In the case of Kamco Supply Corp. v JMT Bros. Realty, LLC, the Appellate Division, First Department re-emphasized the harsh effect that a failure to abide by New York City's home improvement contractor licensing statute can have. In Kamco, which was argued on appeal by this author, the homeowner retained a general contractor who turned out not to have the home improvement license required by Sections 20-386 and 20-387 of the New York City Administrative Code. The plaintiff was a suppler who entered into a contract with the unlicensed general contractor to furnish windows to the project. There was no contractual or other relationship between the supplier and the homeowners. The homeowners eventually terminated the general contractor and asserted various backcharges against the contract.
Subsequent to the termination, the plaintiff asserted a mechanic's lien against the homeowners' property and started a lawsuit to foreclose that lien. Early in the lawsuit, the homeowners moved for summary judgment dismissing the lien foreclosure action. In doing so, the homeowners argued that inasmuch as the supplier's lien rights were derivative of the general contractor's (and even assuming that the backcharges did not subsume the amount otherwise left owing to the general contractor), the general contractor could not recover as a matter of statute and, therefore, there could be no lien fund from which subcontractors and suppliers could recover. The trial court dismissed the supplier's lawsuit and the Appellate Division affirmed. Citing New York City's home improvement contractor licensing requirements, the appellate court held that where a contract has been rendered unenforceable, there can be no funds due or owing from the homeowner to the unlicensed general contractor which would support a subcontractor's (or supplier's) mechanic's lien. Accordingly, in the absence of a direct contractual relationship between the homeowners and the supplier, the supplier could not recover from the homeowners.
As affirmed by the Appellate Division's holding in Kamco, the homeowners could not be compelled to remit payment to the unlicensed general contractor. As a subcontractor's or supplier's lien rights are derivative of the general contractor's right to receive payment, where the general contractor has no right to receive payment as a matter of statute, there can be no lien fund from which subcontractors and suppliers may recover-even if those subcontractors and suppliers have their own licensing in order. Accordingly, a subcontractor or supplier would be well advised to research the licensing status of those entities with whom they contract because their lien rights may be adversely impacted.
If you would like more information on this issue or any other construction related issue, please contact Welby, Brady & Greenblatt, LLP at (914) 428-2100.