Continental Bank Real Estate Department v. New Jersey Department of Community Affairs

OAL Docket No. CAF 12040-95 (Department of Community Affairs 1997)
  • Opinion Date: June 18, 1997

CONTRACTORS; LICENSES—Neither a (passive) limited partner of a contractor nor one engaged in lending to a contractor is engaged in “constructing” or “building” and therefore is not required to register as “one who engages in the business of construction.”

A bank lent almost $16 million to a group of real estate developers. The group became insolvent and reorganized as a limited partnership, with the bank agreeing to become a limited partner. The Bureau of Homeowner Protection alleged the bank violated N.J.A.C. 5:25-2.1(a) and (c), which requires those who are “engaging in the business of construction” to register with the Department of Community Affairs. The issues for the Administrative Law Judge were: (a) whether a builder’s duty to register automatically extends to that builder’s limited partners; and (b) whether the act of financing a construction project constitutes “engaging in the business of construction.”

The Administrative Law Judge found that the New Jersey Administrative Code (“Code”) focuses on the actions of a person or entity and not their title. Those considered to be engaging in the business of construction are those that: (a) construct, (b) act as a prime contractor to construct, (c) advertise or hold themselves out as constructing, or (d) sell or transfer title to a parcel of land to any person and subsequently participate in the construction. Just because the bank was a limited partner did not automatically trigger the requirement to register. The judge cited other New Jersey Administrative Code provisions implying that partners do not necessarily have to register because the partnership itself is the builder. After concluding that the bank’s limited partner status did not require it to register, the judge concluded that the bank had not engaged in the business of construction. While the Code enumerates several instances where an entity is considered to be engaged in the business of construction, the act of lending is not one of them. The judge even considered the dictionary definition of “construct” and concluded that lending is not part of “constructing” or “building” such that the bank should have registered with the Department of Community Affairs.