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Can Change Orders Be Included In Construction Liens?

If you are an unpaid contractor who wants to lien a project, you are required by the New Jersey Construction Lien Law to state your written contract price, how much you have been paid and the balance due.  But can you include in the equation a change order for unpaid work performed?  The answer is yes, but only if the change order is in writing and signed by the Owner (and you performed the work but remain unpaid). The change order always must be approved by the Owner for it to be “lienable.”  For a case holding that unapproved change orders cannot be included in a lien, see Stroud-Hopler v. Farm Harvesting Co., 2005 Westlaw 3693342, decided by our Appellate Division in 2006.

However, in this fast-paced, social media/ electronic age, the big question is whether you can consider a change order “lienable” if the owner approves it by email only, and there is no separate written “change order” signed by both parties.  Clearly, it would be preferable and advisable to always make sure a change order is in writing and signed by both parties.  But what if all you have is a chain of emails describing the change and price and the Owner approves it, even with a few words such as “Please proceed…” or “Ok”? This is fast becoming a familiar scenario in construction.

The answer is that the New Jersey Supreme Court has not decided the issue, but judging from a case I handled recently, trial courts (and ultimately the New Jersey Supreme Court) may consider an email to be sufficient to satisfy the writing requirement of the Construction Lien Law, provided you have the required elements for forming a contract:  an offer, an acceptance, a price, and a description of the work to be performed.

In the Stroud case, there were certain change orders that the Contractor included in the calculation of the lien amount but were never signed by the Owner, even if some of the work was verbally approved. Although the court held that certain other amounts (not addressed by the change orders) included in the lien were valid, it noted as follows:

We agree with defendant that plaintiff’s lien claim should not have included the amounts in its unapproved change orders. A change order request does not constitute a written contract for which a lien may be asserted under the CLL. However, we reject defendant’s assertion that the lien claim in its entirety is invalid. Clearly, there was a basis for the remainder of the claim and, in that respect, the claim was valid. Depending on the outcome of the remand proceedings, the lien claim may be enforced but only to the extent that it is based on a written agreement by defendant. That does not include change orders that were submitted by plaintiff but never agreed to in writing by defendant.

Section 2A:44A-6 of the Construction Lien Law provides as follows:

a. A contractor, subcontractor or supplier entitled to file a lien pursuant to section 3 of L.1993, c. 318 (C.2A:44A-3) shall do so according to the following process:

(1) The lien claim form as provided by section 8 of P.L.1993, c. 318 (C. 2A:44A-8) shall be signed, acknowledged and verified by oath of the claimant setting forth:

(a) the specific work or services performed, or material or equipment provided pursuant to contract; and

(b) the claimant’s identity and contractual relationship with the owner or community association and other known parties in the construction chain.

Thus, a key and strict requirement of the Construction Lien Law is that the specific work or services performed be provided under and pursuant to a “contract.” The Construction Lien Law is unequivocal and specific that a contract must be in writing and signed by the party against whom the lien is asserted. Section 2A:44A-2 provides as follows:

“Contract” means any agreement, or amendment thereto, in writing, signed by the party against whom the lien claim is asserted and evidencing the respective responsibilities of the contracting parties, including, but not limited to, price or other consideration to be paid, and a description of the benefit or improvement to the real property subject to a lien.

But can an approval email by the Owner be a “signed” agreement? In the case I handled, the trial judge found that changes to the work that were approved by email by the Owner indeed could be included in the lien amount if it was clear from the email that the Owner approved and/or authorized the work in the email or chain of emails.

Until we have more direction from our Supreme Court, always have change orders memorialized in a separate writing titled “Change Order” with the date, price, detailed description of the work, and when it will be completed and make sure it is signed by both the Contractor and the Owner. A verbal approval or making a request for a change order will not be sufficient. If you instead tried to memorialize the change by email, and the Owner gives his/her approval in writing, you may still be able to include in your lien the amount of that email change order, provided the elements required to form a contract exist, the work was performed and you are unpaid.  In fact, in Massachusetts, the Superior Court ruled in Clean Properties, Inc. v. Riselli, 32 Mass.L.Rptr. 234  (Mass. Sup. Ct. 2014) ruled that an email approval by an Owner can satisfy that state’s mechanic’s lien statute. Eventually, I expect we will have an appellate court reaching the same conclusion as to our Lien Law. One last thing: remember that if the project is residential, the Lien Law requires that before you file a lien, a neutral arbitrator must decide if a lien can be filed and what the amount of that lien is, but the considerations about change orders discussed here apply in that context as well.

If you have any questions about this post or any related matters, please feel free to contact our Construction Law Practice Group.