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The Benmoore Construction Group, Inc. v. Herod Rutherford Developers, L.L.C.

A-2460-08T2 (N.J. Super. App. Div. 2009) (Unpublished)

CONTRACTORS; LIENS — Just because a property owner benefits from services rendered by a contractor to a tenant, it does not mean that the contractor is entitled to a lien against the property owner’s interest because such a lien may only be placed if the property owner approves the contract authorizing the work in writing and not simply approves the performance of the work.

A sub shop tenant’s lease required the tenant to submit its construction plans to the landlord for its approval whenever any planned alterations cost more than $10,000 or if the tenant wanted to make structural alterations. All leasehold improvements were to become the landlord’s property at the end of the tenancy. The tenant hired a contractor to make improvements. This contract was not attached to or referenced in the lease. The landlord did not sign the contract. All change orders were signed by the tenant and not by the landlord. After the contractor completed the work, the tenant filed for bankruptcy without fully paying the contractor. Although the contractor filed a construction lien, it was not able to perfect the lien properly because the landlord had not recorded its deed until after the lien was filed. The contractor sued the tenant and the owner-landlord, alleging unjust enrichment and breach of contract, and seeking quantum meruit damages.

The lower court entered a judgment against the owner and the tenant. It held that the contractor had a viable cause of action for unjust enrichment because the owner was aware of the construction work. The lower court also relied on the lease clause providing that the improvements would become the landlord’s property at the end of the term. In addition, it reasoned that at least some of the installed improvements had a value to the owner and that the landlord even attempted to advertise the improvements to obtain a new tenant. It made this ruling even though there was no testimony that the contractor undertook to install these items with the expectation that the owner would pay for them or that it was induced by the owner into believing that the owner would pay for the work. It concluded that certain improvements would increase the property’s value and make it easier to rent the space. The Court also noted that the contractor was prevented from perfecting its lien due to the owner’s failure to record its deed, i.e. since the contractor was unaware of the correct owner’s name, it filed the lien against the wrong entity, the former owner. The owner appealed.

The Appellate Division reversed because quasi-contract claims must involve either some direct relationship between the parties or a mistake on the part of the person conferring the benefit. Here, the contractor entered into an express contract with the tenant and looked to it for payment. Moreover, the Court found no mistake on the part of the contractor. It found that there was nothing to indicate that the owner took any action that led the contractor to believe that it would pay for the work if the tenant failed to pay, or that the owner expected to pay for the work. Thus, it believed it would be inequitable to hold the owner liable, holding that the contractor’s remedy was against the tenant only. It also found that the contractor could not reasonably expect the owner to compensate it because a “reasonable man” in the owner’s position would not know that the contractor was doing the work believing that the owner would pay for the work. It held that just because the owner benefitted from the services was insufficient. It believed that allowing subcontractors to sue owners and general contractors, instead of requiring them to pursue their statutory remedies under the Construction Lien Law would wreak havoc in the construction industry. Further, although a prior version of the Lien Law provided that a lien could be placed against the owner if the work was made with the written consent of the owner, today the Lien Law specifically states that a contractor may only place a lien against the property owner’s interest if the property owner approves the contract authorizing the work in writing, and not simply approves the performance of the work. “Contract” is defined under the Lien Law as “any agreement, or amendment thereto, in writing, evidencing the respective responsibilities of the contracting parties.” Here, the owner did not sign the contract in question. Moreover, since the owner did not approve the contract in writing, the contractor could not have placed a construction lien on the owner’s interest in the property. Based on the change in the Lien Law, the Court inferred that the Legislature intended to limit a landowner’s potential liability for construction liens to situations where the owner had actually approved a contract, as opposed to situations where, as here, the owner had only approved the tenant’s proposal to have the work performed.

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