When a contractor is hired by a commercial tenant to improve the leased property, the contractor’s lien will ordinarily attach only to the leasehold interest, and not the property itself. In a recent Court of Appeals decision, however, the Court clarified in what circumstances the contractor can file a lien against the owner’s interest in the property.  Ferrara v. Peaches Café, 32 N.Y.3d 348 (Nov. 20, 2018).

In Ferrara, the tenant leased the commercial property for purposes of operating a restaurant, and its lease agreement with the owner contemplated that the tenant would build-out the space for purposes of operating the restaurant. After allegedly not being paid for work performed, the tenant’s electrical contractor filed a mechanic’s lien naming the owner, and sought to foreclose on the owner’s interest in the property.

Lien Law § 3 provides that the owner must have requested or consented to the work in order for a mechanic’s lien to attach to its interest.  Because the owner had no direct dealings with the contractor, and did not “expressly” or “directly” consent to the work, the owner argued that the lien was unenforceable against it.

The court rejected the owner’s argument and held that the owner need not have expressly consented to the particular work at issue, nor had any direct dealings with the contractor, for the lien to attach to the owner’s interest in the property.  Rather, “the owner must either be an affirmative factor in procuring the improvement to be made or having possession and control of the premises assent to the improvement in the expectation that he will reap the benefit of it.”

To determine whether the owner’s interest can be subject to a lien, the terms of the lease agreement are important. In particular, where the lease agreement requires the tenant to make certain improvements, the owner will be deemed to have consented to those improvements. The Court contrasted its prior decision in Rice v. Culver, 172 N.Y. 60 (1902) where the lease agreement, at best, merely authorized the tenant to make certain improvements. There, the tenant leased the property to build and maintain an athletic field, and was given the general right to construct and improve buildings upon the land. While the owner “must have known” that the tenant intended to make improvements upon the land, that general knowledge was insufficient to show that the owner consented to the specific work in issue which resulted in the filing of a mechanic’s lien.

The Ferrara Court found that the lease agreement evinced owner’s consent to the work. The lease agreement “not only expressly authorized [the tenant] to undertake the electrical work, but also required it to do so to effectuate the purpose of the lease[.]” Further, the lease provided that owner was “to retain close supervision over the work” and permitted owner to “review[], comment[] on, revise and granted ultimate approval for the design drawings related to the electrical work.”

Although the Court did not look to the parties’ course of conduct, it noted that consent need not be founded on the lease agreement alone. Consent can also be founded on the “owner’s overall course of conduct and the nature of the relationship between the owner and the lienor[.]”

Ferrara makes clear that an owner cannot insulate itself from liens on their real estate solely because it does not have direct dealings with the lienor. Where the lease requires certain improvements, and a lien is filed as a result of such improvements, the owner faces liability under the lien law despite having no direct dealings or even knowledge of the particular lienor’s work.

In a recent unpublished decision, the Appellate Division again confirmed that a zoning board may not reverse course without justification once it has made findings regarding a specific property.

In Oster v. Zoning Board of Adjustment of the Township of Middletown (Docket No. A-0037-17T3, decided January 11, 2019), the applicant sought and obtained a hardship variance from the Zoning Board (the “Board”) pursuant to N.J.S.A. 40:55D-70(c)(1).  The variance, which was obtained in 2009, permitted construction of an underground storage area and above-ground conservatory within the side yard setback.  The Board concluded that a variance was warranted because of the construction difficulties posed by the property’s unique shape, irregular configuration and use as a vineyard.

In 2016, the applicant abandoned the original development plan approved by the Board and filed an application seeking a variance to build an underground storage area/garage with a peaked roof in the same location.  The Board, however, disregarded its prior 2009 ruling concerning the property’s unique characteristics (even though the property’s shape and use remained unchanged) and denied the requested variance relief.  The applicant subsequently challenged the decision in a prerogative writ action, but the trial court sided with the Board.

The Appellate Division reversed after finding that the Board was required to honor its prior ruling concerning the property’s unique character.  The court held that the doctrine of collateral estoppel bars a zoning board from re-litigating any issue that was actually determined by it during a prior application.  Consequently, the court instructed the Board to conduct further proceedings on the sole issue of whether the applicant had satisfied the other requirements for c(1) variance relief.

This decision underscores the importance of reviewing all prior land use applications and decisions when pursuing or objecting to variance relief for any given property.

In Farmland Dairies, Inc. v. Borough of Wallington, N.J. Super. App. Div. (per curiam) (unpublished decision) (35-2-7909), the Appellate Division upheld the decision of the Tax Court in denying an unrelated neighboring property owner’s efforts at intervening in a pending local property tax appeal between the property owner and the Borough.  The court concluded that the intervention application of the putative intervenor was out of time and barred by the statute of limitations.  Although all residents of municipalities have standing and maintain the right to pursue tax appeals as “aggrieved” parties under the statute, including those related to their neighbor’s properties, any such contests must nonetheless comply with the statutory filing deadline.

The New Jersey Supreme Court has consistently recognized the necessity of complying with filing deadlines in the area of taxation.  The statutory scheme establishing the court’s jurisdiction in this area is “one with which continuing strict and unerring compliance must be observed.” See McMahon v. City of Newark, 195 N.J. 526, 546 (2008).  Indeed, our Supreme Court has declared that the “failure to file a timely appeal is a fatal jurisdictional defect.”  F.M.C. Stores v. Borough of Morris Plains, 100 N.J. 418, 425 (1985).  The Supreme Court has also explained that strict adherence to statutory filing deadlines is of particular concern in tax matters, given “the exigencies of taxation and the administration of local government.”  F.M.C. Stores, 100 N.J. at 424.  The Legislature “has attempted to set out a well-organized time-table for the purpose of enabling a municipality to ascertain the amount of taxable ratables within the jurisdiction in order that it might adopt a responsible and fairly accurate budget.”  Id. at 425.  “By incorporating a strict deadline in [the statute], the Legislature intended to ensure that municipalities receive timely notice that a particular property’s valuation is subject to challenge.”  Prime Accounting Dept. v. Township of Carney’s Point, 2013 N.J. Lexis at *31.

After previously remanding the matter to the Tax Court for further proceedings concerning the timeliness and propriety of the putative intervenor’s application for permissive intervention, the Appellate Division made it plain, mindful of the above-referenced well-settled jurisprudence, that any effort to intervene must, in the first instance, be timely pursued and that the annual tax appeal filing deadline will effectively wait for no one.

Although as demonstrated above, the inviolate nature of this statutory deadline is plain, the court’s decision here may have been made easier by the attendant distasteful nature of a case involving an unrelated party’s efforts at meddling with pending litigation between the real parties in interest (the actual owner of the property in question and the municipality).

In a market where economic indicators continue to show encouraging signs (e.g., decreasing vacancy conditions across market segments, improved employment numbers and rental rates, and continuing low levels of inflation), the prospect for property value appreciation exists.  Because of questionable municipal assessment practices, often blindly motivated by the objective of maximizing tax ratables, careful scrutiny of assessments, especially in changing market conditions, is warranted.  Consequently, it behooves commercial property owners to review their property tax assessments with their professionals now to ensure that their assessments are in line with present values and to verify that they are not paying more than their fair share of taxes.  At the same time the potential exists that a successful appeal can work to lock in assessments at current property values, even in the face of possible increasing values.

Because New Jersey law provides for a “Freezing” of assessments for a period of two additional years, beyond any successful year appealed, the tax appeal vehicle has positive effects reaching into the future as well.  In fact, because assessments are generally not modified until a town-wide revaluation or reassessment program is implemented (usually every 5-10 years), there is a real prospect that a lower assessment achieved as a result of a successful appeal could actually remain in place for well beyond the statutorily guaranteed two year “Freeze” period.

As a result, we believe that there continues to be substantial opportunities for property owners to realize significant tax savings and lock in current values for the foreseeable future. We therefore encourage commercial property owners (whether owners of office, industrial, manufacturing, hotel, multi-family and/or other special purpose properties) to discuss options for a tax appeal with counsel having expertise in this specialized practice area.  In addition, those property owners who may benefit from statutory tax exemptions relating to non-profit, institutional or religious organization owner/users should similarly be reviewing with counsel whether all benefits available to them are being realized.

Because the 2019 tax appeal filing deadline is rapidly approaching (April 1, 2019, or May 1, 2019 in the case of a town-wide reassessment or revaluation) now is the appropriate time to take action.

Please click here for a copy of our confidential 2019 tax appeal information sheet.

New Jersey’s Appellate Division has once again served a stark reminder to prospective construction lien claimants regarding who may validly sign a construction lien claim.  The consequences of failing to properly execute a construction lien claim are dire – not only because the lien claim is subject to discharge, but along with that discharge may come an order requiring the payment of the attorneys’ fees and costs of the party making application for such discharge.

In Diamond Beach, LLC v. March Associates, Inc., Docket No. A-1704-17T1 (N.J. App. Div. December 24, 2018) (approved for publication), the court determined that the 2011 revisions to the Construction Lien Law did not serve to clarify or limit the then-existing construction lien signatory requirements, and therefore the 2011 revisions did not apply retroactively to lien claims filed prior to 2011.  Before the 2011 revisions, Lien Law Section 6 explicitly required that a lien be executed by a corporation’s “duly authorized officer.”  The 2011 revisions to Section 6 removed the “duly authorized officer” language, and instead stated that the lien claim form, provided in Section 8, “be signed, acknowledged and verified by oath of the claimant[.]”  The form in Section 8, however, requires that an “officer/member” sign the form, and the suggested notary form provides that the notary be satisfied that the signatory is the “Secretary (or other officer/manager/agent) of the Corporation (partnership or limited liability company)” with “authority to act on behalf of the Corporation (partnership or limited liability company) and who, by virtue of its Bylaws, or Resolution of its Board of Directors (or partnership or operating agreement) executed the [lien claim] on its behalf.”

The trial court in Diamond Beach had ordered that the subject lien claim be discharged because it had been signed by the subcontractor lien claimant’s Accounting & Information Systems Manager, and there was insufficient evidence to support the claimant’s contention that that manager had been expressly authorized to execute lien claims by the claimant’s Board of Directors.  Thus, the court found, under the pre-2011 Lien Law, that the lien claim had not been executed by a “duly authorized officer” of the lien claimant.  The trial court further awarded attorneys’ fees to the project owner, which had sought the discharge of the lien.  The Appellate Division affirmed the trial court’s determinations, including the award of fees, reading broadly Lien Law Section 15’s language regarding the circumstances under which lien rights are forfeited and an affected party is entitled to a fee award for obtaining such a determination.

Even under the post-2011 Lien Law, the court signaled that the results would have been the same for essentially the same reasons.  In last year’s published decision, NRG REMA LLC v. Creative Environmental Solutions Corp., 454 N.J. Super. 578 (App. Div.), certif. denied, 234 N.J. 577 (2018), the court conducted much the same analysis under the current law, and held a lien claim unenforceable that had been signed by the claimant’s “financial director” without any written evidence presented that such “financial director” was a corporate officer or designated by the Board of Directors to execute such documents on behalf of the claimant.  In doing so, the court noted that the Lien Law’s “procedural requirements were intended to be stringently applied.”

The critical lesson from the foregoing cases is that any business entity, however formed, that seeks to file a New Jersey construction lien claim, must ensure that the person signing that lien claim, is authorized to do so by the governing documents of that business entity – or by a written resolution or authorization duly executed by the appropriate board, officer, member or partner of that business entity – as that entity’s business form dictates.  The failure to have a properly-authorized individual execute the lien claim will, if challenged, prove fatal to the lien claim and extremely costly to the lien claimant.