Construction Litigation

Homeowners typically approach home improvement projects with mixed emotions. While they are excited about the anticipated results, they often dread the process of dealing with home improvement contractors. They have heard horror stories about dealing with unscrupulous contractors or unresponsive subcontractors and the disasters that can befall unwary homeowners. While such stories are often true, they should not discourage you from undertaking the project you have in mind. However, you as the homeowner should enter the process with your eyes wide open so you are prepared to deal with difficulties that may ensue.

From our experience, it is very helpful to the homeowner to know the answers to 8 key questions:

1. Do I need to have a contract with my contractor?
   Yes, you should always have a written contract.
   • If it’s a home improvement project, the law says the contractor must give you a contract signed by both parties.
   • For new construction, it’s a good idea to have a written contract, even if it isn’t required by law.
2. What should my construction contract say?
   The contract should include all the terms you and the contractor discuss, for example:
   • How and when the contractor gets paid.
   • A procedure for inspecting the progress and quality of the work when the contractor asks for payment.
   • When the contractor is to begin and complete the job.
   • What happens if there are delays on the project – whether they are the contractor’s fault or due to something unavoidable, such as permit issues, weather, acts of God, etc.
   • Description of the specific work the contractor will do and the materials to be used (It might make sense to refer to plans and specifications, if there are any). If a particular kind of roof shingle or siding material, or a granite countertop, is important to you, the contract should specify that those materials will be used.
   • Any changes to the contract (i.e., extra work to be done, add-ons, extension of the project timeline) should be in writing and approved by both parties.
   • Whether someone other than the contractor will be responsible for any portion of the work and whether the contractor will be using subcontractors.
   • Does the contractor have liability and workers compensation insurance? Can they prove it by providing a copy of the policy and/or a declaration document showing the policies are in place? If the answer to any of these questions is “no,” this should be a red flag.
3. What if I already started a project without a written contract?
   If it’s home improvement, under New Jersey law, the contractor has legal responsibility for having a written contract clearly setting forth the price, timeline and materials. If the lack of a contract causes some harm to you as the homeowner, you could have claims against the contractor for:
   • a refund of any money the contractor received as a result of his or her violating conduct
   • damages, which could be multiplied by three
   • attorney fees and costs
   • dismissal of any claim the contractor may wish to make for unpaid contract amounts

   If the project is ongoing and moving ahead smoothly, you may want to prepare a contract, or at least a letter, setting forth all the expectations you have moving forward with respect to the items mentioned under question #2.

4. What do I do if my contractor is not doing what he or she is supposed to be doing?
   The most immediate answer is: what does your contract say you can do? Depending on the contract language, you may be able to fire them and/or exercise remedies under the contract. You may also have remedies under the Consumer Fraud Act, Contractors Registration Act and/or the Home Improvement Contractor Regulations.
5. My contractor claims he or she is owed money. Can my contractor place a lien on my 5 property?
   Yes. Under New Jersey’s Construction Lien Law, a general contractor, subcontractor or a sub-subcontractor can lien the owner’s property for unpaid contract amounts. There are very strict rules lienors must follow with respect to timing and form. The lien must be based on a written contract signed by all parties to the contract. A contractor can be sanctioned for filing a violating lien or exaggerating a lien claim.For residential projects, the contractor must file a Notice of Unpaid Balance within 60 days of the last work done on the project. They then have another 60 days to prosecute an expedited lien arbitration where a neutral arbitrator will review the file and determine if a lien may be filed in any amount; if yes, the lien must be filed within 120 days of last work.For commercial projects, the contractor can skip the arbitration and file the lien within 90 days of last work.
6. What do I do if a contractor files a lien on my property?
   The short answer is: get an attorney experienced in these matters to represent you! If you disagree with the lien, you can demand that the contractor either withdraw it or file suit on it (tell the contractor to put his/her money where their mouth is). You can request a certified list of all subcontractors/suppliers who could have lien claims to make sure nobody else might come out of your woodwork.
7. How can I make sure my contractor is doing what he or she should be doing once the project starts?
   Being there helps. Keep an eye on the progress.Have the contractor walk you through and show you what has been done, what remains, etc. For larger jobs requiring architectural and/or engineering plans, you may want to pay the architect to do site administration. If so, the contract should allow for the professional to review the contractor’s requests for payment to determine whether the appropriate progress has been made and that the work is in compliance with the plans prior to payment being authorized.Communicate! Ask questions about when things are happening and follow up to make sure they happen. If the job lags, put your concerns in writing (e-mail is generally acceptable) and ask for confirmation as to when and how the job will get back on track.Make sure all permits are secured and all inspections are being done. A passed inspection does not necessarily mean the work is perfect, but it signals progress; these are public records so you can verify the status with your municipality without having to rely on your contractor’s word.
8. If disaster strikes and I need to sue, am I better off in court or in arbitration?
   That depends on how strongly you (or, more importantly, your experienced attorney) feel about your position. Advantages of arbitration:
   • Arbitrators in construction arbitration generally know how these projects work, so you don’t have to educate them as much as a jury
   • The process is generally a bit shorter and a bit more flexible with respect to the Rules of Evidence and scheduling

   Disadvantages of arbitration:

   • The judge and jury expect to be compensated for their time!
   • Proceedings are confidential, so your contractor’s poor work will not be a matter of public record.
   • Possibility of influence on the arbitrator(s) if your contractor is well-known in the industry.

These are general answers and will not necessarily apply in all instances. If you have specific questions about your situation, please contact Andrew R. Macklin, who heads Cohn Lifland’s Construction Litigation practice. Andrew can be reached at 201-684-9695.