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What you should know about New Jersey’s construction lien law

On behalf of Cohn Lifland Pearlman Herrmann & Knopf LLP | Jan 13, 2020 |

Disputes are not uncommon during construction projects. Oftentimes a contractor and property owner sort out these issues as they arise, with neither party the worse for wear. Occasionally, however, these disagreements extend beyond the conclusion of the project. The dissatisfied property owner refuses to pay their bill in full, accusing the builder of subpar work, warranty violations and delays.

In these cases, a New Jersey law gives contractors a tool to receive what they are owed for the work or services they performed. However, there are also protections for property owners and some harsh sanctions for contractors who abuse this option.

New Jersey’s construction lien law

The construction lien law allows contractors, subcontractors and suppliers that provided work, services, materials or equipment as laid out in a written construction contract to place a lien on the property if they aren’t paid in full. What this does is provide some financial security for the businesses that do the construction work and provide materials or equipment, ensuring they don’t wind up shortchanged over a bogus complaint.

A contractor can file a lien against residential or commercial projects, but there are certain strict requirements. The lien has to be filed within a certain period of time after the work is finished, for example, and the amount of the lien claim has to be based on the filing contractor’s progress under the written contract or purchase order, rather than any verbal change order work. There are also notice requirements.

If the property owner refuses to pay, the contractor can foreclose upon the property through a lawsuit, and potentially sell it in order to recoup the owed costs. It is a powerful option for construction businesses. It can also backfire if used incorrectly.

When a lien claim isn’t valid

If a lien claim is “without basis,” “willfully overstated” or not lodged according to the strict requirements in the law, the filing contractor forfeits its lien rights. That contractor may also be liable for court costs, legal expenses and attorneys’ fees incurred by the property owner due to the flawed lien claim.

This is one way the law protects property owners, ensuring any contractor or supplier considering a lien claim only follows through if they are confident it is appropriate.

Construction lien cases can be complex. If you find yourself dealing with a construction lien case – whether you’re considering filing one against a property owner, or you received notice a contractor is filing one against you – it is a good idea to reach out to an attorney. While a lien is usually an option, it should only be used under proper circumstances.