Real Estate & Construction Law Monitor

Appellate Court Aids Negligent Mortgage Lenders by Rejecting "Gross Negligence" Exception to Equitable Subrogation Rule

Kenneth L. Baum — Tue, 27 Mar 2012 09:42:55 -0500

Thanks to a recent appellate court decision, refinancing mortgage lenders in New Jersey who seek to subrogate to an original mortgagee’s position, but are negligent in discovering intervening judgment liens, can rest easier and not worry that their liens will be subordinated.

In Investors Savings Bank v. Keybank National Association, 2012 WL 762087 (N.J. Super. App. Div. March 12, 2012), Denis Kelliher (“Kelliher”) sought to refinance the mortgage held by 1st Constitution Bank (“1st Constitution”) on his residential property. In the summer of 2008, Kelliher submitted a loan application to Investors Mortgage Company (“Investors”), the predecessor-in-interest to the plaintiff, in which he stated that he had not defaulted on any loan and was not a party to any lawsuit. A title search performed by Investors’ title agent, Quality Closing Services (“Quality”), on August 1, 2008, did not reveal the existence of any judgments against Kelliher. At the time, however, Kelliher had defaulted on a business loan from and was sued by Keybank National Association (“Keybank”).

Keybank obtained a multimillion dollar judgment against Kelliher and recorded it on September 30, 2008. Three (3) days later, Quality conducted the closing on Investors’ loan to Kelliher. At the closing, Kelliher provided an affidavit falsely stating that no judgments had been entered against him. Quality did not conduct an updated title search, which might have revealed the existence of the Keybank judgment. Investors eventually recorded its mortgage on October 21, 2008. Several weeks later, Keybank notified Investors of the existence of its judgment lien and claimed priority over Investors’ mortgage.

Investors filed suit against Keybank in the Superior Court of New Jersey for a declaration that its mortgage had priority over Keybank’s judgment lien, pursuant to the doctrine of equitable subrogation. The trial court ruled in Investors’ favor, reasoning that Keybank would have been in the same subordinate position if the refinancing had not occurred. Keybank appealed the trial court’s ruling to the Appellate Division.

The court in Investors Savings Bank began its analysis by stating that pursuant to the doctrine of equitable subrogation, “a mortgagee who negligently accepts a mortgage without knowledge of intervening encumbrances will subrogate to a first mortgage with priority over the intervening encumbrances to the extent that the proceeds of the new mortgage are used to satisfy the old mortgage.” In that event, the new mortgagee assumes the same priority afforded the old mortgagee. An exception to this rule exists, however, where the new mortgagee possesses “actual knowledge of the prior encumbrance.”

Keybank failed to uncover any evidence that Investors had actual knowledge of Keybank’s judgment lien. Thus, the main issue on appeal was whether, as Keybank argued, Investors’ “gross negligence” in failing to discover the existence of Keybank’s judgment lien precluded the application of equitable subrogation. Although the court in Investors Savings Bank initially questioned whether Quality’s negligence rose to the level of “gross negligence,” it ultimately concluded that the degree of Quality’s negligence was irrelevant. As long as Investors had no actual knowledge of Keybank’s judgment lien, the court held, it was entitled to subrogate to 1st Constitution’s first lien position. Accordingly, the court affirmed the trial court’s decision.

Obviously, the court’s decision in Investors Savings Bank is no substitute for the proper exercise of due diligence, and mortgage lenders in New Jersey must continue to take all necessary investigatory measures before closing on a refinancing loan. Nevertheless, where an intervening judgment lien goes unnoticed at closing, the refinancing lender’s lien priority will likely not be affected.

Subcontractors Take Note - Appellate Division Confirms That Construction Lender Has No Duty To Subcontractor Absent Express Promise To Pay

Peter James Herrigel — Wed, 21 Mar 2012 11:53:28 -0500

The New Jersey Appellate Division recently ruled in Vollers Excavating and Construction, Inc. v. Citizens Bank of Pennsylvania, Docket No. A-3844-10T1 (March 5, 2012), that a construction lender has no obligation to pay an unpaid subcontractor on a project when the general contractor files for bankruptcy protection. In Vollers, Vollers was a subcontractor to Opus East LLC (“Opus East”), the general contractor on a project known as Mercer Corporate Center (the “Project”). Opus East was the sole shareholder of Mercer Corporate Center, LLC (“MCC”), the owner of the Project. In 2007, MCC entered into a construction loan agreement with Citizens Bank of Pennsylvania (“Citizens”) for $23.3 million to finance the Project. Also in 2007, Vollers entered into a subcontract agreement with Opus East for excavation, grading and other related services for the Project for approximately $3.3 million. Vollers had no agreement with Citizens.

Construction on the Project commenced and, in the fall of 2008, Opus East began to experience cost overruns, which were jeopardizing the Project’s viability. In May 2009, Opus East warned Vollers that Opus East and MCC may discontinue paying subcontractors. In June 2009, Vollers filed a construction lien against the Project for $505,754.32. In July 2009, Opus East and MCC filed bankruptcy petitions for relief under Chapter 7.

With Opus East and MCC both in bankruptcy, Vollers attempted to collect directly from Citizens. The trial court granted summary judgment to Citizens and dismissed the matter with prejudice. The trial court concluded that Vollers’ contract was with Opus East (the general contractor), not with Citizens, and there was no evidence that Citizens knew that Opus East and MCC were in default and going into bankruptcy, but wanted Vollers to continue working without pay. The trial court found no evidence that Citizens had a duty to pay Vollers for services that were rendered to Opus East and/or the Project.

The Appellate Division affirmed substantially for the reasons expressed in the trial court’s oral opinion. The Appellate Division did expressly note that a lender providing a construction loan owes no duty to an unpaid subcontractor absent the lender’s express promise or assurance of payment. Here, Vollers had no communications with Citizens, there was no evidence that Citizens made an express promise or assurance to pay Vollers and Citizens did not direct Vollers to continue working on the Project.

The Appellate Division made clear that Vollers was not a party to any of the loan documents between Citizens and MCC and had no rights thereunder. There was no privity of contract nor any evidence that Vollers was an intended third-party beneficiary of the agreement between MCC and Citizens. As a result, Citizens had no obligation to pay Vollers pursuant to Vollers’ contract with Opus East, and Vollers was unable to collect from Citizens.

The Vollers case makes clear that subcontractors have no rights to collect against the construction lender in the event the general contractor or owner files for bankruptcy or otherwise leaves the project, absent some express promise by the lender to pay for the subcontractors’ work on the project. Absent that express undertaking, the subcontractor is limited to the general contractor (or others in privity, if any), owner (through its construction lien rights) and possibly a surety under a payment bond, if applicable, for recovery for its work at a project. This is important because the subcontractor’s construction lien rights may be of no benefit if the construction lender forecloses on the Project property based on a defaulted construction loan.

The Passing of the Holiday Season Signals That Property Tax Appeal Season is Upon Us

Carl A. Rizzo — Mon, 23 Jan 2012 14:15:54 -0500

The Commercial Real Estate Climate Continues to Falter and Warrants Review for the Viability of a Successful Real Property Tax Appeal

With measurable declines in the real estate market persisting, evidenced by the sluggish movement of vacancy and rental rates, a tax appeal is most likely justified in 2012. Don’t let the fact that you did not explore this option in the past dictate your actions this year. Just as in the case of refinancing your mortgage, it is never too late to take advantage of real savings opportunities.

Last year, the New Jersey Tax Court was busy docketing an unprecedented level of appeals and municipalities are again bracing for yet another consecutive record appeal season. Downward adjustments to assessment levels have been generally warranted over the course of the last several years in conjunction with most property classes. Due to the continued economic malaise and waning consumer confidence, further downward adjustments appear to be in order again in 2012.

Despite the fact that there may have been recent signs suggesting the bottoming out of the real estate market (such as slow and modest increases in demand for industrial space over the course of the last quarter of 2011), this phenomenon would not affect the relevant real estate value as of the applicable 2012 tax year valuation date (October 1, 2011). Towns will therefore continue to be forced to recognize that its assessments are subject to real and legitimate challenge and will need to be prepared to negotiate reasonable resolutions. The process of ensuring that you are only paying your fair share of taxes can, however, only be initiated with the filing of a timely tax appeal. The 2012 tax appeal filing deadline is April 1, 2012.

In the next several weeks, you will be receiving a Property Tax Assessment Notice (post card) from the municipal tax assessor, that will identify the tax assessment imposed upon your property for 2012. The receipt of this notice should prompt you to seek assistance in determining whether a tax appeal is justified.

The assessment number included on this post card can be deceptive, as it often does not reflect the true value assigned by the town to your property. Without applying the town specific ratio you could be falsely lulled into believing that your property is being properly assessed when nothing could be further from the truth. Such a miscalculation could lead to a very expensive mistake.

Towns employ what is called an average or “equalization” ratio in order to convert the property tax assessment to true value (the so-called “equalization value”). Comparing the equalization value to the actual value of your property will determine whether an appeal has merit. Reviewing your tax assessment card with your real property tax professional will ensure that you are not paying more than your fair share of the municipal tax burden and that the town is treating you fairly.

New Jersey Governor Signs into Law Act Permitting Private Companies to Construct and Operate Public Schools in Newark, Trenton and Camden

Joanna K. Slusarz — Wed, 18 Jan 2012 13:27:28 -0500

On January 12, 2012, New Jersey Governor Chris Christie signed into law the Urban Hope Act (“Act”), S3173/A4426, which allows private companies to construct, operate and manage up to twelve public schools in three under-performing public school districts in the State: the Newark School District, the Trenton School District and the Camden School District. These “failing districts,” as such are defined in the Act as those in which a below average percentage of students scored at least in the partially proficient range on State assessments administered in the 2009-2010 school year, have been unable to convert, year after year, “increased State aid and other resources into improved student achievement, higher graduation rates, or greater student readiness for postsecondary education and gainful employment.” Recognizing that although New Jersey’s per pupil public school expenditures are among the highest in the nation, many of the State students are nonetheless failing to achieve the core curriculum content standards, the New Jersey Legislature passed, and the Governor approved, the Act to “provide local boards of education, partners, students, and teachers with more and better options for addressing their failing schools.”

The Act offers one such option by allowing the identified school districts, on a limited pilot program basis, to partner with one or more nonprofit entities to create “renaissance schools.” Under the Act, a “renaissance school project” (“RSP”) means “a newly-constructed school, or group of schools in a common campus setting, that provides an educational program for students enrolled in grades K through 12 or in a grade range less than K through 12, that is agreed to by the school district, and is operated and managed by a nonprofit entity in a renaissance school district.” A “renaissance school district” (“RSD”) is “a failing district in which [RSPs] shall be established.” Private or parochial schools are not eligible for RSP status under the Act.

Upon receiving local school district approval, nonprofit entities can apply, within three (3) years of the Act’s passage, to the state Commissioner of Education (“Commissioner”) to create up to four (4) RSPs in each RSD. The nonprofit entity must demonstrate experience in operating a school in a “high-risk, low-income urban district.” Similarly, “an entity retained by the nonprofit entity for the purpose of financing or constructing the [RSP] shall also have appropriate experience.” In its application, the nonprofit entity is required to outline its goals, policies, and a financial plan. In addition, the nonprofit entity must provide a description of the process employed by the RSD to find and partner with the chosen nonprofit entity to create a RSP; such process should be “open, fair and subject to public input and comment.”

Once the nonprofit entity obtains state approval, it can then enter into a contract with the RSD in which the RSP will be located, setting forth the terms and conditions for the RSP including the operation, management, and funding of the RSP. The nonprofit entity is also required to file an organizational document with the Commissioner.

The Act permits for-profit entities to construct a RSP. RSPs may also be located on land owned by a for-profit entity. Moreover, the nonprofit entity is authorized to retain for-profit entities to staff, operate, and manage the RSP. Although RSPs shall be considered public schools under the Act, the nonprofit entity or any entity acting in cooperation with a RSP, including for-profit businesses, would not be subject to public bidding requirements for goods and services, as is otherwise required for public schools under the “Public School Contracts Law,” N.J.S.A. 18A:18A-1 et seq. Further, any such contracts entered into would not be deemed public contracts or public works, except for the purposes of the “New Jersey Prevailing Wage Act,” N.J.S.A. 34:11-56.25 et seq., which the RSPs are subject to. All costs of the RSP, including the costs of land acquisition, site remediation, site development, design, construction, and any other costs required to place into service the school facility or facilities constituting the RSP, are to be paid for by the nonprofit entity. State funds may be used to pay for a lease, debt service, or mortgage for any facility constructed or otherwise acquired.

Under provisions of the Act, RSPs may also be built on land owned by the New Jersey Schools Development Authority (“SDA”) or the RSD. Ownership of the land on which the RSP is constructed determines which students are permitted to enroll at the RSP. The Act also permits the SDA to convey the land by ground lease or fee simple title to either the RSD or the entity constructing the RSP, including to private developers, “for such consideration and on such terms as the [SDA] determines to be in the best interest of the State.” The conveyance must contain a restriction that the land be used solely for a school or it shall revert to the SDA. In the event the land is conveyed to a RSD, the RSD may enter into a sublease of the property with the entity. Such a sublease must contain a similar use restriction and reverter provision, and be reviewed and approved by the Commissioner.

Moreover, if any board of education determines by resolution that any tract of land is no longer desirable or necessary for school purposes, it may authorize the conveyance of such a tract to a RSP, similarly conditioning the conveyance on the property’s continued use for school purposes by the RSP.

Under the provisions of the Act, the RSD will pay to the nonprofit entity operating a RSP an amount per pupil equal to 95% of the district’s per pupil expenditure. The RSPs are required to meet the same testing and academic performance standards established by law and regulation for public students. The nonprofit entity may also establish additional testing and academic performance standards which, upon the Commissioner’s approval of the same, the RSP must meet as well. The RSPs are subject to periodic reviews and assessments by the Commissioner, and the Commissioner has the right to review the RSP’s and the nonprofit entity’s records and facilities to ensure compliance with the RSP’s organizational document, and with State laws and regulations. In addition, five (5) years following the date of the opening of the third RSP, or ten (10) years after the opening of the first RSP, whichever occurs first, an independent education researcher or research organization selected by the Commissioner will conduct a review of the efficacy of the RSPs. The Act requires that the Commissioner report the results of the review to the Governor, the State Board of Education, and the Legislature, and the RSP program altered and/or expanded based on these results.

The Act received wide support from education organizations and the state’s largest teachers union, the New Jersey Education Association. Under the Act, educators in the RSPs will have the same qualification requirements, salary minimums and collective-bargaining powers as teachers in other public schools

The Urban Hope Act is one of several pieces of the administration’s overall effort to improve education.

New York State Bans Private Transfer Fee Obligations; Joins Majority

Joanna K. Slusarz — Thu, 10 Nov 2011 10:55:33 -0500

On September 23, 2011, New York Governor Andrew Cuomo signed into law Senate Bill 5203A and Assembly Bill 7358A, codified as the “Private Transfer Fee Obligation Act” in Article 15 of the New York Real Property Law. The new law imposes a ban on all new private transfer fees (“PTFs”), and provides notice, disclosure and remedy procedures for existing private transfer fee obligations. With the passage of this law, New York has joined the majority of states which have enacted legislation that completely bans, limits and/or requires the disclosure of PTFs.

In practice, PTFs have also been dubbed “Wall Street home resale fees,” “private transfer taxes,” “reconveyance fees,” “capital recovery fees,” “residential transfer fees,” and “transfer fee covenants.” These charges, whatever they may be called, usually amount to one percent (1%) or more of the sales price and are automatically inserted into the contract of sale on real property, to be paid by the seller to the original developer of the property or their designee, oftentimes a third party that holds no ownership interest in the property, every time the property is transferred for up to 99 years. They are usually buried within dozens or hundreds of pages of documents, or, in some instances, are found in a separate declaration affecting the property filed by the original developer. Prospective buyers and owners may not be aware of these fees until closing or, worse, when they try to sell the home years later and the fee shows up in a document obtained in connection with a title search of the property. The failure to pay the PTFs at closing typically results in a lien being imposed on the property.

Unlike traditional deed covenants, PTFs run with and burden the land without benefiting it. Although the fees may benefit a homeowners’ association, conservation land bank, non-profit organization, etc., they have been found to not be proportional or related to the purposes for which the fees were to be collected. Furthermore, PTFs are also used by builders and developers to provide themselves with an income stream long after a development is complete. The American Law Institute has described such PTFs as “unconscionable;” the U.S. Department of Housing and Urban Development has publicly opposed the use of PTFs, stating that “PTFs violate HUD’S regulations at 2 C.F.R. 203.41, which prohibit ‘legal restrictions on conveyance,’ defined to include limits on the amount of sales proceeds retainable by the seller.” In addition, the Federal Housing Finance Agency, determining that “such covenants are adverse to the liquidity and stability of the housing finance market and to financial safety and soundness,” has issued a proposed rule, published at 76 F.R. 6702 (Feb. 8, 2011), that would restrict the regulated entities – the Federal National Mortgage Association (“Fannie Mae”), the Federal Home Loan Mortgage Corporation (“Freddie Mac”), and the Federal Home Loan Banks – from investing in most mortgages on properties encumbered by PTFs.

Similarly, the New York State Legislature has determined that PTFs conflict with a preferred state public policy favoring “the marketability of real property and the transferability of interests in real property free of title defects or unreasonable restraints on alienation.” The legislature also declared that “a private transfer fee obligation shall not run with the title to property or otherwise bind subsequent owners of property under any common law or equitable principle.”

Real Property Law Section 472 defines a private transfer fee as “a fee, charge or any portion thereof, required by a private transfer fee obligation and payable, directly or indirectly, upon the transfer of an interest in real property, or payable for the right to make or accept such transfer, regardless of whether the fee or charge is a fixed amount or is determined as a percentage of the value of the property, the purchase price, or other consideration give for the transfer.” Expressly excluded from this definition are: (a) the purchase price of the real property being transferred; (b) any real estate broker commissions; (c) the interest, fees and charges associated with a loan secured by a mortgage against real property; (d) rent payable under a lease; (e) payments to holders of options to purchase and rights of first refusal or purchase; (f) any taxes, fees, assessments, etc. imposed by governmental authorities; (g) fees paid to homeowners’, condominium, cooperative, mobile home or property owners’ associations that use them to directly benefit owners of the encumbered property; (h) fees payable for the benefit of certain non-profit organizations; and (i) fees pertaining to the purchase or transfer of a club membership relating to real property owned by the member. “Transfer” means “the sale, gift, conveyance, assignment, inheritance, or other transfer of an ownership interest in real property located in [New York] state.”

The Private Transfer Fee Obligation Act prohibits entering into or recording PTFs after its effective date, and declares all such new PTFs void and unenforceable, not running with the land, and not binding on subsequent purchasers. Anyone who records or enters into an agreement imposing a private transfer fee obligation in their favor after the effective date would be liable for any damages resulting from that obligation, including the PTFs, attorneys’ fees and other costs to quiet title. Notwithstanding this strict prohibition and repercussions, section 475 further underscores the significance of disclosing any PTFs by requiring the seller to furnish to the buyer, prior to closing, a written statement memorializing their existence, describing the PTFs and referencing the new law.

Moreover, PTFs entered into and/or recorded prior to the new law’s effective date of September 23, 2011, are not to be presumed valid and enforceable. The new law requires the receiver of the PTFs to give notice to subsequent buyers by recording, within six months of the law’s effective date, a document disclosing the existence of PTFs along with the additional information required under section 476, including the PTFs’ amounts and purposes. Failure to record would result in the agreement being unenforceable, and the real property could then be conveyed free and clear of the PTFs.

The Private Transfer Fee Obligation Act also sets up a mechanism by which an individual transferor can free the property of private transfer fee obligations currently burdening his real property. If a receiver of the PTFs does not provide a written statement of their payment within thirty (30) days of the written request asking for such a disclosure, then the transferor, after recording an affidavit describing its efforts to reach the receiver, may convey any interest in the real property to any transferee without paying the PTFs. From that point on, the real property would be free and clear of the PTFs.

Supported by the New York State Association of REALTORS, New York Taxpayers for Economic Justice, Inc., Consumers Union, Consumer Federation of America, and the Coalition to Stop Wall Street Home Resale Fees (formed by the National Association of Realtors and the American Land Title Association), among many others, Private Transfer Fee Obligation Act became effective immediately.

New York Law Permits Electronic Recording of Real Property Conveyances

Joanna K. Slusarz — Thu, 13 Oct 2011 08:38:02 -0500

On Friday, September 23, 2011, New York Governor Andrew Cuomo signed into law Senate Bill 2373A and Assembly Bill 6870A. The bill authorizes the electronic recording (“e-recording”) of instruments affecting real property in the form of digitized images of original, executed paper instruments and of electronically executed instruments.

Modeled on the federal Uniform Electronic Transactions Act and following in the footsteps of NYSCEF which permits the filing and service of legal papers by electronic means with certain county clerks and with courts in certain types of cases, the new law, encapsulated in Real Property Section 291-i (“Validity of electronic recording”), “seeks to achieve similar efficiencies in the realm of real property conveyances by enabling county governments to modernize the manner in which real estate professional[s] and recording officers conduct their business together.”

Prior to the bills’ signing, the State’s Electronic Signatures and Records Act (“ESRA”), Article III of Chapter 57-A of the New York State Technology Law, already allowed instruments signed electronically to be received, accepted, recorded and stored by government entities in an electronic format. ESRA clarified that “signatures” made via electronic means are just as binding as hand-written signatures and that electronic records have the same legal force as those produced in other formats such as paper and microfilm.

ESRA, however, expressly did not apply “to any conveyance or any other instrument recordable under article 9 [‘Recording instruments affecting real property’] of the Real Property Law.” Real Property Section 291-i eliminates that limitation as it permits e-recording of instruments affecting real properties and confirms the validity of digitized paper documents, electronic records, electronic signatures and electronic notarization. The bills also update the pertinent definitions in Real Property Section 290. “Real property” includes “lands, tenements and hereditaments and chattels real, except a lease for a term not exceeding three years.” “Conveyance” includes:

"every written instrument, by which any estate or interest in real property is created, transferred, mortgaged or assigned, or by which he title to any real property may be affected, including an instrument in execution of a power, although the power be one of revocation only, and an instrument postponing or subordinating a mortgage lien; except a will, a lease of a term not exceeding three years, an executory contract for the sale or purchase of lands, and an instrument containing a power to convey real property as the agent or attorney for the owner of such property.”

“Recording” now also means “by an electronic process by which a record or instrument affecting real property, after delivery is incorporated into the public record.” An “[e]lectronic record” is “information evidencing any act, transaction, occurrence, event or other activity, produced or stored by electronic means and capable of being accurately reproduced in forms perceptible by human sensory capabilities,” whereas a “[d]igitized paper document” means “digitized image of a paper document that accurately depicts the information on the paper document in a format that cannot be altered without detection."

Section 291-i makes the e-recording option voluntary; once a county clerk opts to allow it, however, e-recording must be available to all filers. Participating recording officers are required to obey the rules and regulations of the state Office for Technology, the designated electronic facilitator under ESRA. Section 291-i also provides that where a law, rule or regulation requires, as a condition of recording, that an instrument be a signed and notarized paper original, the requirement is satisfied by a digitized paper document or an electronic record that had been electronically signed and notarized. Furthermore, the bill specifies that permissible software applications must have the capability of storing an image of the original paper documents but not permit additions, deletions or other changes to the digitized image unless such can be identified by a media trail.

Furthermore, the bills amend Real Property Section 317, which now provides that a digitized paper document or an electronic record will be considered “delivered” on the date and at the time such document or record is successfully transmitted to a recording officer. The recording officer must then record the instrument in the order it was received and immediately send an electronic or written notification of his or her receipt of the delivery stamp to the recording party. The delivery stamp, however, will be limited to the regular business hours maintained by the recording officer.

The justifications for Senate Bill 2372A cited by its author and proponent, New York State Senator Andrea Stewart-Cousins, mirror those listed in the statement of legislative intent in Chapter 314 of the Laws of 2002 which amended ESRA. They include reduction of the volume of paper documents coming into the recorders’ offices, considerable savings of money usually spent on personnel and postage for returning documents, as well as a more efficient and streamlined storage and retrieval system. The ultimate purpose of e-recording as permitted by Section 291-i is to “improve the recording process from the point of origin (e.g. title companies, banks, attorneys’ offices) to county clerks’ offices” which will “improve work flow, increase productivity, speed up the recording process and improve data accuracy.”

Supported by the New York State Association of County Clerks and the New York State Bar Association’s Real Property Law Section, among others, Real Property Section 291-i and the amended portions of Sections 290 and 317 will go into effect on September 22, 2012.

What Every Business Owner Needs To Know About OSHA (Part Three)

Gerard M. Giordano — Tue, 11 Oct 2011 10:16:57 -0500

The final installment of this three part series describes what employers should expect after an OSHA inspection as well as the employers’ rights.

1. What happens after OSHA completes its inspection?

Unless your establishment is in full compliance with OSHA’s standards, you will receive a “Citation and Notification of Penalty” from OSHA. Generally, OSHA has up to six months after it initiates the inspection to issue a Citation. A Citation includes: the type of violation (classification); the standard, regulation or section of the Occupational Safety and Health Act that was violated; a description of the violation; the abatement date; and the penalty.

A. The alleged violation could fall into one of the following categories:

Willful - A willful violation is a violation in which the employer knew that a hazardous condition, which violated a standard, regulation or a section of the Occupational Safety and Health Act, existed but made no reasonable effort to eliminate it. If the willful violation results in a death, OSHA can seek criminal sanctions against an employer.

Serious - A serious violation exists:

if there is a substantial probability that death or serious physical harm could result from a condition which exists, or from one or more practices, means, methods, operations, or processes which have been adopted or are in use, in such place of employment unless the employer did not, and could not with the exercise of reasonable diligence, know of the presence of the violation.

Repeat - OSHA may cite an employer for a repeated violation if:

(A) the employer has been cited previously for a substantially similarviolation;

(B) the previous citation containing the substantially similar violation has become final order of the Occupational Safety and Health Review Commission; and

(C) the current violation occurred within 5 years from the date that the earlier citation became final order or from the final abatement date, whichever is later.

Other-Than-Serious - An other than serious violation exists where an accident or illness that could occur from a violation “would probably not cause death or serious physical harm but would have a direct and immediate relationship on the safety and health of employees.”

De Minimis – A de minimis violation is a “violation of a standard that has no direct or immediate relationship to safety and health.”

In addition, an employer can also be cited for failure to correct a previously cited condition. The Occupational Safety and Health Act allows OSHA to assess penalties for each day a violation continues past the final abatement date.

B. Section of OSHA Standard Violated and Description of the Violation

The citation must also describe the violation and section of OSHA’s standard that was violated.

C. Abatement Date

The abatement date is the date by which the violation must be corrected. The abatement period is “the shortest interval within which the employer can reasonably be expected to correct the violation.” Abatement dates are usually discussed at the closing conference. In determining the abatement date the inspector generally considers the following factors:

(a) The seriousness of the alleged violation;

(b) the equipment, material and/or personnel needed to correct the alleged violation and their availability;

(d) the time period to construct or install the abatement equipment; and

(e) the time period to train personnel.

If an employer is unable to meet an abatement date because of some uncontrollable circumstance, the employer can petition the OSHA Area Director to modify the abatement date contained in the Citation.

D. Penalty

The Citation also sets forth the penalty assessed by OSHA. OSHA is authorized to assess the following civil penalties: $70,000 for each willful or repeated violation; $7,000 for each serious or other than serious violation; $7,000 for each violation of the posting requirement; and $7,000 per day beyond a stated abatement date for failure to correct a violation.

Penalties are calculated once a violation is classified. In calculating penalties OSHA takes into account the following factors: the seriousness of the violation; the number of employees employed by the employer; the employer’s good faith as demonstrated by the employer’s efforts to comply with the Occupational Safety and Health Act and OSHA’s standards and regulations; and the employer’s past history of compliance. OSHA can, at its discretion, reduce the maximum penalty that it will impose after considering these factors.

2. If OSHA issues citations to my company, what should I do?

Once you receive a Citation, you must post the Citation at or near the place where each violation occurred so that it will be conspicuous to employees. The purpose of this is to make employees aware of the hazards to which they may be exposed. The Citation must remain posted for three (3) working days or until the violation is corrected, whichever is longer. You are required to comply with these posting requirements even if you subsequently decide to contest the Citation.

You have two choices once you receive a Citation. The first option is you can comply with the Citation. That is, you can correct the alleged violations by the date specified in the Citation and pay any penalty that may have been assessed. If you do not contest the Citation, the Citation will become a final order in fifteen (15) working days after receiving the Citation. Once the Citation is a final order, it will be binding and not subject to review by any court or agency.

The second option available to you is to contest the Citation. You have fifteen (15) working days from the date of receipt of the Citation to contest the Citation.

However, before you decide which course to take, you should take advantage of an OSHA process known as the Informal Conference. You must request and schedule the Informal Conference with the OSHA Area Office that issued the Citation within the fifteen (15) working day contest period.

If you cannot reach a settlement agreement with OSHA at the informal conference, you may wish to contest the Citation. Generally, a notice of intent to contest all or any portion of the Citation must be submitted in writing to the OSHA Area Office that issued the Citation within fifteen (15) working days after the receipt of the Citation.

3. Should I challenge the OSHA citations?

There is no universal formula to assess whether you should challenge the OSHA Citation. The decision must be made in good faith and based on the facts, which include consideration of alleged violation, its impact on employee health and safety, the classification of the violation, the method of abatement and the cost involved in abating the alleged violation.

4. If I do challenge an OSHA citation, what should I expect?

Once you file a notice of contest, jurisdiction over the matter vests with the Occupational Safety and Health Review Commission (the “Commission”). The Commission, sometimes called “OSHRC,” is an independent agency not connected in any way with OSHA. Its primary purpose is to decide contested cases arising from Citations issued by OSHA. It does not perform investigations or promulgate standards.

Once the Notice of Contest is filed with the OSHA Area Office that issued the Citation, the OSHA Area Director will forward a copy of the Notice of Contest to the Commission. The Commission will appoint an Administrative Law Judge who will preside over the hearing and render a decision, which can be appealed by the employer or OSHA.

5. How can I clear my company’s record from any citations issued by OSHA?

There is no method to clear your company’s record of past Citations issued by OSHA. However, the longer your company operates without OSHA Citations the better. OSHA can use past Citations as a basis to issue Citations that have a more severe classification with increased penalties. For instance, if OSHA re inspects your company in the future, it can issue repeated violations for conditions that were violated during the original inspection.

6. Can OSHA re-inspect my facility? If so, is there any action that I can take to prevent OSHA from inspecting my facility in the future?

Yes, OSHA can re-inspect your facility. You cannot prevent OSHA from re inspecting your facility in the future, but you can minimize the chances of that occurring by being proactive. By establishing safety and health programs that incorporate coordination and communication of safety and health issues among personnel; means for planning and implementing needed training and job orientation for employees; and means for identifying and controlling workplace hazardous and monitoring the effectiveness of such program, you can minimize workplace hazards and thus, reduce the chances of OSHA re-inspecting your facility. In certain situations you may want to utilize the services of a safety and health consultant to assess your workplace and make recommendations to better comply with OSHA’s standards. Your lawyer can assist you with deciding whether to retain a consultant to evaluate your workplace.

7. If OSHA re-inspects my facility, should I expect the same result as the initial inspection?

The answer to this question is dependent on your company’s response to the initial inspection and your company’s commitment to health and safety. Only by being proactive and implementing programs that protect employees can you reduce the possibility of future OSHA enforcement actions.

2011 Amendments to the New Jersey Bulk Sale Law and Their Application to Single- and Two-Family Residences

W. John Park and Joanna K. Slusarz — Mon, 26 Sep 2011 10:55:20 -0500

On Wednesday, September 14, 2011, Governor Christie signed into law amendments to the New Jersey Bulk Sale Law. Enacted as chapter 124 of the Public Laws of 2011, these amendments narrow the scope of N.J.S.A. 54:50-38, signed into law on June 28, 2007 by Governor Corzine, by exempting the sale, transfer or assignment of single- and two-family homes and of seasonal rental property from the bulk sale notification requirements.

The 2007 law expanded the scope of the 1966 New Jersey Sales and Use Tax Act which set forth bulk sale notification requirements designed to provide the N.J. Division of Taxation with notice of asset sales for the purpose of collecting any outstanding tax liabilities owed by a seller. The 1966 law did not, however, apply to commercial real estate transactions unless the transaction was part of the sale of business assets which included real estate, e.g., the sale of an existing hotel business.

The 2007 law dramatically changed the landscape of bulk sale notification requirements by compelling such notice to be a part of all transactions in which a bulk sale was made. Specifically, the pertinent sections of the law provided:

"Whenever a person required to collect tax shall make a sale, transfer, or assignment in bulk of any part or the whole of his business assets, otherwise than in the ordinary course of business, the purchaser, transferee or assignee shall at least 10 days before taking possession of the subject of said sale, transfer or assignment, or paying therefor, notify the director by registered mail of the proposed sale and of the price, terms and conditions thereof whether or not the seller, transferrer or assignor, has represented to, or informed the purchaser, transferee or assignee that he owes any tax pursuant to this act, and whether or not the purchaser, transferee, or assignee has knowledge that such taxes are owing, and whether any such taxes are in fact owing.

Whenever the purchaser, transferee or assignee shall fail to give notice . . . or whenever the director shall inform the purchaser, transferee or assignee that a possible claim for such tax or taxes exists, any sums of money, property or choses in action, or other consideration, which the purchaser, transferee or assignee is required to transfer over to the seller, transferrer or assignor shall be subject to a first priority right and lien for any such taxes theretofore or thereafter determined to be due from the seller, transferrer or assignor to the State, and the purchaser, transferee or assignee is forbidden to transfer to the seller, transferrer or assignor any such sums of money, property or choses in action to the extent of the amount of the State's claim. For failure to comply with the provisions of this section the purchaser, transferee or assignee, . . . shall be personally liable for the payment to the State of any such taxes theretofore or thereafter determined to be due to the State from the seller, transferrer or assignor, and such liability may be assessed and enforced in the same manner as the liability for tax under this act."

For purposes of the 2007 law: (i) “‘Business’ mean[t] any endeavor from which revenue or consideration is realized for the purpose of generating a profit or loss,” and (ii) “‘Business assets,’ tangible or intangible, include[d] . . . realty if the primary use of the realty [was] to support a business on its premises.” See N.J. Div. of Tax. Tech. Bull. 60 (July 3, 2008). On the contracting parties’ end, proper notification consisted of inserting a provision into the Contract of Sale that both parties would comply with the statute; the seller preparing and delivering to the purchaser the Asset Transfer Tax Declaration, in which seller was to disclose information that would assist the Director in estimating the gain on the transfer of asset(s) and the estimated tax on the gain; the purchaser preparing Form C-9600, which provided basic information regarding the sale, transfer, or assignment of property; and, finally, submitting both forms and a fully executed and complete purchaser agreement by registered mail to the Director at least ten business days prior to the date of closing.

The 2007 law made it apparent that, with the exception of building contractors who sold houses as inventory in the regular course of their business, single family residences used solely for that purpose, and other unique transactional situations, all real estate transactions required the statutory notification of a bulk sale. The notice requirements attached to sales of vacant land owned by a business; single-family homes used to obtain rental income; single-family homes used as a home office, if expensed as such on the homeowner’s tax return to receive a tax benefit; and even transactions where the seller was a tax-exempt or non-profit organization.

(Case law also established that bulk sale notification requirements applied to deeds in lieu of foreclosure. For further discussion, see The New Bulk Sales Notification Requirements and Their Application to New Jersey Real Estate Transactions - Part II).

The 2011 amendments take effect immediately and apply retroactively to sales, transfers and assignments on or after August 1, 2007.

Under the 2011 amendments, the bulk sale notification requirements of N.J.S.A. 54:50-38 will not apply to “the sale, transfer or assignment of a simple dwelling house if the seller, transferrer or assignor is an ‘individual,’ ‘estate,’ or ‘trust’ as those terms are used for the purposes of the ‘New Jersey Gross Income Tax Act,’ N.J.S. 54A:1-1 et seq.” A “simple dwelling house” is defined as a one-family or two-family dwelling unit and includes cooperatives and condominium units. Still subject to the law, however, are structures “containing more than two units of dwelling space or containing, according to the municipal property tax assessor, commercial property including, or in addition to the units of dwelling space.”

Furthermore, the 2011 amendments attempt to resolve the ambiguity of whether the bulk sale law applies to the sale of a residential property that is only being rented for a short period of time. The law as amended now also exempts the sale, transfer or assignment of a “seasonable rental unit” or “of a lease for the seasonable use or rental or real property” if the seller is an individual, estate or trust. For purposes of the law, a “seasonal rental unit” is a timeshare estate (N.J.S.A. 45:15-16.51) or “a dwelling unit rented for a term of not more than 125 consecutive days for residential purposes by a person having a permanent residence elsewhere.”

Again, the above exemptions extend only to sellers who are individuals, estates or trusts. “Business entities,” including but not limited to corporations or partnerships, must continue adhering to the 2007 bulk sale notification requirements.

What Every Business Owner Needs To Know About OSHA (Part Two)

Gerard M. Giordano — Tue, 20 Sep 2011 13:59:14 -0500

This article, the second of a three part series, focuses on OSHA’s procedures during an inspection and outlines what employers should and should not do during an inspection.

1. What should I do or not do during an inspection?

There are certain actions that you should take to protect your interest during an OSHA inspection. These actions include:

(a) Check the inspector’s identification to ensure he/she is who he/she says he/she is.

(b) Ascertain from the inspector the reason for the inspection. If the inspection is the result of a complaint, you should request a copy of the complaint.

(c) Have someone from management escort the inspector through the entire inspection process i.e., from opening to closing conference.

(d) Document the inspector’s activities i.e, areas inspected, interviews, measurements taken, etc..

(e) If the inspector performs any monitoring i.e., noise or air monitoring, you should consider performing similar monitoring at the same time. The purpose of the “side by side” monitoring will allow you to document and confirm the results obtained by OSHA.

(f) Request the results of all monitoring performed by the inspector.

(g) At the closing conference, if the inspector indicates that violations have been found, determine why certain conditions constitute a violation. In addition, you should request from the inspector recommended methods to correct any alleged violations.

(h) Consult your attorney at the time an OSHA inspection is initiated and if at any time you are unsure how to respond to a certain requests made by the inspector.

The following is a list of “don’ts”:

(a) You should not forcibly interfere with the conduct of an inspection.

(b) You should not discriminate against or punish any employee who cooperates with OSHA or who may exercise his or her rights under the Occupational Safety and Health Act.

(c) You should not provide the compliance officer with false or misleading information. Providing false information to OSHA is punishable as a crime under the Occupational Safety and Health Act.

(d) You should not argue with or antagonize an inspector during an inspection.

2. How long will OSHA be at my facility?

OSHA will remain at your facility until it completes its investigation. The inspection could last a couple of hours or up to several months. The length of time is determined by the scope of the inspection i.e., whether it is confined to one area or the entire facility. It is also dependent on the type of inspection. That is, whether the inspector will be required to make subsequent visits to the facility to perform monitoring to establish employee exposure to workplace contaminants or noise.

3. Do I have to let my employees talk to the OSHA inspector?

OSHA inspectors are authorized to use various investigatory techniques, such as observing employees’ activities in the workplace, conducting employee interviews, and taking photographs and measurements in the workplace (i.e., air and noise monitoring).

The Occupational Safety and Health Act authorizes OSHA to interview employees privately to obtain whatever information is necessary or useful for the inspector to perform his or her inspection effectively. The interviews, however, must be conducted in a reasonable manner and within a reasonable time limit. If they appear to be unreasonable, you should consult your attorney. On occasions, interviews may be conducted at locations other than the workplace (e.g., employee’s house or OSHA Area office). OSHA’s regulations afford any employee the right to bring any alleged violation to the attention of the inspector.

OSHA inspectors are also authorized to take photographs or videos whenever such are deemed necessary. Generally, an employer cannot prohibit an inspector from taking photographs or videos because a certain process or equipment is a trade secret. To protect a trade secret, you should inform the inspector of the process or equipment that is proprietary. Once informed of trade secret status, the inspector is obligated to treat the information obtained from the inspection in a manner assuring confidentiality.

In order for OSHA to document employee exposure to chemical or physical hazards, it is often necessary for the inspector to perform monitoring. Typically, during the walkthrough phase of the inspection the inspector will identify certain areas where monitoring must be performed. The inspector may then return on another day to perform the monitoring, which may last for the full term of the work shift.

Monitoring employees for chemical and/or physical hazards usually consists of placing monitoring devices such as air samplers or noise dosimeters on the employees. The employer may not object to such investigatory procedures. Once the monitoring devices are placed on the employees, the inspector will observe the employees throughout the day and document their work practices, use of personal protective equipment and other relevant information.

What Every Business Owner Needs To Know About OSHA (Part One)

Gerard M. Giordano — Tue, 13 Sep 2011 12:19:36 -0500

A significant number of businesses are likely to find themselves face-to-face with an inspector from OSHA, and many will be caught off guard. We recommend that businesses take a two-pronged approach to OSHA compliance.

First, make every effort to comply with OSHA’s safety and health rules to protect your employees. Second, be prepared in the event OSHA initiates an inspection at your establishment. If you have a plan in place that provides guidance to your managers, describe the procedures employed by OSHA and what to expect during an inspection, you can minimize disruption of your business and possibly adverse consequences.

This is a three-part series to assist employers and familiarize them with OSHA and its procedures. Part One will focus on OSHA’s function, who is subject to OSHA’s requirements and what OSHA looks for during an inspection.

Part Two describes an actual step-by-step inspection and outlines suggested procedures for employers to follow. The third and final part describes what an employer should expect following an inspection and the employers’ rights and obligations.

1. What is OSHA and what does it do?

OSHA or the Occupational Safety and Health Administration, is an agency within the United States Department of Labor. OSHA’s primary function to protect employees by inspecting workplaces to ensure that employers comply with the safety and health standards promulgated by OSHA.

2. Who is subject to OSHA’s requirements?

Most private sector employers and their employees are subject to OSHA’s requirements. Employees employed by state and local governments are not covered by OSHA. Likewise, certain private sector workers are exempt from OSHA’s requirements. Specifically excluded are self employed individuals, farm workers where only immediate members of the farm employer’s family are employed and workers at facilities where safety and health is regulated by other federal agencies under separate federal statutes.

3. If OSHA shows up at my facility, do I have to allow the inspector in my facility?

In most cases, OSHA must either obtain your consent or a valid warrant authorizing an inspection before entering your facility to perform an inspection. The inspector who arrives at your workplace, may not inform you of your rights.

If denied entry to perform an inspection without a warrant, OSHA has the authority to obtain a warrant by ex parte application to the United States District Court (i.e., OSHA will ask the court to issue a warrant to allow the inspection). If OSHA seeks a warrant, you will not receive advance notice that OSHA is seeking a warrant or receive copies of any materials supplied to the court by OSHA in applying for the warrant.

The decision regarding whether to allow OSHA to inspect your facility is not always clear cut. We recommend that you discuss your options with your lawyer and have a plan in place should an OSHA inspector show up. That plan should be made as a matter of company policy developed prior to the actual inspection. Your managers and key employees should be familiar with the plan and who to contact should they have questions.

4. What does OSHA look for?

There are three phases to an OSHA inspection, the opening conference, the walkthrough and the closing conference.

At the opening conference, the inspector will seek general information concerning your business (e.g., name, address, etc.) as well as your safety and health program. For instance, the inspector may inquire into the following:

The details of your company’s safety and health program;
How information on your company’s safety and health program is communicated to employees;
How your company enforces violations of its safety and health rules;
The type of safety and health training programs that your company has established and how they are implemented;
How your company performs an accident investigation and whether your company implements preventative measures as a result of the investigation; and
Whether the OSHA Notice is posted on site in your facility.

In addition, the inspector will request access to the records that you are required to maintain under the OSHA’s standards (e.g., injury and illness records and Hazard Communication Records, etc.).

The next phase of the OSHA inspections is the walkthrough. The main purpose of the walk-through is to allow the inspector to identify potential safety and/or health hazards in the workplace. You and the employee representative will be given the opportunity to accompany the inspector.

During this phase of the inspection the inspector will assess your safety and health program, collect information on your business and document any hazards found in the workplace.

The final phase of the OSHA inspection is the closing conference. The inspector is required to have a closing conference with you and the employee representative. At the closing conference the inspector is required to describe any and all alleged violations that were observed during the inspection and identify the applicable sections of the OSHA standards or Occupational Safety and Health Act that were allegedly violated. The violations that are found by the inspector will be outlined in a Citation. Citations are not issued at the closing conference, but are issued at a later date under the signature of the Area Director. In addition, the inspector is required to advise you and the employee representative of your rights following an OSHA inspection.

Contractors and Subcontractors Beware

Peter James Herrigel — Fri, 09 Sep 2011 09:53:38 -0500

Subcontractor’s bids, when coupled with its backlog of uncompleted contracts, must not cause subcontractor to exceed aggregate rating limit in public school projects. If so, contractor’s bid will be rejected due to subcontractor exceeding its aggregate rating limit.

On June 20, 2011, the Appellate Division decided Brockwell & Carrington Contractors, Inc. v. Kearny Board of Education, Hall Construction, Inc. and Dobco, Inc., Docket No. A-1806-10T4, (“Brockwell”), which may have a significant impact on bidding on public school contracts. Brockwell involved a bid for a public school contract in which the contractor’s bid, which included a subcontractor’s bid, was rejected because the subcontractor’s bid exceeded the aggregate rating for the subcontractor for public school projects. As a result, the contract was awarded to the next lowest bidder.

In Brockwell, defendant Kearny Board of Education (“BOE”) sought bids for the Kearny High School – Aircraft Noise Abatement and Renovations Project (the “Project”). Bids were opened for the Project on September 15, 2010. Defendant, Dobco, Inc. (“Dobco”), was the lowest bidder, followed by plaintiff, Brockwell & Carrington Contractors, Inc. (“B&C”). The BOE awarded the contract to Dobco. Dobco’s bid identified Environmental Climate Control, Inc. (“ECC”) as the heating, ventilation and air-conditioning (“HVAC”) subcontractor for the Project. The Division of Property Management and Construction (“DPMC”) classifies contractors by permissible aggregate work volume based upon each contractor’s submissions detailing financial ability. The purpose of this classification is to prevent contractors from taking on more work than they can handle. At the time the bid was submitted, ECC’s aggregate limit with the DPMC was $15,000,000. ECC submitted a proposal for its portion of the HVAC work at the Project of $7,250,000. ECC also submitted a Form 701, which is required by the DPMC, indicating that it had a backlog of uncompleted contracts totaling $3,500,000. Thus, the total amount charged against ECC’s aggregate limit was $10,750,000.

B&C challenged Dobco’s bid, claiming that it had received a Form 701 from ECC a month earlier on an unrelated contract in which ECC disclosed a backlog of uncompleted contracts exceeding $9,000,000. As a result, B&C claimed ECC, with its $7,250,000 bid and $9,000,000 backlog, exceeded its $15,000.00 aggregate limit and could not work on the Project. After an investigation by the BOE, it was determined that ECC exceeded its aggregate limit.

B&C then filed a complaint seeking to disqualify Dobco’s bid, as it was based on ECC’s improper bid for the HVAC work. ECC and Dobco claimed that the aggregate limit did not apply to subcontractors and that, even if it did, much of ECC’s backlog of uncompleted work was subcontracted out to others, which did not count against its aggregate limit. The trial court rejected Dobco’s arguments and found that ECC was subject to the aggregate rating limit set by N.J.A.C. 17:19-2.13(a). The trial judge concluded that Dobco’s bid was materially defective and denied Dobco the opportunity to correct its bid. The trial court also ordered BOE to award the contract to B&C, the next lowest responsible bidder.

On appeal, the Appellate Division rejected Dobco’s arguments and concluded that both the Public School Contracts Law, N.J.S.A 18A:18A-1 to - 59 (“PSCL”), and prior case law, support the conclusion that any subcontractor’s bid on a school project must not exceed the subcontractor’s aggregate rating limit. The Appellate Division further found that the Educational Facilities Construction and Financing Act, N.J.S.A. 18A:7G-1 to - 48 (“EFCFA”), provides an independent basis for holding that ECC must meet the aggregate rating limit requirements set by N.J.A.C. 17:19-2.13(c). Thus, the Appellate Division affirmed that ECC’s non-compliance was a material defect that was fatal to Dobco’s bid.

The Appellate Division concluded that the aggregate rating limit applied to both subcontractors and contractors. The Court noted that when considering the applicable law, “it is clear that the Legislature intended to ‘ensure that only qualified bidders perform the work.’” To differentiate between subcontractors and contractors would not advance this goal.

The Appellate Division also held that any contractor, including a subcontractor, is entitled to the benefit of the eighty-five percent (85%) reduction provision of N.J.A.C. 17:19 2.13(a) and (c), which allows a contractor to reduce the value counted against its aggregate limit by the backlog of uncompleted contracts, provided that the backlog is limited to single prime contracts in which it subcontracted work to others. Here, ECC did not certify that its backlog included single prime contracts in which it subcontracted work to others. Thus, ECC was not entitled to the benefit of the eighty-five percent (85%) reduction. As it included ECC’s improper bid, Dobco’s bid was defective and “permitting a post-bid cure under these circumstances would afford Dobco an unfair advantage.” The decision of the trial court to reject the award of the contract to Dobco and award the contract to B&C was affirmed.

This decision may have a significant impact on the bidding process for public school projects as it makes clear that not only contractors, but subcontractors too, must comply with the aggregate rating limit of N.J.A.C. 17:19-2.13 and N.J.S.A. 18A:7G-37. In addition, contractors have to be clear when submitting Form 701 and any related certifications to disclose if they have prime contracts in which a portion of the work is subcontracted to others, thereby getting the benefit of the eighty-five percent (85%) reduction provided in N.J.A.C. 17.19-2.13 (a) and (c) and reducing the amount counted against their aggregate limit. Lastly, contractors who are the second or third lowest bidder should consider a challenge to a bid result if they have questions as to the aggregate limit rating of the lowest bidder and/or its subcontractors.

New York City Property Owners Beware the RPIE Statement Deadline

Christopher J. Caslin — Fri, 26 Aug 2011 04:08:58 -0500

Owners and managers of New York City property should take notice that the City has become more serious about issuing statutory penalties for non-filing or incomplete filings of the annual RPIE (Real Property Income and Expense) statement with the NYC Department of Finance.

What is the RPIE? Owners of income-producing properties in New York City must file an annual RPIE statement online with the Department of Finance (a property manager can file it on the owner’s behalf). This income and expense information allows the City Assessor to estimate the value of every property in New York City. The Department of Finance also uses this valuation (based on information provided by owners) to assess income-producing properties such as office and apartment buildings. Since these valuations are annual, assessed property values can, and historically do, change yearly.

An RPIE statement is required for all income-producing properties with an actual assessed value of more than $40,000. This includes commercial properties such as office buildings and retail stores, industrial sites, as well as certain residential properties, including rental apartment buildings, co-ops and condominiums.

Historically, the City has been inconsistent in pursuing penalties against late or non-filers, however, the City has recently stepped up its enforcement efforts. Some property owners that meet the RPIE filing requirement, but did not file an RPIE, have seen dramatic increases of their property assessment.

Owners can also claim an “exemption” but must still submit an RPIE statement indicating the property’s exempt status or penalties can apply. Examples of exempt properties include exclusively residential properties with 10 or fewer apartments, properties with six or fewer residential units and one commercial unit, properties that are owner occupied, and vacant or uninhabitable property. If a property was recently purchased or operated for less than a full year, an owner can file the RPIE statement showing less than a full year's income and expense. While a property may qualify for an exemption to the filing requirement, an RPIE statement must still be filed.

Penalties can be severe. Failure to file, non-compliant filing, or non-timely filing may result in a penalty of up to 3 percent of the assessed value of the property or up to 5 percent for consecutive non-filings. In addition, delinquent filers seeking a reduction in assessments face disqualification from hearings before the Tax Commission.

This year’s RPIE is due on September 1, 2011. The form must be submitted electronically here unless you have been granted a waiver (which had to be requested by August 2, 2011) allowing an owner to file a paper version.

Commercial Clients are Urged to Consider Whether a Tax Appeal Makes Sense in Today's Troubling Real Estate Market

Carl A. Rizzo & Christopher P. Massaro — Thu, 23 Dec 2010 09:29:29 -0500

The 2011 Property Tax Environment is Ripe for Appeals and Represents a Real Opportunity for Significant Tax Reductions:

With measurable declines in the real estate market, evidenced by continued high vacancy and historically low rental rates, the pursuit of a real property tax appeal has never been more compelling. In fact, municipalities are again bracing themselves for what is expected to be another tsunami of tax appeal filings. Last year, unprecedented levels of appeals were filed and towns have been left scrambling since. Adjustments to assessment levels were largely in order for 2010 and will continue to be justified in the present tax year. Towns are aware that their property assessments are not in line with the current economic climate and declining property values. It is therefore expected that significant adjustments are either going to occur voluntarily, through compromise, or involuntarily, by virtue of the mandates of Tax Court judgments. Consequently, for those who take action, it is likely that a reduction in assessment and a resulting reduction in taxes will be achieved.

The only way to take advantage of the opportunity to realize significant tax savings and improve one’s bottom line is to pursue a timely filed tax appeal. The 2011 tax appeal filing deadline is April 1, 2011 so there is little time to waste.

The first step is for a property owner, or a tenant who is responsible for the payment of taxes, to review the Property Tax Assessment Notice, which will be mailed by towns to taxpayers, in the form of a postcard, in the next several weeks. This Notice identifies the property tax assessment imposed upon the property for 2011.

This assessment number can be deceptive, however, as it does not always indicate the true value of the property. Many taxpayers are falsely lulled into believing that their property assessment equals true value and is therefore correct. This error could be an expensive mistake.

Towns employ what is called an average or "equalization" ratio in order to convert the property tax assessment to true value (the so-called “equalization value”). Only by comparing the equalization value to the true value of the property can a property owner determine whether an appeal has merit. Taxpayers who take no action are thus often left paying an ever increasing tax bill.

Once the Property Tax Assessment Notice is received, a property owner should promptly schedule an appointment with an attorney to determine the merits of a possible appeal. By taking this simple but important step, a property owner can ensure that it is paying only its fair share of the municipal real property tax burden. This is where the involvement of an experienced attorney from Cole Schotz can be of tremendous help. Our experience and relationships with professional appraisers allows us to perform, at no cost to you, a preliminary analysis to determine if an appeal is warranted.

NJ Construction Lien Law Seminar

Michael Sternlieb — Wed, 27 Oct 2010 08:40:38 -0500

Join us on November 10, at the NJ office of Cole Schotz or online by webinar, for an in-depth update on New Jersey Construction Lien Law.

Hear the latest on:

Construction Liens on Commercial Projects
Construction Liens on Residential Projects
Proposed Construction Lien Law Revision
Priority of Construction Liens and Mortgage
Construction and Permanent Financing
Title Insurance Issues Relating to Construction Liens

This seminar will be presented live at the NJ offices of Cole Schotz at Court Plaza North, 25 Main Street, Hackensack, NJ, and by live webinar.

The Occupational Safety and Health Review Commission Reinstates OSHA'S Multi-Employer Policy

Amanda Bassen — Tue, 28 Sep 2010 13:36:28 -0500

The Occupational Safety and Health Administration (“OSHA”) is responsible for enforcing health and safety standards in workplaces throughout the country. OSHA has promulgated standards covering both general industry and construction sites. The enforcement of these standards is fairly straightforward in the general industry sector. Typically, OSHA inspects the facility and if it finds a violation, cites the employer for exposing his/her employees to a hazardous/violative condition. However, construction sites are vastly different because of the number of contractors, engineers and construction managers working at a site and employee mobility throughout the site. In certain situations, an employer can have employees working in an area where they are exposed to hazardous conditions not created by that employer. To address situations like this, OSHA developed the “multi-employer policy.”

Under the multi-employer policy, in addition to the employer that has employees exposed to the hazardous condition, OSHA may also issue citations to the employer that is responsible for correcting the hazardous condition even if that employer has no employees exposed to the hazardous condition. The legal justification for the multi-employer policy is 29 U.S.C. § 654(a)(2) of the Occupational Safety and Health Act (“OSH Act”), which states that:

Each employer …
(2) shall comply with occupational safety and health standards promulgated under this chapter.

29 U.S.C. § 654(a)(2).

This provision of the OSH Act creates a specific duty for all employers, regardless of whether they have employees exposed to a hazardous condition, to comply with OSHA’s rules and regulations. The purpose of the multi-employer policy is to allow OSHA to hold those employers responsible who either create a hazardous condition or control the site, even if those employers do not have any employees exposed to the hazardous condition.

In 2007, the multi-employer policy was struck down by the Occupational Safety and Health Review Commission (the “Commission”) in the decision Secretary of Labor v. Summit Contractors, Inc., OSHRC No. 03-1622 (April 27, 2007) (“Summit I”). In Summit I, Summit Contractors, Inc (“Summit Contractors”) was the primary contractor on a construction job and only employed four employees whose responsibilities were to coordinate subcontractors and work at the job site.

All Phase Construction, Inc. (“All Phase”) was subcontracted to do brick masonry work. To perform this work, All Phase employees were required to use scaffolding. While performing the masonry work, OSHA observed that All Phase employees were exposed to hazardous conditions, including not being protected from falls, while working on scaffolds. The only employees exposed to these hazardous conditions were All Phase employees. Summit Contractors neither created the hazardous condition observed by OSHA nor had employees exposed to the hazards.

OSHA issued citations to both All Phase and Summit Contractors. OSHA’s rationale for citing Summit Contractors was that Summit Contractors was a controlling employer that could have corrected the hazardous condition and as such was liable pursuant to OSHA’s multi-employer policy. Summit Contractors contested the citations.

The Commission held that the multi-employer policy was contrary to OSHA’s regulation, 29 C.F.R. 1910.12(a), and held that OSHA could no longer issue citations to controlling employers that did not have its own employees exposed to the hazardous condition. The Commission’s decision was based on a narrow reading of 29 C.F.R. 1910.12(a), in which employers are only responsible for his/her employees.

OSHA appealed the decision of the Commission. The Eighth Circuit Court of Appeals vacated the Commission’s decision and remanded it to the Commission for further proceedings. The Eighth Circuit ruled that the “plain language of §1910.12(a) does not preclude” OSHA from citing the controlling employer (even if that employer does not have employees exposed to the hazardous condition). On remand, the Commission applied the law articulated by the Eighth Circuit and determined that Summit Contractors was the controlling employer and affirmed the citations originally issued by OSHA.

On August 19, 2010, in Secretary of Labor v. Summit Contractors, Inc., OSHRC No. 05-0839 (August 19, 2010) (“Summit II”), the Commission again addressed the validity of OSHA’s multi-employer policy and this time upheld the policy. In Summit II, Summit Contractors was a general contractor for the construction of a 90-unit apartment complex. Summit Contractors subcontracted certain work and only had two employees at the construction site. During an inspection, OSHA found certain electrical violations and subsequently issued citations to Summit Contractors. Because Summit Contractors was only the general contractor and its employees were not exposed to the electrical hazard, OSHA issued the citation to Summit Contractors pursuant to the multi-employer policy. Summit Contractors contested the citation.

The Commission, persuaded by the Eighth Circuit’s decision, concluded that the plain meaning of 29 C.F.R. 1910.12(a) permits OSHA to issue citations to controlling employers, such as general contractors, under the multi-employer policy even though the employees of the employer were not exposed to the hazardous condition. In so holding, the Commission overruled its earlier decision in Summit I.

Summit II reinstates OSHA’s multi-employer policy and OSHA can now apply the multi-employer policy nationwide (and not just to the worksites in the states that comprise the Eight Circuit). Construction employers can now be potentially liable for all hazards present on any worksite over which they have control even if none of their employees are exposed to the hazard. Construction employers should be proactive in establishing safety and health programs, which include inspecting, identifying and correcting any safety and health hazards noted on the worksite. Once the employer becomes aware of such conditions, he/she should immediately take steps to correct the hazard. General contractors should also require all subcontractors to comply with OSHA's regulations in the performance of their work at the worksite.

Accounting Boards Take Aim At Leases

Michael E. Jones — Tue, 03 Aug 2010 08:10:31 -0500

The Financial Accounting Standards Board and the International Accounting Standards Board are proposing significant changes to real estate lease accounting. At the prodding of the Securities and Exchange Commission, the Boards are attempting to ensure that the assets and liabilities associated with leases are more accurately reflected on a company’s balance sheet, thereby creating more transparency of financial information and permitting easier comparability of balance sheets.

The Boards’ proposed new regulations would in effect treat all leases as an asset with respect to the use of the leased property for the lease term, and a liability with respect to the obligation to pay rent, thereby eliminating the classification of leases as either operating leases or finance leases.

The following are some of the highlights of the proposal:

Leases with a term greater than one year would be affected.
Rent for the entire lease term due under a lease would be discounted to present value using the tenant’s incremental borrowing rate and would be included on the tenant’s balance sheet as a liability.
A lease with a renewal option would be treated as if the renewal option will be exercised if it is likely that the tenant will exercise the renewal option.
Contingent rental agreements (i.e., percentage rent in a retail lease) would require the tenant to forecast its future sales and include on its balance sheet the percentage rent based on such sales forecast together with minimum rent payable during the lease term.

The effect of the proposed changes could significantly impact the leasing market. Tenants may be inclined to negotiate shorter lease terms (including foregoing renewal options) in order to avoid increasing their debt. Commercial condominiums may gain in popularity as prospective tenants turn to purchasing their space rather than leasing it. Percentage rent deals may disappear altogether as retailers will not want to carry increased debt on their balance sheet based on speculative sales forecasts. Potentially there will be more breached debt covenants on loan documents. Clearly, the balance sheets of companies with hundreds or thousands of lease locations will be adversely affected as their debt levels would increase significantly.

The Boards are still in the process of taking comments on their proposals and will soon resume discussions to develop new standards for landlord accounting. The tentative effective date for the revised accounting standards is the second quarter of 2011. We will continue to monitor the development of the new accounting standards as the comment process unfolds.

Don't Lose Your Right to Challenge Your Tax Assessment

Wendy M. Berger — Fri, 02 Jul 2010 08:24:20 -0500

Many property owners lose their right to challenge their real property tax assessment by ignoring the annual request by their local Tax Assessor to complete an Income and Expense Statement. This request is authorized by N.J.S.A. 54:4-34 and is known as a Chapter 91 filing. If you are served with a Chapter 91 request you must respond to same within the required time period otherwise the municipality can move to dismiss any subsequent tax appeal filed.

Unfortunately, many property owners either ignore the Chapter 91 request because they do not believe that they own income-producing property or they fail to complete the Income and Expense Statement properly. A common misconception is that any income derived in order to be reportable must be between unrelated parties and must be an arms’ length transaction. This is simply not correct. Chapter 91 applies to all properties whether residential or commercial, whether owner occupied or tenanted, whether leased or totally vacant. The test is not the amount of income derived but rather whether the property is capable of deriving income. This means that if you have a vacant building and are served by the Tax Assessor with a Chapter 91 request you must still complete the Income and Expense Statement and return it to the Tax Assessor within the 45-day time period. We suggest that you return the completed form by certified mail so that you have proof of compliance within the requisite time.

Another common misconception is that if you own two entities and one owns the property and another leases the property then there is no need to complete the Chapter 91 filing. Simply because the two entities may be related or the rent being paid is not “market rate” and the transaction is not arms’ length does not serve as an exemption for completing a Chapter 91 request.

A further mistake that is often encountered is a property owner failing to include income from all sources. Income derived from cell antennas, parking leases, ATM machines, food service concessions, bank kiosks and other relatively small service providers must be included on the Chapter 91 request.

In these difficult economic times, don’t lose your ability to reduce your real property taxes. Complete and file your Chapter 91 response in a timely manner.

New Jersey Construction Lien Law Revisions Clear First Hurdle

Adam J. Sklar — Wed, 30 Jun 2010 09:59:54 -0500

Last week (on Monday, June 21, 2010), the New Jersey Assembly unanimously passed the long-awaited revisions to the New Jersey Construction Lien Law (N.J.S.A. 2A:44A-1, et seq.) (the “Lien Law”). Next up is the parallel Senate bill which, after its introduction in early May 2010, was referred to the Senate Commerce Committee, where it is expected to remain for review until the Fall. The proposed Lien Law revisions, based almost entirely on the March 2009 final report of the New Jersey Law Revision Commission, seek to fill the gaps in, and improve on the practical application of, the original 1993 Lien Law. Some of the proposed amendments are a codification of decisions of federal and state courts, including the New Jersey Supreme Court, which have sought to interpret the Lien Law since its enactment.

The proposed Lien Law revisions are comprehensive. Among the more critical Lien Law amendments contained in the new legislation are:

1. an increase in the time within which a potential lien claimant may assert a construction lien claim relating to a residential construction contract from 90 days to 120 days from the claimant’s last date of work. The current 90-day period has, in practice, been problematic for prospective lien claimants, who must also file and serve a Notice of Unpaid Balance and Right to File Lien (“NUB”) and a demand for arbitration -- and then obtain an award in arbitration – before they may file lien claims. The extra 30 days provides additional breathing room for the lien claimant to fulfill all of the statutory prerequisites, particularly the arbitration proceeding. Note, however, that the proposed amendment sets a deadline for filing a NUB at 60 days from the claimant’s last date of work and a 10-day deadline thereafter to serve the required demand for arbitration on all parties against whom the lien is asserted. If those deadlines are not met, the extra 30 days to file the lien means nothing, as the lien claimant will be barred from filing its lien;

2. the addition of statutory definitions of “residential construction,” “residential unit,” “real property development,” “community association,” and “dwelling,” and the amendment of the statutory definitions of “residential construction contract” and “residential purchase agreement,” which, together, seek to better reflect the types of construction subject to the residential rules of the Lien Law. For example, settling a contentious issue under the existing Lien Law, the revisions provide that, in general, large-scale residential condominium, coop and townhouse development projects, including, without limitation, mixed-use projects and the common elements of such projects, would be subject to the Lien Law’s residential filing requirements. Projects designed to contain rental units or non-residential units, however, would not be subject to the Lien Law’s residential filing requirements;

3. the clarification of a number of other statutory definitions, as well as the addition of other new definitions, including, without limitation, new definitions of “lien claim” (and the term “value” within the “lien claim” definition), which allow for the inclusion of retainage in the amount of a lien claim, and incorporating within the definition of “contract” the requirement that the lien claimant’s contract be a writing signed by the party in direct privity with the lien claimant and evidencing the consideration to be paid and a description of the improvement subject to the lien;

4. a substantially more thorough description and calculation of the “lien fund” - that is, the amount of money available for distribution among valid lien claimants performing work under any particular line of contracting – and an explanation of how that lien fund is to be distributed among multiple lien claimants at different contracting levels. In fact, the term “lien fund” is not defined or otherwise used in the current Lien Law, so the proposed revisions provide the basic definition of the term. Most of these proposed revisions are a reflection of court decisions interpreting the Lien Law and formulating the concept of the “lien fund.” Among other things, the proposed revisions would make clear for the first time under the Lien Law that the lien fund is not to be reduced by: (i) payments not made according to written contract provisions; (ii) payments made but not yet earned by the time the first lien is filed; (iii) liquidated damages; (iv) collusive payments; (v) the use of retainage to pay a replacement contractor after the filing of the lien claim; or (vi) setoffs or backcharges not agreed to in writing by the claimant or adjudicated in an arbitration;

5. a clarification that the date on which the County Clerk has marked the lien claim as received (rather than when the Clerk has actually indexed the lien claim – which is not within the control of the lien claimant) is to be used to determine whether a lien claim has been timely filed;

6. a much-needed expansion of the existing deficient statutory forms and/or procedures for filing, amending or discharging a lien claim or NUB, and prosecuting a suit to enforce a lien claim; and

7. clarification: (a) of when lien claims may be filed against the owner of real property for tenant improvements (See this article); (b) that work performed on common elements of a real estate development may be filed against “community associations” such as condominium or homeowners’ associations; and (c) that a mortgage takes priority over a lien claim, even when recorded after the filing of that lien claim, where the funds are used for the purchase of and/or improvements to the subject property.

We will likely have to wait until the Fall at the earliest before these proposed revisions, and possibly others the Senate Commerce Committee recommends, are presented for vote in the Senate. In light of the Assembly’s unanimous vote, it is probable that the bill, in its present or slightly modified form, will pass and be sent to the Governor for his review and signature (or improbable veto). The proposed amendments to the Lien Law have been well thought out and debated and are long overdue.

Tax Appeal Seminar Urges Property Owners to Take Action to Reduce Their Tax Bills

Carl A. Rizzo — Fri, 05 Mar 2010 10:50:39 -0500

Cole Schotz, along with professional appraisers from Integra Realty Resources, presented an informative seminar to clients and interested commercial property owners, managers and brokers titled "The Time to Fight City Hall is Now -- Why a Real Estate Tax Appeal Makes Sense" on March 3, 2010. The presenters covered the nuts and bolts of tax assessments, the appeal process, strategies to win on appeal, as well as a market-wide survey of current conditions and expectations, laying out a roadmap for action.

Because a property's tax burden can represent one of the more significant components of its operating costs, conducting an annual review of a property's assessment with your professionals: lawyers and appraisers alike, is critical to good management. Last year saw record filings with the tax court. This year, with the commercial real estate market continuing in recession, significant filings are again expected.

Despite this trend, the amount of qualified candidates filing appeals continues however to represent only a fraction of those who should be availing themselves of the tax appeal procedure. In a market where major sectors: Office, Retail, Industrial and Multifamily have experienced increased vacancy rates and greater demand for rent concessions and landlord work letters, the market values of these properties have decreased resulting in overassessments for real estate tax purposes.

Tax appeals must be filed by April 1, 2010.

New Jersey COAH Regulations on Hold

Wendy M. Berger — Fri, 12 Feb 2010 12:02:42 -0500

On February 9, 2010, Governor Christie signed an Executive Order immediately suspending the operation of the Council on Affordable Housing (“COAH”) and appointing a panel to study the issue of affordable housing and make recommendations to the Governor within 90 days. This comes at the heels of the Introduction of Legislation S:1 by State Senators Lesniak and Bateman to abolish COAH and the existing municipal affordable housing requirements. Instead, low and moderate income housing would be made a part of a municipality’s Master Plan. This is the first step in changing the way affordable housing is provided to New Jersey residents.