In today’s harsh economic climate, a general contractor or subcontractor is often faced with non-payment from a project owner. The question then becomes what is the best fashion in order to collect the unpaid balance which is due the general contractor or subcontractor. As a general contractor, you have a few options. The first option is to attempt to negotiate a resolution with the owner. Another option is to file a lawsuit. If a lawsuit is the preferred option, it is suggested that a Lien Claim be filed within ninety-days of the last date of materials or services were provided pursuant to N.J.S.A. 2A:44(A)-3. This secures the general contractor’s interest in the property and may provide it with leverage to facilitate a settlement.
For a subcontractor, the best process in which to collect an unpaid amount becomes more complex. Pursuant to the relevant Lien Statute, N.J.S.A. 2A:44-126, a “subcontractor” is any person or party who has a contract to provide labor or materials with a contractor or with a subcontractor who has a contract with the general contractor. The purpose of this definition is to limit who may file a Lien Claim against the property. Like a general contractor, a subcontractor may attempt to resolve the dispute as to the unpaid balance with the general contractor or the subcontractor who hired them. In the absence of a quick resolution, however, it is often suggested that a Lien Claim be filed by a subcontractor or sub-sub-contractor on the project. Unfortunately for a lot of subcontractors, this is when a critical error is made with regard to filing a Lien Claim.
Pursuant to N.J.S.A. 2A:44(A)-3, the Lien Claimant shall file a Lien against the owner of the property, or the tenant of the property for whom the contract to perform services exists. The critical point is that a Lien cannot be filed against the property owner if the tenant contracted to have the work done and the improvement was not authorized in writing by the owner of the property. This is critical because if a contractor files a Lien Claim against the property owner and not the tenant as well and it is later determined that the improvement was not authorized by the owner, the Lien Claim is invalid and the subcontractor may be left without a claim against the tenant. As such, the best practice is to always file a Lien Claim against the tenant who is occupying the leased property and for whom the work is being performed and against the property owner as well. At any time, the contractor can withdraw the Lien Claim against the property owner, however, continue against the tenant if it is found that the improvement was not authorized in writing. If this procedure is not followed and more than ninety days have passed since the last day materials and services were provided, the contractor may lose its right to bring a Lien Claim against the tenant.
As always, a lawsuit to foreclose upon the Lien must be commenced within thirty days upon request by the tenant or owner or within one year of the date of the Lien Claim was filed, otherwise it will expire. A subcontractor or sub-subcontractor does not lose its rights to proceed against the party whom directly contracted with it, however, an action to foreclose upon the Lien Claim as well only gives the contractor further leverage.