Contractors Performing Work on New Home May Be Subject to Consumer Fraud Act

In Czar, Inc. v. Heath, decided today by the Supreme Court of New Jersey, the Court held that a contractor engaged to design and install a kitchen during the building of a new home was subject to the New Jersey Consumer Fraud Act.  A New Jersey consumer fraud lawyer or New Jersey construction lawyer can help both individuals and businesses in lawsuits related to the building of new homes or the renovation of existing homes.

The Legislature amended the Consumer Fraud Act in 2004 to expand its application to contractors who are engaged in the business of making or selling home improvements.  The Amendments made the Consumer Fraud Act applicable to all individuals and entities engaged in remodeling, altering, renovating, repairing, restoring, modernizing, moving, demolishing, or otherwise improving or modifying of the whole or any part of any residential or non-commercial property.

However, the Consumer Fraud Act specifically exempts from its provisions any contractors who are engaged in the building of new homes, and are therefore required to register under the New Home Warranty Act.  The Supreme Court reasoned that the purpose of this exclusion was because individuals and entities who were governed by the New Home Warranty Act were already subject to a registration and insurance requirement and a regulatory mechanism that provided recourse to homeowners.

In this case, the Heaths engaged a general contractor to build a new home for them in Florham Park.  After much of the home had been completed, the Heaths engaged Czar, Inc. to design the kitchen, to move some of the plumbing and electrical fixtures, and to build and install custom kitchen cabinets.  Before Czar, Inc. completed the work, a dispute arose and the Heaths refused to pay Czar, Inc. the full contract price.  Czar, Inc. sued the Heaths for breach of contract and the Heaths sued Czar, Inc. under, among others, the Consumer Fraud Act.  At the trial of the case, Czar, Inc. argued that it was engaged in the building of a new home, and therefore was not subject to the Consumer Fraud Act.  The Heaths argued that Czar, Inc. was engaged in making home improvements, and therefore was subject to the Consumer Fraud Act.

The Supreme Court examined both the Consumer Fraud Act (including the 2004 Amendments) and the New Home Warranty Act, and determined that the two Acts were intended by the legislature to create a seamless, harmonious protective scheme.  The Supreme Court noted that both the courts and the legislature have been engaged in expanding the protections offered to consumers under the Consumer Fraud Act.  If the Court were to accept Czar, Inc.’s argument, the homeowners would essentially be left without a remedy.  On the one hand, Czar, Inc. was not registered with the New Home Warranty Act and did not provide to the Heaths the warranty required of builders under that Act.  On the other hand, Czar, Inc. argued that it should not be subject to the Consumer Fraud Act because it was engaged in building a new home, as defined in the New Home Warranty Act.  The Court refused to read the two statutes in a manner that would leave some contractors subject to neither statute.  Therefore, the Court decided that Czar, Inc. was not engaged in building a new home, and was therefore subject to the provisions of the Consumer Fraud Act.

This case illustrates that both homeowners and contractors must navigate a complicated regulatory system that involves multiple statutes when involved in a lawsuit dealing with home improvements or the building of a new home.  A New Jersey consumer fraud lawyer or a New Jersey construction lawyer can help individuals and businesses understand the applicable statutes and regulations.


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