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About MeJoseph R. Haftek, Jr. - Commercial litigator with Schenck, Price, Smith & King, LLP

Mission: Helping clients achieve success

Son of a contractor: Grew up in and around the construction industry

Practice focus: 10+ Years experience in construction litigation, contract drafting, NJ lien laws, and public bidding

Tried construction cases in both the Superior Court and arbitration, as well as arguing before the NJ Appellate Division

I take great pride in personally investing myself in my clients matters like SPSK has been doing for 104 years

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ObjectivesToday we are going to explore and discuss an oft overlooked, yet powerful, area of law with daily impacts on development and construction throughout NJ.

• This session will help familiarize you with common issues, how to address them, and what can be done to prevent them.

• Becoming familiar with the law and payment issues will enable you to avoid time consuming and costly legal issues.

• After today, you will have a better understanding of timeframes and requirements under the lien law, which are often paramount in prosecuting or refuting a lien claim.

• By understanding payment and lien law issues, you will be able to meet these challenges head on from the outset of a project.

• Good planning can often prevent many common project pitfalls.

• Generally liens are filed in the event of non-payment. • When registered, it is generally filed against the Property Owner and

attaches to the land title of the property you worked on.

In simple terms, if you have provided work and/or materials to a job site that help to improve the land, you can file a Construction Lien.

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What is a Construction Lien?Construction Lien - a risk management tool to protect yourself on a job

site.

• Construction Liens ensure you have a secured interest on the property you are doing work for.

• When placed, it is registered against the land title and can delay the release of funds or the sale/refinancing of the property. 

A Construction Lien is leverage

• The lien will not be removed until an agreement has been met or it expires.

Filing a Lien forces your client to address the situation head-on and gets you to the negotiating table.

• Example: a subcontractor doing electrical work on a project can file a lien against the company who hired you and the lien will attach itself to the property.

The presence of a lien means further payment will be delayed to the entire project and the property won't be able to be sold or refinanced.

Three Tiers of Liens

Owner

Subcontractor Supplier

Supplier Sub-sub

Contractor

Tier

1

2

3

6

Contractor

Lease

Owner

Subcontractor Supplier

Supplier Sub-sub

XTier

1

2

3

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“Filing”-Delivering the lien claim to the County Clerk WITHIN 90 DAYS OF THE LAST DATE OF WORK, paying the filing fee, and marking by the Clerk.

“Lien claim”-A claim for money for the value of work, services, material or equipment furnished in accordance with a contract and any amendments thereto.

The Commercial Lien Process

“Claimant”-First (Contractor), Second (Sub/Supplier), or Third (Sub-sub/Supplier) tier party that provides labor or materials at a project.

“Contract”-A signed, written agreement.

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Prohibited Liens

For materials which have

been furnished pursuant to a

security agreement.

Public Works.

Residential construction

unless compliant with

Sections 20 and 21.

No signed contract/change order.

What kind of work is not covered?

2A:44A-5

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Owners/Lenders must receive statutory notice.

The owner’s real estate may be subject to sale to satisfy the amount asserted by this claim.

A lien claim is forfeited IF:• A complaint to foreclose is not filed within one (1) year of the last date of work,

NOT THE DATE THE LIEN WAS FILED; or• A complaint is not filed within 30 days of a demand to foreclose from an owner or

contractor.

There are statutory prescriptions for who can file/foreclose on a lien claim, and what must accompany a complaint to foreclose.

Owners/Lenders

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“Lien fund”• Means the pool of money from which one or more lien

claims may be paid. The amount of the lien shall not exceed the maximum amount for which an owner can be liable. The amount of the lien that attaches to the owner’s interest in the real property cannot exceed the lien fund.

What is included?• The amount of the lien fund shall not exceed the unpaid

portion of the claimant's contract for the work, services, material or equipment provided.

The Amount of a Lien Claim

N.J.S.A. 2A:44A-2; N.J.S.A. 2A:44A-9

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Calculating the Lien FundOwner

$1,000,000 Contract with GC-$900,000 Paid

General Contractor

Lien Fund=$100,000

Subcontractor

$50,000 Lien

Subcontractor

$30,000 Lien

Subcontractor

$40,000 Lien

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The lien fund…shall not be reduced by payments by the owner, or community association…that do not discharge the obligations for the work performed or services, material or equipments provided, including, but not limited to:• Payments not in accordance with contract provisions:• Payments yet to be earned upon lodging for record of the lien claim;• Liquidated damages• Collusive payments• Use of retainage to make payments to a successor contractor after the lien

claim is lodged for record or• Setoffs or backcharges, absent written agreement, except for any setoffs

upheld by judgment that are first determined by alternate dispute resolution.

The Amount of a Lien Claim (cont.)

N.J.S.A. 2A:44A-9

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If a lien claim is without basis, the amount of the lien claim is willfully overstated, if the lien claim is not lodged for record in substantially the form or in the manner or at a time not in accordance with this act, a claimant may forfeit lien rights

and be liable for costs of discharging a lien, including counsel fees.

If a defense to the lien claim is without basis, the same rules apply.

If a lien claim is forfeited pursuant to this section, you cannot file another lien for the same work.

For the purpose of this section :”without basis” means frivolous, false, unsupported by a contract, or made with malice or bad faith or for any improper

purpose.

Improper Lodging of Lien Claim; Forfeiture of Rights; Liability

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“Filing”-Delivering the lien claim to the County Clerk WITHIN 90 DAYS OF THE LAST DATE OF WORK, paying the filing fee, and marking by the Clerk.

“Lien claim”-A claim for money for the value of work, services, material or equipment furnished in accordance with a contract and any amendments thereto.

The Commercial Lien Process

“Claimant”-First (Contractor), Second (Sub/Supplier), or Third (Sub-sub/Supplier) tier party that provides labor or materials at a project.

“Contract”-A signed, written agreement.

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Payment, Bonds and Discharge of Lien Claims

Requires discharge of a lien within 30 days of receipt of payment, settlement or forfeiture.Section 30

Permits the filing of a bond for or cash deposit with the Court of 110% of the lien claim amount to discharge the encumbrance on the property;

Section 31

Addresses how this bond or deposit does not discharge the enforceable lien claim, only an enforcement action for execution on the physical property.

Section 32

Provides the remaining lien discharge procedures.Section 33

N.J.S.A. 2A:44A-30-33:

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Lien claims pursuant to N.J.S.A. 2A:44a-1, et seq. cannot be waived; contract provisions waiving the right to file a lien are unenforceable in New Jersey. However, owners may require partial lien waivers for amounts actually received by a contractor. N.J.S.A. 2A:44A-38

Lien claim enforcement actions are typically combined with contract and common law claims asserted against a contractor/subcontractor, but may be litigated separately. N.J.S.A. 2A:44A-14(a).

Notes

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Applies to those who supply labor or materials on public works projects.

Law is designed to prevent payment problems that on public improvements construction sites when a GC has hired subcontractors, who, in turn, have hired other subcontractors and suppliers that are unknown to the GC.

The Claim Process Under The Municipal Mechanics’ Lien Law

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The Lien Law applies to counties, cities,

towns, public commissions and boards or other

municipalities, but not the state. THE LIEN DOES NOT

ATTACH TO PUBLIC PROPERTY, only

public funds. If you don’t have a contract with an Owner or GC, you

must “Notice of Lien Claim” or lose most

lien rights.

The Municipal Mechanic’s Lien Law Notice Provisions

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Once a lien claim is filed, the public agency can compel the contractor to show cause why the Claim should not be paid.

If the contractor fails to demonstrate that the lien is unfounded and untrue, the public agency can pay the Claimant out of funds due the contractor.

Alternatively, the Claimant can seek enforcement of its lien claim in Court.

If the Lien Claim is proven to be valid, the Claimant is entitled to a judgment directing the public agency to pay the Claim out of monies due the contractor.

Notes

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Notes

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New Jersey's Prompt Payment Act

Public and private entities must reject payment applications and provide a basis for rejection in writing within 20 days of the application .

If a payment application is not rejected in writing within 20 days, it is deemed accepted after 30 days.

Failure to comply with these requirements can result in the payment of the amount due plus costs, counsel fees and interest.

Contractors and subcontractors can also suspend work under the PPA.

Other Concerns

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