New Jersey’s Prompt Payment Act Does Not Apply to Contracts for the Upkeep and Maintenance of Land

New Jersey’s Prompt Payment Act (“PPA”) can be a valuable tool available to contractors, subcontractors, sub-subcontractors, and product suppliers that are owed money on New Jersey construction projects, as aggrieved parties can recover interest on unpaid amounts at prime plus one (1%) percent in the event payment is not made within the time period provided by the PPA and attorneys’ fees. N.J.S.A. § 2A:30A-2. In TBI Unlimited, LLC v. Clearcut Lawn Decisions, LLC, the United States District Court for the District of New Jersey considered the scope of the PPA, which is only the subject of a handful of written opinions.

The Court noted that obligations imposed by the PPA are only triggered when there is contract for an improvement to real property, N.J.S.A. § 2A:30A-1 and that the definition of “improve” in the PPA includes things that resulted in permanent changes to the land. Accordingly, the Court concluded that “mere maintenance and upkeep of land” is not an improvement to real property.

While the line between services and supplies that “improve” real property within the meaning of the PPA and those that do not may not always be clear, the TBI decision sets forth a relatively straightforward and reasonable approach to resolving the issue by focusing on the result that the services or supplies have on the property. As the Court stated, the PPA “is limited to those activities which serve to permanently alter the character of real property, rather than simply those activities targeted at the maintenance or upkeep of such property.” Of course, even if an aggrieved party’s claim is not covered by the PPA because its contract involved maintenance of upkeep, that party would still be entitled to pursue breach of contract and potentially other claims for non-payment. However, the additional remedies provided by the PPA would not be available.

Damian V. Santomauro is a Director in the Gibbons Business & Commercial Litigation Department.
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