On June 30, 2021, a team led by Partners, Peter E. Strniste, Jr. and Todd R. Regan, alongside Associate, Suleman Malik, successfully obtained summary judgment for a Construction Manager for the foreclosure of a construction lien against a landlord’s leasehold interest in the American Dream Mall in East Rutherford, New Jersey.
The case, Rectenwald Brothers Construction, Inc. v. Ameream LLC, et al., which was filed in New Jersey Superior Court, Bergen County arises from the construction of Forever 21’s flagship retail clothing store in the American Dream Mall. Rectenwald Brothers, as Construction Manager, was retained by Forever 21 to construct the store within the mall. When Forever 21 filed for bankruptcy protection, Rectenwald Brothers filed a mechanic’s lien against the Landlord’s, Ameream, leasehold interest in the property and subsequently commenced a foreclosure action. Ameream’s lease with Forever 21 provided for a substantial Tenant Improvement Allowance, in which Ameream agreed in essence to advance funds to Forever 21 for nearly all of the costs of constructing the store. Although not considered by the Court in rendering its decision, Ameream also retained control pursuant to the lease agreement of Forever 21’s selection of contractors, the store’s design and many other aspects of the construction project.
Rectenwald Brothers’ mechanic’s lien was filed under the 2011 amended version of New Jersey Construction Lien Law, N.S. Rev. Stat. § 2A:44A-3(e), which provides in relevant part:
- If a tenant contracts for improvement of the real property, the lien shall attach to the leasehold estate of the tenant and to the interest in the property of any person who:
1) has expressly authorized the contract for improvement in writing signed by the person against whom the lien claim is asserted, which writing provides that the person’s interest is subject to a lien for this improvement;
2) has paid, or agreed in writing to pay, the majority of the cost of the improvement; or
3) is a party to the lease or sublease that created the leasehold interest of the tenant and the lease or sublease provides that the persons’ interest is subject to a lien for the improvement.
Since the amendment of this statute, there have been no reported or unreported decisions interpreting subsection (2) of the statute. Ameream asserted several arguments against summary judgment. First, that there was no agreement in writing to pay…. Specifically, Ameream contended that the Tenant Improvement Allowance was merely an agreement to “advance” funds “if and when” certain conditions precedent were satisfied, one of which was that Forever 21 was fully open for business in the Premises. Ameream also argued that there was a question of fact as to whether the lien was overstated.
The Court rejected all of Ameream’s arguments, deferring to the legislative intent, which was to broaden and expand a lien claimant’s rights in New Jersey, and to counter prior restrictive case-law. The Court found that the language within the Tenant Improvement Allowance was clear and unambiguous and that the parties had agreed that Ameream would pay for at least the majority of the cost of the improvement. Thus, the Court held that the Forever 21 Lease satisfied the statutory requirement of an “agreement in writing” to pay the majority of the costs of the improvements, and granted partial summary judgment in favor of Rectenwald Brothers.
The Court’s decision provides guidance to landlord’s structuring new lease agreements in New Jersey and is another lesson to contractors and subcontractors working in leased spaces to be mindful of the timing of payments and to take swift and appropriate legal action to protect their rights when payments are late or stop altogether.