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Home Improvement Contractors Beware

Spring 2007Cole Schotz DocketAttorney: Adam J. Sklar

In recent years, the New Jersey Legislature has imposed substantial burdens on this State’s home improvement contractors (“HICs”).  HICs are often ‘little guys’ who lack the clout in Trenton to influence construction legislation.  While the vast majority of HICs are honest and diligent, the practices of disreputable HICs have prompted the Legislature to seek to protect residential consumers.  This article highlights several critical legal obstacles of which every HIC must be aware.

Contractors’ Registration Act

Effective as of December 31, 2005, the Contractors’ Registration Act (“CRA”) requires that all non-exempt HICs register annually with New Jersey’s Division of Consumer Affairs (“DCA”).  According to recent DCA figures, more than 33,000 HICs have registered.  If a non-exempt HIC does not register, it is barred from working in New Jersey.  Where the value of HIC’s work exceeds $500, the CRA requires a signed contract, which must contain, among other things: the HIC’s legal name, business address, and registration number; the contract price including finance charges; and the consumer’s right to cancel the contract within three days of its signing and obtain a full refund of all monies paid.  A violation of the CRA is a fourth-degree crime and subjects the HIC to substantial monetary penalties as well as potential triple the amount of the damages sustained by the consumer and the payment of the consumer’s attorneys’ fees.

Consumer Fraud Act

The CRA amended the Consumer Fraud Act (“CFA”), which regulates all consumer sales practices.  Even if an HIC is exempt from the CRA it is bound by the CFA, including regulations within the CFA specifically directed to HICs.  These regulations provide a comprehensive list of unlawful practices primarily aimed at misrepresentations by HICs during the sales process.  The regulations include many of the same provisions required by the CRA but also require that HIC contracts exceeding $500 be clear, accurate and legible and include, among other things, a description of the work and materials to be used, beginning and completion dates or time period for the work.  Violations of the CFA expose HICs to the same criminal penalties and potential civil triple damages and attorneys’ fees as the CRA.

Construction Lien Law

As of April 1994, the Construction Lien Law (“CLL”) governs a contractor’s placement of a lien on privately owned real estate in New Jersey.  The CLL specifies the requirements for contractors wishing to file liens against properties on which they are working.  HICs, unlike contractors working on commercial or industrial properties, however, must comply with additional strict and highly technical procedures in order to file a lien.  Before HICs may file liens on residential real estate, they must submit the underlying dispute to arbitration.  The arbitration must be completed, a decision rendered and the lien filed all within ninety days of the HIC’s last date of work on the job.  HICs, therefore, must act quickly to comply with this complex procedure to simply obtain the right to file a lien.  A non-compliant lien filing is not only unenforceable but it exposes an HIC to liability for damages sustained by the consumer as a result of the filing and payment of the consumer’s attorneys’ fees.

Conclusion

HICs doing work in New Jersey take substantial risks if they do not have a thorough understanding of the laws impacting their business.  This article summarizes just a few of the most important laws in this area.  The attorneys in our Construction Services Practices Group would be happy to discuss these and other laws regulating HICs in New Jersey.

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