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Clauses to pay more attention to in construction contracts

On Behalf of | Mar 11, 2022 | Construction Contracts |

Before signing a construction contract in New Jersey, you should pay attention to any clauses. Not all contracts are valid, and some clauses may give you the short end of the stick.

No-lien

No-lien clauses are illegal in New Jersey. This type of clause waives one’s rights to file a lien claim. No language of this sort should be in your contract.

Lien rights

Sub-sub-contractors, supplier-to-a-sub-sub and supplier-to-supplier-of-a-sub don’t have lien rights in New Jersey. Any clauses that try to give them lien rights are invalid. Contractors and suppliers, however, do have enforceable lien rights in New Jersey. They could file a lien to speed up payment under certain circumstances.

To enforce your lien rights, you need to file a Notice of Unpaid Balance and Right to Claim Lien within 60 days for residential construction contracts. You must also serve a demand for arbitration unless the contract specifies another party. Although not required, you could file a Notice of Unpaid Balance and Right to Claim Lien for non-residential projects to strengthen your case.

Retainage limits

New Jersey has retainage limits on public works projects but not private projects. On public works projects, construction contracts can’t initially exceed 2% of retainage on each progress payment. Once the project is close to completion, you can’t exceed 1% of retainage.

Pay-if-paid and pay-when-paid

New Jersey allows pay-if-paid and pay-when-paid clauses in construction contracts. You need to make sure that the language in a pay-if-paid clause clearly shifts the risk of nonpayment to the subcontractor. Otherwise, the contract will only enforce pay-when-paid rules.

Payment due date

Check the payment due date clause to confirm it works for your needs. Property owners have up to 30 days after the contract’s payment due date to make the payment. When the primary contractor receives payment, they must pay any subcontractors and suppliers within 10 days unless the contract states otherwise.

Construction contracts contain important clauses related to payments. You should check construction law in your state before signing a contract to confirm that each clause is valid and suitable for your needs.