Construction liens pose significant challenges for property owner, as they create a cloud on the property’s title, obstruct financing, interfere with project progress, and cause extra expenses. What measures can be taken to lessen these impacts? In their latest article for the New Jersey Law Journal, Jacqueline Greenberg Vogt, Chair of the Construction Law Group and Boris Peyzner, Partner at Mandelbaum Barrett PC discuss methodologies for avoiding and managing construction liens:
Mitigation Techniques
Preventing Lien Claims:
- Vetting subcontractors and maintaining good communication
- Documenting all transactions and paying contractors on time
- Including safeguards in construction contracts to define liens as material defaults.
- Adding indemnity provisions in contracts to cover legal fees and costs related to liens.
- Requiring general contractors to provide lien waivers for subcontractors and suppliers.
Safeguards in Contracts:
- Defining lien claims as material defaults and including indemnity clauses.
- Making contractors responsible for legal fees and costs related to defending or resolving liens.
Owner Protections:
- Requiring contractors to provide payment bonds, lien waivers, or lien discharge bonds.
- Using the Lien Fund to limit the amount available to pay claims.
- Challenging the validity of liens based on strict statutory requirements.
Strategies for Discharging Liens:
- Paying the lien claimant directly or bonding off the lien.
- Serving a demand to enforce the lien, which must be acted upon within 30 days.
- If the lien is not enforced, it expires after one year.
- The owner can recover legal fees and costs if the lien is improper.
Transparency and cooperation between owners and contractors are crucial in preventing lien claims, ensuring disputes are addressed promptly and payments are made on time.