Last year, we mentioned that a bill proposing changes to the CLL was pending in the New Jersey legislature. The bill passed, has been signed into law by the governor, and is now the law of the land in New Jersey. You can read the full text of the new law here.

So, what’s new?

Defining The Meaning of “Residential”

The legislature has made an effort with the new law to clarify the meaning of the term “residential.” It’s an important distinction in New Jersey’s Construction Lien Law, as filing a lien on residential property in New Jersey requires a special procedure (involving the filing of an arbitration action). Clarification of the “residential” term is accomplished in three parts.

First, by defining the term “dwelling:”

A one-, two- or three-family residence that is freestanding or shares a party wall without common ownership interest in that party wall. A dwelling may be part of a real property development.

Second, by defining “Residential Construction:”

[A]lso referred to as “residential construction” or “home construction,” means construction of or improvement to a dwelling, or any portion thereof, or any residential unit, or any portion thereof. In the case of a  real property development, “residential construction” or “residential housing construction” or “home construction” also includes: (1) all offsite and onsite infrastructure and sitework improvement required by a residential construction contract, master deed, or other document; (2) the common elements of the development, which may also include by definition the offsite and onsite infrastructure and sitework improvements; and (3) those areas or buildings commonly shared.

Third, by defining a “Residential Unit:”

[A] unit in a real property development designed to be transferred or sold for use as a residence…evidenceed by a document…recorded with the county clerk…includes a unit designed to be transferred or sold for use as a residence that is part of a multi-use or mixed use development project…[but] shall not include a unit designed for rental purposes or a unit designed to be transferred or sold for non-residential use.

These definitions frequently refer to a “real property development,” which is also defined by the act as (i) a condominium; (ii) a housing cooperative; (iii) a fee simple townhouse development; (iv) a planned unit development.

Changes to Filing Requirements

– Those performing work on a “real property development,” or where work was done on behalf of a tenant, must identify the contractual relationship with the owner or community association and other known parties in the construction chain.

– Filings for non-residential liens must still be within 90 days of last furnishing labor and/or materials. However, the residential construction lien deadline has been changed. Previously, the law required that residential liens be filed within 90 days from the last furnishing of labor or materials, but also required that a claimant file an arbitration action and get an arbitrator’s determination concerning the good faith validity of the lien.  The turnaround time for this was quite tight. The new law still requires the arbitration filing, and a lien may not be filed until the arbitrator’s determination is received. Now, however, the lien must be filed within 10 days of receiving the arbitrator’s ddetermination, and within 120 days from the last date of furnishing labor or materials.

– Within ten days of filing a mechanic lien, the claimant must deliver a copy of the completed and signed len claim form, with the county’s stamp marking its filing thereupon, to the owner (or community association, and, if any, the contractor and subcontractor against whom the lien is asserted. The document must be delivered by either; (i) personal service as required by rules of court in New Jersey; or (ii) simultaneous registered or certified mail or commercial courier whose regular business is delivery service; and ordinary us mail addressed to the last known business or residence address of the parties to receive notice.

Other Changes

– A supplier to a supplier who is not lower than the third tier of contracting parties now has the right to lien if it has a written contract to provide the supplies.

– “Filing” a lien now only requires delivery to the county clerk, as oppose to “indexing” of the lien as formerly required.

– New Forms are created by the statute for a number of notices and filings.

Resourses

• Perfection of a Mechanic’s Lien on New Jersey Residential Projects (Construction Law Signal Blog)
• Lien Law Alert on New Jersey Changes from Lien Law Online

Here at the Construction Lien Blog we try our best to write posts concerning important updates to mechanic lien laws, or to point out relevant news stories out there that offer lessons about mechanic liens…but it’s so difficult to relay everything!   As such, we’re going to start a new segment here called the “Mid-Week Review.”  Each Wednesday, we’ll post links and short commentary on the law changes, news articles, cases and commentary out there that relate to mechanic liens, preliminary notices, bond claims or miller act claims.

It’s Wednesday now…so here goes:

New Jersey Construction Lien Law Revisions Clear First Hurdle (read)
Thanks to New Jersey’s Cole Scholtz for posting an article on their JD Supra page concerning progress on the state’s consideration of changes to the New Jersey Construction Lien Law (N.J.S.A. 2A:44A-1, et seq.).   It recently passed the NJ Assembly unanimously, and is now moving along to the Senate.   We previously wrote about these pending changes.

Missouri Lien Law Changes Signed Into Law – Effective Nov 1 (read)
Home Builders Association of St. Louis and Eastern Missouri posted an update on their blog that Missouri’s Governor Nixon has signed the Lien Law Changes bill into law this week.    We previously wrote about this bill on our blog here.   The changes take effect on November 1st.

Minnesota Contract Provision Created Lien Waiver – Which Is Invalid (read)
Kraus-Anderson Construction v. Superior Vista LLC was decided by the Minn. Court of Appeals last week, considering a contract provision that impacted a general contractor’s lien rights.   The court found that where the general contractor entered into an agreement with a project’s owner and lenders stating that the contractor agreed “not to . . . assert or file any mechanics’ or materialmans’ lien now or hereafter existing or to sue upon or collect or receive payment of,” until a lender’s claim has been paid in full, the provision created a “de facto” mechanic’s lien waiver, which is a violation of  Minn. Stat. sec. 337.10, subd. 2.  Read the full case opinion here.

What Is The Last Day of Substantial Work in Idaho? (read)
One of our favorite websites – Avvo.com – lets consumers and businesses ask questions to licensed attorneys…for free.   Someone in Idaho just posed this question, which is an important question in determining when a lien is or is not timely.  This question was answered for Idaho specially on Avvo.com, and you can read the question and answer here.

Fewer Mechanic Lien Filings in 2010 – Good or Bad News for Economy? (read)
Louisville, KY’s business journal is reporting that a specific county there has seen a pretty drastic reduction in mechanic lien filings.  Not sure what this says about the rest of the country’s filing stats, but it begs the question in this article – is fewer mechanic liens a good or bad sign for the construction industry?

Massachusetts Mechanic Lien Digest (read)
The Massachusetts Real Estate Blog (operated by Vetstein Law Group) just posted a great primer on mechanic lien law in that state.    You can find more information on Massachusetts mechanic liens and preliminary notices right here on our blog, too, at the Massachusetts tag.

Beauty and Aggravation of the Mechanics Lien (read)
Ned Pelger, P.E. runs an excellent and informative website at ConstructionKnowledget.net, and he recently posted on his blog about this blog and the importance of mechanic liens in general.   First, a big thanks to Ned for the mention.  Second, Ned’s post (and site) contains some great overview information about why liens are important.

But it isn’t just the courts that change mechanic lien laws.   State legislatures are constantly proposing bills that will alter the lien statutes completely.   Currently, two such bills are pending in New Jersey and Michigan.

The Michigan Mechanic Lien Legislation

The Michigan legislation is actually getting a great deal of coverage on Twitter (yes, twitter).   See twitter posts from the legislature, and a legislator, here and here.    This particular bill’s summary provides that it “would amend the Construction Lien Act to repeal provisions concerning the Homeowner Construction Lien Recovery Fund (HCLRF), which is essentially insolvent, and cannot meet the demand for claims from the fund.”    Read about House Bill 5830 at the Legislative Website here.

We actually wrote about the problems with the Lien Recovery Fund back in January (Michigan Lien Recovery Fund Raises White Flag).

While a good idea on paper, the Lien Recovery Fund just couldn’t make ends meet.   This legislation in Michigan is almost a foregone conclusion, as the fund itself is insolvent.   The bill is just formally closing the book on it.

The New Jersey Mechanic Lien Legislation

The legislation pending in New Jersey, in comparison to the Michigan legislation, may have a bit more of an effect on that state’s mechanic lien statutes if passed.   The bill doesn’t aim to make substantial change to the mechanic lien requirements, but many contractors and suppliers in New Jersey may be effected by the suggested changes.   Read about NJ Assembly Bill 410 at the Legislative website here.

Here is a quote of the bill’s summary:

This bill revises the “Construction Lien Law,” which was enacted in 1993, by:
(1) clarifying and adding certain defined terms, to conform to actual construction industry usage;
(2) clarifying procedures for the filing and amending of the lien claim and for the calculation, distribution and enforcement of the lien fund;
(3) providing more specific provisions for discharging a satisfied lien claim;
(4) further defining the arbitrator’s role;
(5) modifying time limits for filing and perfecting residential construction contract lien claims;
(6) specifying the application of lien claims to community association property; and
(7) addressing certain ambiguities as to mortgage priorities with respect to lien claims.

We’ll monitor these bills and keep you update.

The existence of these laws can undermine a contractor’s true security in getting paid on a job, while providing assurances to consumers and builders that financing will not be held up by downstream contractors.

In Nevada, recent law effectively made it possible to limit lien rights during contracting. John Foust and John Ralls of Howrey LLP offer the case of Dayside, Inc. v. First Judicial District Court, 75 P.3d 384 (Nev. 2003) as an example of this unique legal protection. In that case, a contractor signing a standard form contract, which contained a waiver of lien rights clause was prevented from asserting its lien claim. The court found that a knowing assent to a clear and unambiguous term, waiving lien rights, was an enforceable clause which was not adverse to public policy.

In the book Fifty State Construction Lien and Bond Law By Robert Frank Cushman, Stephen D. Butler, Laurence Schor, the authors illustrate that the State of Alabama has permitted contractual waiver of lien rights prior to the work being initiated. The book, which can be found on Google Books, illustrates that Alabama further provides builders with the right to obtain a list of all other contractors working on the job from the general contractor.

On the contrary, states such as Pennsylvania have taken steps to ensure that contractors’ rights are not upended through contract. Joshua Lorenz of Meyer, Unkovic and Scott addresses the effect of a 2006 law, taking effect January 1, 2007, which unanimously passed through the state legislature with the intent to prevent contractual waiver of lien rights. Joshua’s analysis was that the law would have an immediate impact upon construction lending, title insurance and delays on projects.

A second opinion by Michael Zukowski, of Kirkpatrick & Lockhart states that in some instances, where contractors post a payment bond, or for residential construction under $1,000,000.00, a contractor may still expressly waive its lien rights prior to beginning work. Regardless, Pennsylvania’s stance clearly prevents builders from running amuck of the mechanic’s lien statutes.

Florida also prevents the pre-performance waiver of lien rights. An article by Jeffery Wertzman indicates that contractors cannot contractually release these rights until after they have actually performed the work to be released.

In 1994, New Jersey’s legislature passed sweeping reform to its mechanic’s lien statutes. The effect of these laws, among other things, abolished lien waivers during contracting as against public policy. Peter J. Smith of Connell Foley, LLP opines further in his article which can be found in the firm’s publications section.

Similarly, Illinois law expressly prohibits the waiver of lien rights during contracting. Heidi Hennig Rowe, of Schiff Hardin LLP’s Chicago practice, opines that the Illinois mechanic lien statute provides no avenue for a project owner to prevent a contractor from liening its project during contracting. Seemingly becoming the majority position, contractors’ rights are once again protected in the Midwest.