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Legislative Update: Construction Lien Law

On April 22, 2008, the New Jersey Law Revision Commission issued a revised draft of its tentative report on the Construction Lien Law, N.J.S.A. 2A:44-1, et seq., which includes numerous suggestions that, if enacted, would serve to clarify some and completely change other provisions of the statute. There are also some brand new sections proposed for the Construction Lien Law. One example of the Commission’s recommended legislative amendments relates to the Construction Lien Law’s definitions section. The Commission proposes revising the meaning of certain terms, such as “contract” and “residential construction contract” and creating new definitions for terms that had not previously been defined in the statute, such as “dwelling,” “lien fund” and “residential unit.”

Another example is the proposed clarification of the language governing entitlement to liens for work performed and materials or equipment provided on leased property at N.J.S.A. 2A:44-3. Presently, a construction lien attaches to the leasehold estate rather than the interest of the owner in the real property, unless the owner-landlord authorized in writing the specific improvement contracted to be installed at the leased premises. This essentially was how the Appellate Division read N.J.S.A. 2A:44-3 in its 2007 unreported decision captioned Cherry Hill Self Storage, LLC v. Racanelli Construction Company, Inc. The proposed change, if enacted, would allow construction liens for improvements to leased premises to attach to the owner-landlord’s interest in the real property without a separate written authorization for a given improvement provided that “the tenant’s lease agreement, signed by the owner, permits the improvement without further owner authorization[,]” and would thereby legislatively overrule the Cherry Hill Self Storage case.

The Commission’s revised draft tentative report also contains revisions to the requirements for the filing of lien claims at N.J.S.A. 2A:44-6, which specifies what must be included in a lien claim and increases the amount of time to file lien claims for work performed and materials or equipment provided on residential construction contract from 90 to 120 days. Additionally, among other things, the Commission seeks to create a new section - proposed to be codified at N.J.S.A. 2A:44-9.1 - that outlines in detail the method for calculating a lien fund, an owner’s maximum liability and impermissible reductions from a lien fund. The addition of proposed N.J.S.A. 2A:44-9.1 is one of the most significant changes to the Construction Lien Law recommended by the Commission, which was prompted, at least in part, by a number of case decisions, such as Labov Mechanical, Inc. v. East Cost Power, L.L.C., 377 N.J.Super. 240 (App. Div. 2005) and Craft v. Stevenson Lumber Yard, Inc., 179 N.J. 56 (2004).

It is uncertain what the fate of the aforesaid proposed legislative revisions will be in the coming months. However, it is interesting to see how a handful of judicial rulings on the Construction Lien Law have sparked debate and provided the basis potentially for some decisive legislative action in this area of law.

Full post as published by New Jersey Law Blog on June 17, 2008 (boomark / email).