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Michael Oxman of Livingston-based Becker Meisel answers questions about the proposed changes to the Construction Lien Law.GlobeSt.com: First of all, can you give us some background on the Construction Lien Law?

Oxman: There used to be a law called the Mechanics’ Lien Law, which gave people who provided goods, materials and services to a construction site the ability to file a lien on the property they’re working on if they aren’t paid. A lien is essentially a cloud on the title. It tells the world that the person who owns this property owes somebody money and that if the process plays itself out, the property is going to be subject to a forced sale to satisfy the lien if the lien is found to be valid.

In 1993, the New Jersey legislature threw out the Mechanics’ Lien Law as it was written and they tried to modernize it, calling it the Construction Lien Law. They rewrote the provisions to clarify the types of things were subject to a lien and the process of actually filing a lien. They basically separated the types of liens that could be filed into three types: a lien on a private project, a lien on construction and materials that have to do with residential projects, and a lien related to public projects. There really weren’t a lot of published decisions of how the lien law would be interpreted, but time went on and there were more and more court decisions. What’s happening now is the legislature is recognizing that the lien law is occasionally confusing or doesn’t address certain situations and sometimes is not realistic given the modern realities of a construction project. So, the legislature decided to make some changes, and they’re currently on the third draft of proposed changes.

GlobeSt.com: What are some of the proposed changes?

Oxman: The first thing the legislature is trying to do is to clarify the language. There are a lot of terms that are really important to know that are not defined or are defined in different places, such as the words “dwelling” or “residential unit”. Knowing those terms helps people file a lien based on the project they’re working on. So, one of the proposed changes is increasing the definition section so people who are looking to file liens know exactly how the lien law is going to relate to their projects.

GlobeSt.com: Is any type of development being targeted specifically?

Oxman: A lot of the proposed changes are directed at residential development. The law as it now stands states that if someone supplies goods, services labor or materials to a residential construction project, they have 90 days from the last day of their labor or supply of materials to file a lien on the property. That’s true for both non-residential and residential projects. With respect to residential projects, the law adds another layer of obligation. Within that initial 90-day period, there are a number of additional steps you have to take. You have to first file a notice of unpaid balance, which basically tells the world that you’re owed money but you can’t file a lien yet. Within that NUB, you have to demand arbitration with the person who owes you money. The arbitration has to take place, the arbitrator has to read you a decision and then you still have to file that lien all in a 90-day period, so a lot has to happen within that 90 days. If you think of the way business works, the first 30 days are gone while someone is waiting for their money, and the next 30 days while they’re trying to negotiate with the people who owe. Businesspeople can’t immediately be at loggerheads with each other, there has to be some back and forth, so a lot of the time contractors run out of time. One of the proposed amendments is to increase the amount of time given to file a lien for residential construction from 90 days to 120 days, understanding that you can’t immediately start fighting with the people you’re doing business with because they’ll never do business with you again.

Another change that I think will be helpful to contractors concerns work that is done for a tenant rather than a landowner, and that’s not necessarily a residential tenant. The way the law currently stands, if you want to file a lien, the lien only attaches to the extent of the interest the person you’re doing the work for has in the property. So if you have a five-year lease and have some improvements done to the property, if I file a lien, the lien only attaches to the lease, which is meaningless because I can’t sell the lease on the open market and get money for it. Even if it states in the lease that the tenant is obligated to make certain improvements to a property, no liens can be placed on the property unless the tenant has a separate written authorization from the landlord for work to be done. This essentially leaves the contractor high and dry, because very few people are going to bother to ask for that separate authorization. The revised law would make it so all you need is the assent of the property owner, even in a general document, instead of separate written consent to do the work.

The revisions also take into account the modern reality of the construction arena. The lien law works fine for people who build a building or a house, what it doesn’t really contemplate are situations such as planned communities, where there are, say, five apartment buildings and several common areas. If you built the rec room for a five-unit condo complex and you’re not paid, it’s not really clear how you can file a lien to protect yourself and whether that’s considered residential construction or non-residential construction.

Another thing to take into account is mixed-use buildings. Builders are very confused about what they should do if they do work on those types of buildings. Is that a regular construction lien or a residential construction lien? The cases are all over the map based on the old law, so the legislature is looking to clarify what to do in those situations.

The legislature is also looking to change the aspects of the law that relate to goods suppliers. A lot of the time, goods suppliers don’t have a contract, they have an invoice, but in order to take advantage of the lien law, you need a written contract. The courts have tried various methods of protecting goods suppliers through the lien law, because the law clearly states that if you’re a supplier of materials, you’re allowed to file a lien. But the written contract requirement doesn’t really reflect the realities of the way business is done. The revised law would allow an invoice to stand in for the contract, as long as the invoice states specifically where the goods are going and are signed by the people receiving the goods.

GlobeSt.com: Are there any other major changes?

Oxman: Those are the highlights. A lot of it is making things clearer and making sure people know what to do. They’re seeking to make it more realistic, to create a more realistic time frame to accomplish the goals and take the necessary steps when filing a lien. They’re also seeking to further clarify certain areas, such as those relating to the more contemporary types of developments, which the law didn’t contemplate. When this law was written, I don’t think there were as many mixed-use properties as there are today.

GlobeSt.com: Who introduced the changes?

Oxman: The way I understand it, the people who wrote the original law knew they would have to revisit it, because whenever you have a new statute you can’t anticipate everything that’s going to happen. Specifically, the people who have requested these revisions are called the New Jersey Law Revision Commission.

GlobeSt.com: Do you think these revisions will be approved?

Oxman: I think this has a high likelihood of success because this seems to be an effort by both the practitioners and the legislature. A lot of times, people just complain and the legislature doesn’t really want to act. This is a case where the legislature is seeking guidance on how to act. I don’t know when it’s going to happen or what form the law or the revisions are going to take, but I think it’s likely that these changes will go into effect in some form, hopefully in the near future. This is something that will help a lot of people avoid litigation. The way the law is now, there’s so much ambiguity, so we’re asking the courts to fill in the gaps. The courts are always happy to do so, but the problem is Judge A is not always going to follow the decision of Judge B, so you end up with five different decisions from five different courts, and that just breeds more litigation. This is a case where everyone agrees on what the solution should be and the legislature understands there’s a need for clarification.

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