What is 'Construction Lien'
A construction lien is a claim made against a property by a contractor or other professional who has supplied labor or materials for work on that property. Construction liens are designed to protect professionals from the risk of not being paid for services rendered. Remedies vary from state to state and can differ depending on whether the property in question is real property or personal property.
BREAKING DOWN 'Construction Lien'
If the property owner is not satisfied with the work done by the contractor or professional, simply not paying the bill will not resolve the issue. The property owner should approach the contractor about the quality of service and what can be done to rectify the issue. If the contractor has used subcontractors and has not paid them, the homeowner could still be on the hook for the payment, and the lien could be used to ensure payment is made.
Construction Liens Face Different Rules in Local Jurisdictions
The terms and filing procedures for a construction lien vary by state. A written contract outlining the nature of the construction to be done, the materials to be used, and the agreed price for the work are often required for a construction lien to be filed. Construction liens may also be separated into residential and commercial liens based on the type of real estate involved.
New York allows contractors, subcontractors, and others who perform labor or furnish material to improve real property to file construction liens. In this example, the state law allows a lien to be filed at any point while construction work is underway or up to eight months after the completion of the project. A copy of the lien must also be sent to the owner of the property in question. This copy must be sent up to five days before the notice of lien is filed or up to 30 days afterwards. Once put into effect, the lien is in place for up to one year under New York law.
The deadline differs to file construction liens in neighboring New Jersey. Construction liens on commercial projects in New Jersey must be filed with county clerks within 90 days of the last day services or materials were provided. Filing a construction lien on residential projects requires an additional Notice of Unpaid Balance and Right to File Lien to be filed within 90 days of the last day of service. The homeowner must also get a copy of that notice within 10 days of its filing. The next step for a residential property facing a construction lien would be an arbitration hearing.
The circumstances of the property and who contracted the work can affect a construction lien. For example, under New Jersey law if construction improvements are made to a leased commercial property, typically the property owner must also signoff on the construction. If the property owner does not give their approval and construction proceeds under the tenant’s orders, then the lien would only attach the leasehold interest held by the tenant.