Construction Corner - September 2018

CONSTRUCTION CORNER

Michael E. Catania
Legal News and Updates for the Design and Construction Industry

Lien Laws Are Not Created Equal:

Key Differences Between NY and NJ

Many of my clients operate in Northern and Central New Jersey. If you are one of them, it is important to know that NJ’s lien law is different from NY’s in several key aspects. The most significant are as follows:

1. Unlike NY Mechanic's liens, Construction liens (NJ’s term for mechanic’s liens) require signed written contracts. There is no lien remedy for unwritten contracts.[1] If you are a supplier, the written contract requirement can be satisfied with signed delivery slips as long as they contain sufficient information such as name of the project and site address.[2] This written contract requirement applies to change orders as well.
2. Time to File- With the exception of residential and public work projects, the contractor must file its lien within 90 days following the date the last work, services, material or equipment was provided for which payment is claimed to file its lien. This is 5 months shorter than in NY.
3. Similar to NY, warranty work, service calls, or “other work, materials or equipment provided after completion or termination of a claimant's contract” cannot extend the period to file.
4. Service of filed liens upon the Owner and other interested parties must be completed from 10 days of filing (in NY, you can serve the lien 5 days before or up to 30 days after it is filed).
5. Late service of a timely filed lien does not automatically invalidate the lien[3] (it does in NY, as the lien is not valid unless an affidavit of service is filed showing service either 5 days before or within 30 days after filing).
6. Unlike NY, where residential liens are similar to commercial but with a shorter time to file, NJ residential liens are an entirely different process that require filing of a Notice of Unpaid Balance within 60 days of “the last date that work, services, material or equipment were provided for which payment is claimed…” (N.J.S.A. 2A:44A-21(b)(1)) and mandatory arbitration. The actual lien can only be filed after an arbitrator allows it.
7. If you fail to discharge a lien after 1 year, assuming you have not moved in a lawsuit to enforce it, the Owner can seek to discharge it and may be entitled to any attorney’s fees, courts costs and damages incurred in the process.

[1] Orefice v. ADR, 315 N.J.Super. 493, (A.D.1998).

[2]Legge Industries v. Joseph Kushner Hebrew Academy/JKHA, 333 N.J.Super. 537, 756 A.2d 608 (A.D.2000).

[3]N.J. Stat. Ann. § 2A:44A-7 “the service of the lien claim outside the prescribed time period shall not preclude enforceability unless the party not timely served proves by a preponderance of the evidence that the late service has materially prejudiced its position.”

Legislative Updates- NYC Seeks to Remedy Late Payments by its Agencies

In light of recent reporting regarding atrociously late payments to contractors by the Department of the Homeless[1](late on 78 percent of its contract registrations and payments to vendors since 2013), the City Council has introduced legislation to improve the timeliness of agency payments to vendors.

The proposed law[2] would require the Procurement Policy Board to create a process for city agencies to inform vendors of the reason for any late payments. In addition, all City agencies would be mandated to report late payments to the Mayor’s Office of Contract Services (OCS). The OCS would report to the Mayor and Council every 6 months with information about the late payments from all City agencies. Finally, the new legislation calls for the promulgation of rules that would create a maximum amount of time for contract payments, with interest accruing thereafter. At last check, the bill was sent to committee in early August.

[1] https://nypost.com/2018/05/29/politicians-bash-city-over-double-standard-for-nyc-agencies/

[2] http://legistar.council.nyc.gov/LegislationDetail.aspx?ID=3597741&GUID=2DB0A3F8-C480-405E-8D61-F964A43F45E4&Options=ID|Text|&Search=1067

SUBSTANTIAL COMPLETION

The date of substantial completion is of utmost importance, both to the owner and to the contractor, as the commencement of warranties, the reduction of retainage, the time for final payment and the assessment of liquidated damages all tie back to it. It is therefore in everyone’s best interest to reach a clear understanding as to what substantial completion is and how it is achieved.

Section § 9.8.1 of AIA’s 2017 General Conditions (A201) defines Substantial Completion as:

“the stage in the progress of the Work when the Work or designated portion thereof is sufficiently complete in accordance with the Contract Documents so that the Owner can occupy or utilize the Work for its intended use.”

This definition can present difficulties for both parties. For the Owner, there are situations in which it can “utilize the Work for its intended use” yet it may not, perhaps due to loan or grant requirements, deem the project substantially complete. Often, temporary or final certificates of occupancy are the real determining factor for completeness. In such cases, language such as the following can be added:

"Notwithstanding, and as a condition precedent to Substantial Completion, the Owner must have received all certificates of occupancy, permits, approvals, and licenses from the governmental authority having jurisdiction over the Project as are necessary for the Owner’s beneficial occupancy of the Project."

For Contractors, Section 8.1.3. should be addressed as it sets the date of Substantial Completion. It states:

“The date of Substantial Completion is the date certified by the Architect in accordance with Section 9.8.”

What if substantial completion is met per the definition of 9.8.1, but the Architect has withheld certification for some other reason? You can imagine the conflict that would ensue. However, a simple edit to 8.1.3 can typically prevent this. Remove the phrase “certified by the Architect in accordance with” and replace it with “as established in” or “as set forth in.” Assuming both parties are satisfied with the definition of substantial completion in 9.8.1, tying 8.1.3 directly to it can simplify matters and avoid potential future conflicts.

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