For most residential construction contractors, the risk of non-payment is a threat that, if realized, can cease the day-to-day operations of the business. Non-payment usually stems from a dispute between the owner and general contractor (“GC”) regarding the quality of the work. Regardless of whether you are a GC or subcontractor, the filing of a construction lien is a powerful weapon against non-payment. In the residential construction context, the filing of a construction lien has additional requirements above and beyond that of commercial construction. This article will discuss the added requirements necessary to validly record a residential construction lien claim.
A Contractor’s Entitlement to a Lien
Any contractor, subcontractor or supplier who provides work, services, material or equipment pursuant to a contract, shall be entitled to a lien for the value of the work or services performed, or materials or equipment furnished in accordance with the contract and based upon the contract price. N.J.S.A. 2A:44-3. Such liens attach to the interest of the owner of the property. Once the lien is filed and attached to the property, the owner and the GC may be forced to pay the debt or contest the lien through costly litigation.
The key to the lien process is the existence of a contract to provide work, services, material or equipment. For subcontractor purposes, it is irrelevant that the contract is with the GC and does not include the property owner directly.
Filing a Residential Construction Lien Claim
In New Jersey, prior to recording a residential lien claim, a contractor must first file a Notice of Unpaid Balance and Right to File Lien (the “NUB”). N.J.S.A. 2A:44A-6. The NUB must be filed within 60 days of the contractor’s date of “last work” on the property. N.J.S.A. 2A:44A-21(b)(1). Once filed, the NUB must be served in accordance with N.J.S.A. 2A:44A-7. Within 10 days of filing the NUB, and if the parties have not previously agreed in writing to an alternative dispute resolution method, the contractor must properly demand arbitration through the American Arbitration Association. N.J.S.A. 2A:44A-21(b)(3).
The arbitration process will take place quickly and a determination made by the arbitrator as to the value of any allowable lien claim. After receiving the arbitrator’s finding awarding a valid lien claim, the contractor only has 10 days within which to lodge the actual lien claim in accordance with the provisions of N.J.S.A. 2A:44A-8. The entire process above must be strictly adhered to and the lien claim must ultimately recorded within 120 days of the date of “last work.” N.J.S.A. 2A:44A-6(2).
The above added requirements of the residential construction lien process were added because the ability to sell and purchase residential housing is essential to the economy of the State of New Jersey. Generally, the construction of residential property involves multiple subcontractors and the potential for minor monetary disputes poses a real impediment to the ability to transfer title quickly. N.J.S.A. 2A:44A-21. The intent of the legislature in enacting these added requirements in the residential construction arena is to provide a system for balancing the competing interests of consumers and the contract rights of contractors.
A residential construction contractor has lien rights against the property on which he or she works. However, the filing of a residential construction lien has added requirements that can present pitfalls. If the added requirements of the residential construction lien process are not met, a contractor may forfeit their lien rights against the property. At Scura, Wigfield, Heyer, Stevens & Cammarota LLP, we are experienced in the filing of both residential and commercial construction liens. If you are a contractor and have questions regarding your lien rights, please contact our offices for a consultation.