Is a homeowner who retains and manages contractors for his own home improvement project able to enforce his rights under the New Jersey Consumer Fraud Act (CFA) and New Jersey Contractor’s Registration Act?

In a recent case, the Appellate Division of Superior Court of New Jersey determined that even though a homeowner may have acted as a “contractor” for his own project by retaining and managing all the other contractors, nevertheless, he still had the protections of a “homeowner” under the Consumer Fraud Act (“CFA”) and Contractor’s Registration Act (“CRA”).   Murnane v. Finch Landscaping, LLC, 420 N.J. Super. 331. Murnane, a homeowner, contracted with Finch Landscaping, LLC to construct a bluestone patio in the backyard of his home. He also contracted with other building contractors and a patio designer to undertake other parts of the project. He did not engage the services of a general contractor and at one point also referred himself as the “general contractor” for this construction project.

The parties entered into a written contract that also specified the thickness of the bluestone. As the work progressed, various changes were made to the construction specifications but these changes were not reflected in writing. Although, Murnane paid the full contract price of $26,300, Finch Landscaping, LLC sent Murnane invoices for additional costs it incurred due to the various changes made during the construction. Murnane refused to pay the additional charges and brought an action for breach of contract and a violation of the CFA in the Superior Court of New Jersey, Special Civil Part. Finch Landscaping, LLC counterclaimed for the amount incurred for the additional work it performed.

The trial court held that since Murnane held himself out as the “general contractor” for his patio construction project, he was barred from asserting a CFA claim against Finch Landscaping, LLC. The jury ruled in favor of Finch Landscaping, LLC on its counterclaim and returned a verdict of no cause of action on the contract claim but at the same time found Finch Landscaping, LLC liable for damages to Murnane’s property. Murnane appealed from the dismissal of its CFA claim and Finch Landscaping, LLC appealed from the denial of its motion for counsel fees.

Since home improvement contracts are prone to consumer fraud violations, the New Jersey Supreme Court has applied the CFA and the CRA to these transactions. This is significant because, for example, under the CFA, every home improvement contractor is required to register with the Division of Consumer Affairs, N.J.S.A. 56:8-138.

The Court held that even if “a homeowner could be characterized as a general contractor, he is still ‘an owner … of a residential … property’ who has entered into a ‘home improvement contract’ with a contractor.” N.J.S.A. 56:8-137. The Court distinguished this case from the holding in Messeka Sheet Metal Co. v. Hodder, 368 N.J. Super. 116, 845 A. 2d 646 (App. Div. 2004). In Messeka Sheet Metal Co. a homeowner contracted with a general contractor who in turn contracted with a subcontractor to install air conditioning. The subcontractor asserted a direct claim against the homeowner and the homeowner asserted a CFA claim against the subcontractor. The Court dismissed the homeowner’s CFA claim because the homeowner had no direct contractual relationship with the subcontractor. However, in the present case, Murnane had a direct contractual relationship with Finch Landscaping, LLC. Therefore, he was not barred from bringing a claim under CFA in spite of holding out as a general contractor for the construction project.


© 2011 Nissenbaum Law Group, LLC

The Enforceability of “Pay if Paid” Clauses by Contractors Against Subcontractors

A June 30, 2010 case decided by the Appellate Division of the Superior Court of New Jersey, O.A. Peterson Construction Co., Inc. v. Englewood Hospital And Medical Center, 2010 WL 2696758 (N.J.Super., App.Div. 2010) dealt with the issue of whether a contractor can withhold payment to its subcontractor under a “pay if paid” clause.
The Underlying Facts
Plaintiff O.A. Peterson Construction Co., Inc. (“OAP”) was the general contractor on a construction project for Englewood Hospital (“Hospital” or “owner”). On Par Contracting Co., Inc. (“On Par”) was one of the subcontractors on the project. The contract between OAP and On Par contained the following provision concerning OAP’s obligation to pay On Par:

“It is expressly understood and agreed that the receipt by the Contractor of payment for the Subcontractor’s work shall be a condition precedent to the Contractor’s obligation to pay the Subcontractor. That is, the Contractor shall have no liability or responsibility for any amounts due or claimed to be due the Subcontractor for any reason whatsoever except to the extent that the Contractor has actually received funds from the Owner specifically designated for disbursement to the Subcontractor.”

[Emphasis added.]
The Pay if Paid Clause
OAP contended that this language constituted an unambiguous “pay if paid” clause, which shifted to On Par the risk of the owner’s nonpayment for the work. The Court agreed, stating, “[W]e find that the “pay if paid” clause unambiguously shifted the risk of non-payment to the subcontractor. That is, the clause clearly anticipated that as the contract progressed, the owner would make periodic payments to the general contractor, with portions being designated as payment for work performed by each specific subcontractor on the job. If the owner refused to pay for a particular subcontractor’s work, the general contractor was not obligated to pay that subcontractor until the dispute was resolved and the owner made payment.” Id. at 2
The Covenant of Good Faith and Fair Dealing
One interesting note is that the Court also decided that OAP was wrong to enter into a settlement with the owner that did not designate a portion of the settlement funds for disbursement to the subcontractor, and then rely on the “pay if paid” clause to defeat that subcontractor’s right to payment. It found that this argument would violate the covenant of good faith and fair dealing implicit in every contract.


© 2009 Nissenbaum Law Group, LLC

Pennsylvania Passes Law Imposing Strict Requirements on Home Improvement Contractors

Home Improvement Regulation: In an effort to strengthen the protections afforded consumers against wrongful acts by home improvement contractors, the Pennsylvania legislature recently enacted the Home Improvement Consumer Protection Act.

The Act, which will become effective as of July 1, 2009, imposes stringent requirements on individuals or entities engaging in any form of home improvement. They are similar to those implemented in other states. Under the Act, “home improvement” is broadly defined and includes any repair, replacement, remodeling, demolition, removal, renovation, installation, alteration, construction or other improvement for which the total contract price exceeds $500. However, the Act does not apply to the construction of a new home or to the sale of goods or materials, where the seller does not perform actual work on the home.

The new law requires that all Pennsylvania home improvement contractors register with its Bureau of Consumer Protection in the Office of the Attorney General. The contractor’s registration number then must be included in every advertisement, estimate, proposal or contract for home improvement. Contractors must also maintain liability insurance in the minimum amount of $50,000. In addition, they must disclose in the registration application if they have ever been convicted of a criminal offense, fraud or theft related to a home improvement transaction crime. Contractors are also required to disclose if they have ever filed for bankruptcy or if they have had a judgment entered against them in connection with a home improvement transaction within the previous 10 years.

In addition, the Act contains strict requirements regarding the form and content of home improvement contracts. Under the Act, all home improvement contracts must be in writing, and also as mentioned above, must contain the contractor’s registration number. The Act mandates certain items be included in the agreement. For instance, though without limitation, the agreement needs to be signed by both the contractor and the customer; it needs to include required statutory notices; the contract must provide a mailing address for the contractor (this cannot be a PO Box); and provide an outline of information relating to any subcontractor that will be used on the project. Moreover, the contract must also include a description of the work to be performed, the materials to be used and a set of specifications that cannot be changed without a written change order signed by the consumer. It must also specify the approximate start and completion dates for the work and the total sales price due under the contract. Moreover, the contract must contain the toll-free number of the Pennsylvania Bureau of Consumer Protection, as well as a provision allowing the consumer to rescind the contract within 3 business days. Moreover, where the contract price exceeds $1000, the contract must not provide for any deposits in excess of 1/3 of the total contract price. Finally, the Act specifies other language that cannot be included in the agreement. If these provisions are nevertheless included in the agreement, it could void it entirely, and prevent a contractor for being able to enforce it (i.e., collect money owed to the contractor for work performed).

Any violation of the Act by a home improvement contractor will also constitute a violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law. As a result, consumers have the potential to recover treble damages (or three times the amount of the consumer’s actual damages) and attorneys’ fees from a contractor found to be in violation of the Act. This means that regardless of the quality of work performed, a contractor could find himself liable for a violation of the Act for failing to have a compliant agreement. Even a technical violation would suffice to make a contractor liable under the Act. For example, an argument could be made that if the contractor’s customer agreement did not include each and every one of the required elements, or did not include verbatim the statutory language set forth for the required notices, the contractor would be liable for violating the Act, even if unintentionally. It could be responsible for treble (triple) damages as a result.

In light of the potential for huge recoveries against them, contractors should be extremely careful in drafting their home improvement contracts. Any individual or entity engaging in any form of home repair or improvement should consult an attorney in order to ensure that they are in compliance with the Act’s detailed requirements.


© 2008 Nissenbaum Law Group, LLC

New Jersey Municipal Mechanics’ Lien Law

It is well established that a subcontractor may recover against a public agency even though there is no direct contractual relationship between the parties. Accordingly where either a contractor or a subcontractor performs work with respect to public improvements and is due and owing money for supplies and services furnished, it is entitled to file a lien against the public agency or municipality to recover the amount owed. However, in order to do so, the contractor or subcontractor must first comply with certain procedures.

Specifically, under the New Jersey Municipal Mechanics’ Lien Law, in order to perfect a lien, a contractor or subcontractor must file written notice that it performed work or delivered materials to a subcontractor within 20 days of first performing such work or delivering such materials. This notice must be filed with the appropriate designated official for the public agency. Where a notice of delivery is not filed, the courts will not recognize a valid lien.

In addition, the New Jersey Municipal Mechanics’ Lien Law requires that a contractor or subcontractor file a notice of lien with a designated individual of the public agency either prior to the work to being “completed or accepted by resolution of the public agency” or within sixty (60) days thereafter. The notice of lien must contain certain designated items in order to be valid.

Moreover, an action to enforce a lien must be brought within 60 days from the date on which the work to be performed by the contractor is “completed or accepted by resolution of the pubic agency.” Otherwise, the lien will not be considered binding on the municipality or public agency.


© 2008 Nissenbaum Law Group, LLC

New York City’s Regulations Governing Home Improvement Contractors

New York City has promulgated regulations relating to home improvement contractors, the purpose of which are presumably to protect consumers against contractors’ deceptive and fraudulent practices. However, the requirements go beyond such a prohibition and impose a number of precise requirements with which all home improvement contractors must comply. Home improvement is broadly defined under the law as “the construction, repair, replacement, remodeling, alteration, conversion, rehabilitation, renovation, modernization, improvement, or addition to any land or building, or that portion thereof which is used or designed to be used as a residence or dwelling place and shall include but not be limited to the construction, erection, replacement, or improvement of driveways, swimming pools, terraces, patios, landscaping, fences, porches, garages, fallout shelters, basements, and other improvements to structures or upon land which is adjacent to a dwelling house.” Home improvement does include the construction performed with respect to a new home or building.

One such requirement is that all contractors need to be licensed in order to solicit, sell or perform home improvement services. Where a contractor performs home improvement services without a proper license, he may be deemed guilty of a misdemeanor and subject to imprisonment of not more than one year and/or a penalty not to exceed $1,000.00. Furthermore, a contractor who is not licensed to engage in home improvement services may also be precluded from recovering monies due and owing by a homeowner under a contract. In other words, if a homeowner does not pay, you can’t sue for unpaid monies. In New York City, the public policy underlying the license requirement is so strong that some courts have even precluded an unlicensed contractor from recovering under quasi-contract theories such as quantum meruit. In other words, contractors may as demonstrated in Nemard Construction Corp. v. Deafeamkpor not even be able to recover the reasonable value of the services they provided if they fail to comply with the licensing requirement.

In addition, where a violation of the New York City’s administrative regulations is found, the Commissioner of the Division of Consumer affairs may order the contractor to pay the owner treble damages.

Aside from the requirements that all contractors be licensed, the regulations also prohibit home improvement contractors from engaging in certain acts, including without limitation (a) deviating from the plans or specifications or terms of the contract without the written consent of the homeowner; (b) making a substantial misrepresentation or false promise to induce a homeowner to enter into the contract; or (c) making false statements in connection with advertising their services. Moreover, the regulations further require that a contractor provide written notice to the homeowner that he may cancel the contract at any time prior to midnight of the third night after either the contract was executed or such notice was provided, whichever is later. Again, where a contractor engages in any such prohibited acts, he may be deemed guilty of a misdemeanor and subject to imprisonment of not more than one year or a penalty not to exceed $1,000.00.

In addition to the New York City administrative regulations governing home improvement contractors, there are statutes in New York that also govern home improvement contractors. Specifically, the home improvement contractor must be registered in the municipality where the work is performed. As demonstrated in Price v. Close, a contractor is precluded from recovering unpaid monies from an owner because he is unlicensed. The definition of a home improvement is identical to the definition set forth in the New York City regulations.

Furthermore, New York also requires contracts that exceed the cost of $500.00 to be in writing and signed by both parties. In addition, the contract must be legible and in plain language and clearly describe the other documents that are to be incorporated into the contract. The contractor must provide the owner with a copy of the written contract before any of the work is performed. New York also requires that the contract contain certain information including

(i) the name, address, telephone number and license number of the contractor;
(ii) the estimated dates when the work will begin and be substantially completed;
(iii) the contingencies that would materially change the approximate completion date;
(iv) a description of the work to be done, the materials to be provided to the owner and the agreed upon consideration for the work and materials.

In addition, the New York statute governing home improvement contracts also requires that certain notices be provided in clear conspicuous bold face type notifying the owner, among other things, that he has three business days to cancel the contract. The statute sets out the specific language of these notices.


© 2008 Nissenbaum Law Group, LLC

Master Electrician Licensing Regulations

Construction Law: New York Legislation: Licensing Requirements: New York legislators recently amended the County Law governing master electrician licensing in order to provide Dutchess County with the authority to establish a board of examiners for master electricians. Pursuant to this law, the board has the authority to promulgate regulations governing the licensing of master electricians. The County Master Electrician Licensing Law previously only provided this authority to Westchester County.

It is important to keep in mind that New York City already has administrative regulations in place that govern the licensing of master electricians and the performance of electrical work for buildings located in New York City. Specifically, the New York City Electric Code provides that any entity or sole proprietorship who engages in the business of providing electrical work should have at least one licensed master electrician affiliated with the business. Without limitation, to obtain a master electrician licensing, the regulations mandate that the individual pass certain examinations. In addition, the master electrician must be of a certain age and have certain years and/or hours of past experience in performing certain electrical work.


© 2008 Nissenbaum Law Group, LLC

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