answer here is that you should consult and retain an experienced construction attorney to advise and represent you if someone files a lien on your property. Since there are strict timing and substantive requirements for liens and NUBs, there are frequently technical defenses to lien claims even if the claims themselves have some merit. Your attorney should be able to identify and advance those defenses on your behalf.
For residential claims, you can and should defend yourself in the expedited lien claim arbitration to try to defeat the lien claim before it is filed. Once an actual lien claim is filed, you can do many things, including: 1) filing an action to discharge it; 2) sending a letter to the claimant demanding that they file an action to enforce their lien within 30 days or forfeit their lien rights (i.e., put their money where their mouth is); 3) if claimant is someone other than your direct contractor, you could pay off the lien claim and seek to recover the lien amount from your direct contractor; or 4) pay off the lien claim by purchasing a bond.
You may (and probably should) request a certified list of any contractors, subcontractors, sub-subcontractors and suppliers who may have lien rights on your property, so you have an idea of who else out there has or has not been paid.
Actions to enforce construction liens could result in a forced sale of your property, so you should consult experienced counsel to assist you.