Commercial Construction Liens
Construction Liens on Commercial Property
Construction liens provide a potent remedy for contractors, subcontractors and vendors, who have not been paid for work they have properly performed. However, the procedural and time requirements of New Jersey’s Construction Lien Law are complex and strictly enforced. Failure to meet these requirements can result in severe consequences for the contractor. Our attorneys help contractors subcontractors and vendors navigate these complex requirements, and use construction liens to recover the payment for the work they have performed.
A construction lien gives a contractor or subcontractor which did work, or a vendor which supplied goods, services or equipment, on a construction project an interest in the property. It allows a contractor which prevails in a suit the ability to use the property for payment of the debt it is owed. The proceeds will be paid out of any sale, and the owner will not be able to obtain credit or financing without paying off the lien.Contractors, subcontractors and venders which provide a wide range of work, goods and services may file construction liens under New Jersey’s Construction Lien Law, including plumbing, masonry, carpentry, excavation or dirt work, electrical work, roofing, construction, building additions, design work, heating, ventilating and air-conditioning (HVAC) work, repairs, renovations, landscaping, and tiling.
Purpose of Construction Liens and Protections for Property Owners
Construction liens exist to provide an effective mechanism for contractors to be paid what they have earned for completed work. It is generally difficult or impossible for owners to sell property when there is a construction lien. This gives owners a powerful incentive to pay what is owed, and to force a contractor to pay its subcontractors and vendors. The power to place a lien on property is a powerful tool to compel delinquent owners to ensure that payment is made.
Because of this great power, the New Jersey Construction Lien Law provides owners with significant protections. If the contractor, vendor or subcontractor which files the lien fails to comply with the procedural or time requirements, or overstates what it is owed, it can be sanctioned and responsible for the owner’s attorneys fees. Moreover, even if a subcontractor has not been paid at all, it can only file a lien the amount which remains unpaid on the prime contract between the owner and the general contractor, even if the general contractor has not paid the subcontractor at all. This amount is known as the “lien fund.”
Procedures for Construction Liens on Commercial Property
Contractors, subcontractors, and suppliers on construction projects are allowed to file construction liens under the New Jersey Construction Lien Law. The rules for commercial property differ in their requirements from construction liens on residential property.
A construction lien must be filed within 90 days from the date the last work was performed, or from the last date on which materials, services or equipment was provided. The construction lien must be filed with the county clerk for the county in which the property to be subject to the lien is located. Unlike a construction lien on residential property, a Notice of Unpaid Balance need not be filed with the county clerk. Arbitration is not required, unless the parties have voluntarily agreed to it in writing.
Construction liens may only be filed when there was a written contract for the work performed or materials, services or equipment provided. Even change orders must be in writing in order to support a lien. Failure to have a written contract may not prevent a contractor from getting paid – although it will certainly make it harder – but it is an absolute bar to obtaining a valid construction lien.
The lien cannot exceed the amount unpaid by the owner under the prime contract. This amount is known as the “lien fund.” For example, let’s say that a general contractor signs a written prime contract with a property owner to construct a building for $2,000,000. The general contractor then subcontracts out the electrical work to an electrician for $300,000. The owner then pays the general contractor $1,900,000, leaving a $100,000 balance due from the owner, but the general contractor fails to pay the electrician anything. In this case, even though the subcontractor-electrician is owed $300,000, the lien is only good for the $100,000 “lien fund,” the balance unpaid by the owner. The electrician can still sue the general contractor for the full $300,000.00, but it can only have a construction lien which is valid for the amount of the “lien fund,” or $100,000, because that is all it actually owes to anyone.
The Lawsuit Requirement
The party filing a construction lien must file suit within one year of the date of the last work it performed. The owner gives notice, however, can demand that suit be filed within 30 days. Failure to comply with these time requirements will result in the construction lien being dismissed, and may possibly lead to sanctions. However, if all of the procedural requirements are met and, the lawsuit is successful, the contractor may then enforce the lien.
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