November 1, 2007
by Robert J. Incollingo
On January 9, 2006, N.J.S. 56:12-2.1 was added to the New Jersey consumer contracts law (N.J.S. 56:12-1 to -18), which includes the Plain Language Act and the Truth-In-Consumer Contract, Warranty and Notice Act, and protects the public by requiring that consumer contracts be clearly written and understandable. Under new section 2.1, a contractor must now list on the final invoice to the consumer the cost of all permits required to complete a residential construction project, along with any associated administrative or processing fees charged by the contractor. The new law limits the related charges to the actual cost to the contractor to obtain the permit and to record any necessary documents.
Failure to comply with the new requirement exposes a contractor to a $500 penalty for each separate violation, upon written complaint filed by a consumer with the Division of Consumer Affairs (DCA) in the Department of Law and Public Safety.
The law applies to any work on a residence which will require a permit to be obtained under the State Uniform Construction Code Act ( N.J.S. 52:27D-119 et seq.). or the associated regulations, but it does not apply to work on a new home subject to the New Home Warranty and Builders’ Registration Act, (N.J.S. 46:3B-1 et seq.) and for which a certificate of occupancy has been issued.
Although the new statute is sandwiched into the consumer contracts law which elsewhere allows for private enforcement leading to damages and attorney’s fees, the residential permit disclosure law offers no such remedy to the consumer. Presently, violations are to be enforced pursuant to the Penalty Enforcement Law of 1999 (N.J.S. 2A:58-10 et seq.) by the DCA, and only “upon written complaint filed by a consumer.” The remedy inures to the State, rather than to the aggrieved consumer.
This is a law which has little in the available record concerning the reasoning behind it, and the statement which accompanied its introduction does no more than paraphrase the proposed text. Presumably, there was a felt need to avert unforeseen charges by rapacious residential contractors, and the statute as originally drafted required disclosure of all permit costs in the original contract. Because all permit costs cannot be known for certain before application, the law was revised to instead require that those fees be stated on the final invoice. Reconsidered with this change, the measure found overwhelming acceptance in the Legislature, passing in the Assembly 76-0-1 and the Senate 39-0.
The new statute suggests the need for interpretation, by limiting associated administrative or processing fees charged to the contractor’s “actual cost” to obtain the permit and to record any necessary documents. “Actual cost” is not defined; it could arguably include direct cost or indirect cost, or both. As enacted, the law is silent on the extent to which the contractor’s indirect job costs (e.g., home office overhead) can be charged to procurement of permits, which under accepted cost accounting principles could be prorated and assigned in part to a particular project, as in Eichleay formula calculations widely used in construction delay cases. Nor does the new law offer limitations on attenuated direct cost items such as fuel, administrative time for application preparation and revision, payroll associated with meetings with officials, or office supplies. The law says nothing about the propriety of externalizing these “actual” contractor costs which under former law could be approximated and passed through as administrative or processing fees.
Given the relatively small penalty involved for any violation, the lack of any financial incentive for consumers to vindicate their rights, and the obscurity enjoyed by the new statute to date, these issues are likely to remain undecided for a very long time.