by Bob Incollingo
This question came to me from a client in the home improvement business, also registered for new home construction, regarding his choice of company for a project.
Question. Can a contractor who is not licensed for new construction build a house if he’s working for the owner of the property?
Answer. If a builder is not currently registered with the State of New Jersey according to the most recent Listing of New Jersey Homebuilders published online, he is forbidden to build new homes in this State (although not forbidden to work on a new home construction project, subject to the fine print in the law).
Discussion. It doesn't matter who owns the land. It matters who builds the house as prime contractor of record. Under New Jersey law, all new home builders must be registered with the Department of Community Affairs (DCA). This includes those who build single-family homes, townhouses, duplexes, cooperatives, condominiums, factory-built and modular residences. A builder cannot obtain a permit to build a new home without first being registered. The only exception is an owner who constructs a new home for his or her own personal use. Such a person becomes the prime contractor on the construction, and must certify to Part I on the permit application as follows:
CERTIFICATION IN LIEU OF OATH
I. OWNER SECTION (to be completed if the applicant is the owner in fee)
I hereby certify that I am the owner in fee of the property listed on Page 1.
Mark the following applicable boxes:
A. ( ) I further certify that a new home (private residence) will be constructed on this property for my own use and occupancy. This dwelling is to be occupied by myself and is not to be used for any purpose other than single family residential use. I attest that all construction, plumbing, or electrical work will be done, in whole or in part, by me or by subcontractors under my supervision, in accordance with all applicable laws; and, I further acknowledge that said new home is not covered under the New Home Warranty and Builders Registration Act (N.J.S.A. 46:3B-1 et seq.) and that such fact shall be disclosed to any person purchasing this property within ten years of the date of issuance of a certificate of occupancy.
I UNDERSTAND THAT IN MARKING BOX A, I ACKNOWLEDGE THAT I AM ASSUMING RESPONSIBILITY FOR THE WORK DONE ON SAID PROPERTY, THE CONDITION OF THE PROPERTY PRIOR TO, DURING, AND AFTER ANY WORK PERFORMED, AND FOR THE PERFORMANCE OF THE SUBCONTRACTORS I HIRE, EMPLOY, OR OTHERWISE CONTRACT OR WITH WHOM I MAKE AGREEMENTS TO PERFORM WORK. I AM VOLUNTARILY AND KNOWINGLY ASSUMING THIS RESPONSIBILITY.
B. ( ) I further certify the following as required by the New Jersey Uniform Construction Code, N.J.A.C. 5:23-2.15(f)1.ix:
I personally prepared the plans submitted for: 1) the new home referred to in A.; or, 2) an addition, alteration, renovation, or repair to an existing single family residence owned and occupied by myself and located on the property listed on Page 1; or, 3) a new structure that will be physically separate from, but that will be deemed part of, an existing single family residence that is owned and occupied by myself and located on the property listed on Page 1.
C. ( ) I further certify that I will perform or supervise the following work:
C.1. ( ) Building C.2. ( ) Fire Protection
I further certify that I will perform the following work:
C.3. ( ) Electrical C.4. ( ) Plumbing
D. ( ) I agree to advise all contractors on this project that they are required to be registered with the New Jersey Division of Taxation and to comply with all New Jersey tax laws.
I further certify the following as required by the Uniform Construction Code, N.J.A.C. 5:23-2.15(a)5: All required State, county, and local prior approvals, including such certification as the construction official may require, have been given or will be given prior to permit issuance.
I understand that if any of the above statements are willfully false, I am subject to punishment.
Signature ______________________________________________ Date ___________________
So, as the above permit application certification suggests, there is a way to go to work as a subcontractor for an owner-builder who is on the record as prime contractor. Be on your guard, though. The administrative regulations of the DCA make this a very restricted opening:
N.J.A.C. 5:25-2.1 Registration required
(a) No individual, partnership, corporation or other business entity shall engage in the business of constructing new homes unless registered with the Department in accordance with this subchapter.
(b) No corporation, partnership, or other business entity shall be issued a registration in accordance with this subchapter nor shall they engage in the business of construction of new homes unless a stockholder, director, officer, partner or employee thereof, as the case may be, shall be listed as a builder designee in accordance with this subchapter.
(c) For the purpose of these regulations, the term "engaging in the business of construction of new homes" shall mean and include constructing any new home for sale, acting as prime contractor to construct any new home on behalf of oneself or another person or advertising or holding oneself out as constructing or being available to construct a new home or homes.
1. The term shall also mean and include the sale or transfer of title to a parcel of land to any person and the subsequent participation in the construction of a new home or any part of a new home by the seller or transferor.
2. The term shall also include a person who contracts with a general contractor or with subcontractors for the construction of a new home for the purpose of sale to an owner.
(d) Nothing herein shall be interpreted as requiring that a person who constructs a new home for his own personal use and occupancy or who contracts with a licensed architect, professional engineer or attorney to provide customary professional services in connection with said new home, be registered as a builder; nor shall a person acting as a licensed architect, professional engineer or attorney for said owner to provide customary professional services in connection with said new home, be registered as a builder. If such new homes are subsequently sold to purchaser who is not the original builder/owner, notification that the home carries no warranty shall be made at the time of title transfer and/or closing. No person shall be permitted to construct a new home for his own use and occupancy more often than once each five years without being registered as a builder, and complying with these regulations.
(e) A corporation, partnership or other business organization may be denied a certificate of registration as a builder if any stockholder, director, officer, partner, or any other person having an economic interest in the organization shall have violated any of the provisions of N.J.A.C. 5:25-2.5. The provisions of this subsection shall extend to any business organization having a parent or subsidiary relationship to any such business organization.
According to the foregoing regulation, if you go to work as the prime contractor for the owner, you need to be registered and proceed as a new home builder under the Home Owner Warranty (HOW) regulations.
On the other hand, if you are going to work solely as a carpenter (for example) subcontractor under direct contract with the owner-builder of record, who is named as such on all of the permit applications, and he or she or they will be hiring and managing the other subcontractors on the project, including the specialty trades and any others, you may be excused from compliance with the HOW regulations (but not the home improvement regulations - see below). It is a narrow path to tread. The downside risks of being called on the carpet by the authorities for building the new home without complying with the law is fairly significant.
One of the things you need to worry about is that the owner will recant at some point if things go wrong, and accuse you of being the builder, and that they relied on your expertise. In contracts I draw up for this purpose, I include a number of clauses to water down this possibility, including:
2.5 Owner-Builders Bob and Laura Jones, and each of them, explicitly agree that they will execute the "Certification in Lieu of Oath" and such other and further documents as may give effect thereto, to Medford Township and to all other duly constituted governmental authority, to confirm their intention of waiving the right to a new home warranty. (The "Certification in Lieu of Oath" should be located in the municipality building permit jacket.)
There is another problem. Under the law you are either acting as a new home builder or as a home improvement contractor - you must be one or the other - and if you're not the new home builder in the transaction, then you are a home improvement contractor and all of the consumer fraud laws pertain to your work. Take a look at the case opinion in Czar, Inc. v. Heath, 198 N.J. 195, in which the NJ Supreme Court concluded that a remodeler, which neither acted as the general contractor nor qualified as a builder of new homes, was engaged in the business of home improvements for the owner-builders and was therefore held subject to the remedies of the New Jersey Consumer Fraud Act. Those remedies can be public or private or both.
I strongly advise against entering onto any agreement for the construction of any part of a new home with someone who thinks they are an owner-builder and going to save a few dollars by not having to pay for a homeowners warranty, without having an experienced, knowledgeable attorney either draw up the subcontract or revise it to her satisfaction as a legally enforceable document with desirable safeguards. Even then, why would you want to subject yourself to Consumer Fraud Act liability on a job run by amateurs, let alone amateurs who are cheap and cut corners? After your customer doesn’t pay you in full, he is likely to sue you for consumer fraud for failing to provide him with the information he alleges he needed to understand his risks in acting as an owner-builder.
Bob Incollingo is a dedicated South Jersey construction attorney who litigates construction, business, and real estate cases in Gloucester County, Burlington County, and Camden County, New Jersey from his office in Cherry Hill. Special thanks to Lou Amiano and Marybeth Brodtman of Amiano & Son Construction, LLC in Tabernacle, New Jersey for this topic.
Photograph courtesy Michael Canuso, HomeTec Builders LLC, Cherry Hill, NJ
