Real Estate Journal — Owners, Developers & Managers — June 27 - July 10, 2014 — 9B


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C ONTRACTORS /S UBCONTRACTORS By John Petriello of Ehrlich, Petriello, Gudin & Plaza When the bank doesn’t pay

E veryone relies upon construction loans. Owners, contractors,

without payment for materials and labor in an amount total- ing $244,000. The owner subsequently filed for bankruptcy protec- tion, and the property was sold through the bankruptcy court, leaving my client without a remedy against the owner. In our suit against the bank, we argued the bank had a re- sponsibility to pay my client since my client relied upon the bank to make payment, the bank knew of this reli- ance, and all of the facts and circumstances made it clear my client was a third party EHQHÀFLDU\RIWKHFRQVWUXFWLRQ

loan agreement. The court found the bank had no responsibility to my client and only owed an obliga- tion to its customer, the owner. This ruling left my client with- out any remedy for payment for the work and materials it provided to the project. I therefore strongly recom- mend that if you are in a similar situation, that you seek and obtain a written agreement from the construc- tion loan lender that you will be paid by the lender for the work and labor you provided, even if payment is not made by the owner. „

But what happens when work and materials are pro- vided and the bank refuses to pay? Does the contractor, subcontractor or supplier who provided labor and materials have any right to demand pay- ment from the bank? The an- swer in New Jersey is no. New Jersey courts have found that unless the bank has entered into a written agreement with a contractor, subcontractor or supplier, the bank is not liable, and the contractor, subcon- tractor and supplier takes the loss if the owner cannot pay. I recently tried a case where a design-builder entered into

a contract with an owner to design and build a tennis center. My client prepared a budget and design, and both were submitted to the bank for approval. The bank approved both, and provided a construc- tion loan to the owner. The loan documents specifically named my client as the design- builder. My client knew the loan was made and relied upon the bank to make payments for labor and materials provided to the project. Although the bank made the first three payments, it refused to make any further payments. My client was left

subcontrac- tors and sup- pl i ers re l y u p o n t h e lenders (usu- ally a bank) for payments needed f or construction. Th e l o a n s

John Petriello

are made to the owner, with periodic disbursements, usu- ally monthly, after the bank LVVDWLVÀHGZRUNLVSURJUHVVLQJ on an agreed upon schedule. Work and materials are pro- vided in advance of payments, with the understanding that the bank will make payments as the work progresses.

The Mullan Contracting Co. completes York Market Place


represented owners, managers and developers for over 40 years in all aspects of real estate matters including:

LUTHERVILLE, MD — The Mullan Contracting has completed construction ac- tivities on York Market Place, a 7,800 s/f free-standing building situated at 1801 York Rd. near the intersection of York Rd. and Ridgely Rd. in the Lutherville/ Timonium section of Baltimore County. The owner, 1801 YR, LLC, has leased approximately KDOIWKHEXLOGLQJWR$7 7:LUH - lesswith thebalance of the space currently available for lease. The brick and glass retail building fronts on York Rd., with more than 35,000 vehicles passing the site on a daily basis. The daytime population within three miles from the building exceeds 40,000. “The contemporary archi- tecture of this building design, featuring high glass windows and enlarged areas for tenant signage, blends seamlesslywith the existing storefronts along the York Road corridor,” said JosephRode , president of The Mullan Contracting Company. “The project is positioned in a prominent section of the Lu- therville/Timonium area that traditionally produces among WKHKLJKHVWWUDIÀFFRXQWVLQWKH Baltimore County region.” „

We invite y V\[VJHSS)Y\JL,.\KPU,ZX H[ ,_[[VKPZJ\ZZ your next matter  Visit our website at www LWNWS aw JVT

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