Many contractors performing work for small projects reach an “agreement” with an owner regarding the scope of work that the owner wants and the price to be paid, and begin construction. The two parties seem to be on good terms, and the project begins smoothly. Neither party thinks a written contract is necessary because the two have a “handshake” or “gentlemen’s” agreement. Then, a few weeks or months into the project, the owner complains about the quality of the materials used or the time it is taking to complete the work and withholds payment from the contractor. Consequently, the contractor threatens to lien the property. The owner argues that without a written contract, any lien would be invalid.
Who is right?
It depends what state you are in: in New Jersey, the owner; in New York, the contractor.
In New Jersey, everyone- general contractors, subcontractors, and suppliers- must have a written contract in order to have the right to later file a construction lien. Furthermore, all change orders and contract addenda must be in writing. If a change to the scope of work or extras is not in writing, it cannot be part of your lien. It is important to note that the contract does not need to be a formal, comprehensive contract. The New Jersey Construction Lien Law (“CLL”) requires only a writing that describes the price and the improvement.
The writing requirement for material suppliers is even less formal. The CLL requirement of a “writing” will be satisfied for material suppliers by a delivery or order slip signed by a general contractor, subcontractor, or authorized agent. Typically these are signed by anyone on the job at the time, and in most cases the person qualifies as the authorized agent. The statute defines a signature also as a “mark or symbol,” which is intended to authenticate it. Therefore, even signing “OK,” “Received,” or identifying someone’s initials may be sufficient.
New York, on the other hand, does not require a written contract or change orders in order for a contractor to file a mechanic’s lien under to the New York Lien Law. The lien will have to identify the work performed and value of the services but, without a written contract, it will be up to the contactor to identify the work and the amount.
In both New Jersey and New York, owners have safeguards against wrongful or exaggerated lien claims. In New Jersey, if a lien claim is without basis, the amount of the lien claim is willfully overstated, or the lien claim is not filed according to the CLL, the lien claimant forfeits all claimed lien rights and rights to file subsequent lien claims to the extent of the face amount claimed in the lien claim. The claimant will also be liable for all court costs and reasonable legal expenses, including attorney’s fees, incurred by the owner, contractor or subcontractor, in defending or causing the discharge of the lien claim. The court shall, in addition, enter judgment against the claimant for damages to any of the parties adversely affected by the lien claim. Similarly, in New York, if the lien claim is determined to be willfully exaggerated, the lien will be void, and the lien claimant can be liable for the difference between the amount of the exaggerated lien and the actual amount due, plus the costs and attorney’s fees incurred in bonding or discharging the lien.
The bottom line: a written contract that identifies the scope of work and the cost for the work, including any changes or extras, protects both the owner and the contractor. We have attorneys here who can draft construction contracts to minimize the risk whether you are an owner or a contractor. And remember to get those change orders signed by the party you’re contracting with so you can protect yourself!
If you have any questions about this post or any related matters, please feel free to contact our Construction Law Practice Group.