Commercial Landlord Alert: Proposed Change In Law Makes It Easier For Tenant’s Contractors To Lien Property

Under current law a tenant’s contractor cannot file a construction lien against the landlord’s property for amounts unpaid by the tenant unless the landlord provided written authorization of the specific construction contract between the contractor and the tenant. Even where the lease specifically provided for the work in question and the landlord was notified of the commencement of the work as required by the lease, current law prohibits a tenant’s contractor from filing a construction lien against the landlord’s property.

This will all change if a proposed revision to the New Jersey Construction Lien Law is enacted this spring. According to the proposed revision to the law, a tenant’s contractor will be able to file a lien against the landlord’s property for amounts unpaid by the tenant if the landlord has paid or agreed in writing to pay for the majority of the tenant improvement or if the lease provides the property is subject to a lien for the improvement. Accordingly, landlords should review current leases and keep this proposed change in mind for future leases in order to minimize the chances of unwittingly exposing the property to construction liens filed by contractors who have not been paid by the tenant for improvements to the property. 

If and when the revision to the law is enacted, in appropriate circumstances a landlord may wish to consider requiring all tenant improvement work be done by the landlord instead of reimbursing the tenant for the tenant’s cost to perform the work. This alternative will allow the landlord to control the work and pay contractors directly.  Another possibility to consider is for a landlord to provide the tenant with a rent concession, not tied to tenant improvements, while simultaneously providing in the lease all tenant improvements shall be done by the tenant at its sole cost and expense.  This latter approach, however, is not foolproof.  A court may interpret the latter provision as the substantial equivalent of a landlord paying for the improvements, thereby subjecting it to a potential lien against its interest in the property.

Watch this blog for updates on the proposed revisions to the Construction Lien Law.

As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice. For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.

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