Real Estate & Construction Law Monitor : Real Estate & Construction Lawyer & Attorney : Cole Schotz Meisel Forman & Leonard Law Firm : NJ, Mid-Atlantic Development & Building

On Wednesday, September 14, 2011, Governor Christie signed into law amendments to the New Jersey Bulk Sale Law. Enacted as chapter 124 of the Public Laws of 2011, these amendments narrow the scope of N.J.S.A. 54:50-38, signed into law on June 28, 2007 by Governor Corzine, by exempting the sale, transfer or assignment of single- and two-family homes and of seasonal rental property from the bulk sale notification requirements.

The 2007 law expanded the scope of the 1966 New Jersey Sales and Use Tax Act which set forth bulk sale notification requirements designed to provide the N.J. Division of Taxation with notice of asset sales for the purpose of collecting any outstanding tax liabilities owed by a seller. The 1966 law did not, however, apply to commercial real estate transactions unless the transaction was part of the sale of business assets which included real estate, e.g., the sale of an existing hotel business.

The 2007 law dramatically changed the landscape of bulk sale notification requirements by compelling such notice to be a part of all transactions in which a bulk sale was made. Specifically, the pertinent sections of the law provided:  
 

"Whenever a person required to collect tax shall make a sale, transfer, or assignment in bulk of any part or the whole of his business assets, otherwise than in the ordinary course of business, the purchaser, transferee or assignee shall at least 10 days before taking possession of the subject of said sale, transfer or assignment, or paying therefor, notify the director by registered mail of the proposed sale and of the price, terms and conditions thereof whether or not the seller, transferrer or assignor, has represented to, or informed the purchaser, transferee or assignee that he owes any tax pursuant to this act, and whether or not the purchaser, transferee, or assignee has knowledge that such taxes are owing, and whether any such taxes are in fact owing.

Whenever the purchaser, transferee or assignee shall fail to give notice . . . or whenever the director shall inform the purchaser, transferee or assignee that a possible claim for such tax or taxes exists, any sums of money, property or choses in action, or other consideration, which the purchaser, transferee or assignee is required to transfer over to the seller, transferrer or assignor shall be subject to a first priority right and lien for any such taxes theretofore or thereafter determined to be due from the seller, transferrer or assignor to the State, and the purchaser, transferee or assignee is forbidden to transfer to the seller, transferrer or assignor any such sums of money, property or choses in action to the extent of the amount of the State's claim. For failure to comply with the provisions of this section the purchaser, transferee or assignee, . . . shall be personally liable for the payment to the State of any such taxes theretofore or thereafter determined to be due to the State from the seller, transferrer or assignor, and such liability may be assessed and enforced in the same manner as the liability for tax under this act."

For purposes of the 2007 law: (i) “‘Business’ mean[t] any endeavor from which revenue or consideration is realized for the purpose of generating a profit or loss,” and (ii) “‘Business assets,’ tangible or intangible, include[d] . . . realty if the primary use of the realty [was] to support a business on its premises.” See N.J. Div. of Tax. Tech. Bull. 60 (July 3, 2008). On the contracting parties’ end, proper notification consisted of inserting a provision into the Contract of Sale that both parties would comply with the statute; the seller preparing and delivering to the purchaser the Asset Transfer Tax Declaration, in which seller was to disclose information that would assist the Director in estimating the gain on the transfer of asset(s) and the estimated tax on the gain; the purchaser preparing Form C-9600, which provided basic information regarding the sale, transfer, or assignment of property; and, finally, submitting both forms and a fully executed and complete purchaser agreement by registered mail to the Director at least ten business days prior to the date of closing.

The 2007 law made it apparent that, with the exception of building contractors who sold houses as inventory in the regular course of their business, single family residences used solely for that purpose, and other unique transactional situations, all real estate transactions required the statutory notification of a bulk sale.  The notice requirements attached to sales of vacant land owned by a business; single-family homes used to obtain rental income; single-family homes used as a home office, if expensed as such on the homeowner’s tax return to receive a tax benefit; and even transactions where the seller was a tax-exempt or non-profit organization.

(Case law also established that bulk sale notification requirements applied to deeds in lieu of foreclosure. For further discussion, see The New Bulk Sales Notification Requirements and Their Application to New Jersey Real Estate Transactions - Part II).

The 2011 amendments take effect immediately and apply retroactively to sales, transfers and assignments on or after August 1, 2007.

Under the 2011 amendments, the bulk sale notification requirements of N.J.S.A. 54:50-38 will not apply to “the sale, transfer or assignment of a simple dwelling house if the seller, transferrer or assignor is an ‘individual,’ ‘estate,’ or ‘trust’ as those terms are used for the purposes of the ‘New Jersey Gross Income Tax Act,’ N.J.S. 54A:1-1 et seq.” A “simple dwelling house” is defined as a one-family or two-family dwelling unit and includes cooperatives and condominium units. Still subject to the law, however, are structures “containing more than two units of dwelling space or containing, according to the municipal property tax assessor, commercial property including, or in addition to the units of dwelling space.”

Furthermore, the 2011 amendments attempt to resolve the ambiguity of whether the bulk sale law applies to the sale of a residential property that is only being rented for a short period of time. The law as amended now also exempts the sale, transfer or assignment of a “seasonable rental unit” or “of a lease for the seasonable use or rental or real property” if the seller is an individual, estate or trust. For purposes of the law, a “seasonal rental unit” is a timeshare estate (N.J.S.A. 45:15-16.51) or “a dwelling unit rented for a term of not more than 125 consecutive days for residential purposes by a person having a permanent residence elsewhere.”

Again, the above exemptions extend only to sellers who are individuals, estates or trusts. “Business entities,” including but not limited to corporations or partnerships, must continue adhering to the 2007 bulk sale notification requirements.

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This article, the second of a three part series, focuses on OSHA’s procedures during an inspection and outlines what employers should and should not do during an inspection.

1. What should I do or not do during an inspection?

There are certain actions that you should take to protect your interest during an OSHA inspection.  These actions include:

(a)     Check the inspector’s identification to ensure he/she is who he/she says he/she is.

(b)     Ascertain from the inspector the reason for the inspection.  If the inspection is the result of a complaint, you should request a copy of the complaint.

(c)     Have someone from management escort the inspector through the entire inspection process i.e., from opening to closing conference.

(d)     Document the inspector’s activities i.e, areas inspected, interviews, measurements taken, etc..

(e)     If the inspector performs any monitoring i.e., noise or air monitoring, you should consider performing similar monitoring at the same time.  The purpose of the “side by side” monitoring will allow you to document and confirm the results obtained by OSHA.

(f)      Request the results of all monitoring performed by the inspector.

(g)     At the closing conference, if the inspector indicates that violations have been found, determine why certain conditions constitute a violation.  In addition, you should request from the inspector recommended methods to correct any alleged violations.

(h)     Consult your attorney at the time an OSHA inspection is initiated and if at any time you are unsure how to respond to a certain requests made by the inspector.

The following is a list of “don’ts”:

(a)     You should not forcibly interfere with the conduct of an inspection.

(b)     You should not discriminate against or punish any employee who cooperates with OSHA or who may exercise his or her rights under the Occupational Safety and Health Act.

(c)     You should not provide the compliance officer with false or misleading information.  Providing false information to OSHA is punishable as a crime under the Occupational Safety and Health Act.

(d)     You should not argue with or antagonize an inspector during an inspection.

2. How long will OSHA be at my facility?

OSHA will remain at your facility until it completes its investigation.  The inspection could last a couple of hours or up to several months.  The length of time is determined by the scope of the inspection i.e., whether it is confined to one area or the entire facility.  It is also dependent on the type of inspection.  That is, whether the inspector will be required to make subsequent visits to the facility to perform monitoring to establish employee exposure to workplace contaminants or noise.

3. Do I have to let my employees talk to the OSHA inspector?

OSHA inspectors are authorized to use various investigatory techniques, such as observing employees’ activities in the workplace, conducting employee interviews, and taking photographs and measurements in the workplace (i.e., air and noise monitoring).

The Occupational Safety and Health Act authorizes OSHA to interview employees privately to obtain whatever information is necessary or useful for the inspector to perform his or her inspection effectively.  The interviews, however, must be conducted in a reasonable manner and within a reasonable time limit.  If they appear to be unreasonable, you should consult your attorney.  On occasions, interviews may be conducted at locations other than the workplace (e.g., employee’s house or OSHA Area office).  OSHA’s regulations afford any employee the right to bring any alleged violation to the attention of the inspector.

OSHA inspectors are also authorized to take photographs or videos whenever such are deemed necessary.  Generally, an employer cannot prohibit an inspector from taking photographs or videos because a certain process or equipment is a trade secret.  To protect a trade secret, you should inform the inspector of the process or equipment that is proprietary.  Once informed of trade secret status, the inspector is obligated to treat the information obtained from the inspection in a manner assuring confidentiality.

In order for OSHA to document employee exposure to chemical or physical hazards, it is often necessary for the inspector to perform monitoring.  Typically, during the walkthrough phase of the inspection the inspector will identify certain areas where monitoring must be performed.  The inspector may then return on another day to perform the monitoring, which may last for the full term of the work shift.

Monitoring employees for chemical and/or physical hazards usually consists of placing monitoring devices such as air samplers or noise dosimeters on the employees.  The employer may not object to such investigatory procedures.  Once the monitoring devices are placed on the employees, the inspector will observe the employees throughout the day and document their work practices, use of personal protective equipment and other relevant information.

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A significant number of businesses are likely to find themselves face-to-face with an inspector from OSHA, and many will be caught off guard.  We recommend that businesses take a two-pronged approach to OSHA compliance.

First, make every effort to comply with OSHA’s safety and health rules to protect your employees.  Second, be prepared in the event OSHA initiates an inspection at your establishment.  If you have a plan in place that provides guidance to your managers, describe the procedures employed by OSHA and what to expect during an inspection, you can minimize disruption of your business and possibly adverse consequences.

This is a three-part series to assist employers and familiarize them with OSHA and its procedures.  Part One will focus on OSHA’s function, who is subject to OSHA’s requirements and what OSHA looks for during an inspection.

Part Two describes an actual step-by-step inspection and outlines suggested procedures for employers to follow.  The third and final part describes what an employer should expect following an inspection and the employers’ rights and obligations.

1. What is OSHA and what does it do?

OSHA or the Occupational Safety and Health Administration, is an agency within the United States Department of Labor.  OSHA’s primary function to protect employees by inspecting workplaces to ensure that employers comply with the safety and health standards promulgated by OSHA. 

2. Who is subject to OSHA’s requirements?

Most private sector employers and their employees are subject to OSHA’s requirements.  Employees employed by state and local governments are not covered by OSHA.  Likewise, certain private sector workers are exempt from OSHA’s requirements.  Specifically excluded are self employed individuals, farm workers where only immediate members of the farm employer’s family are employed and workers at facilities where safety and health is regulated by other federal agencies under separate federal statutes.

3. If OSHA shows up at my facility, do I have to allow the inspector in my facility?

In most cases, OSHA must either obtain your consent or a valid warrant authorizing an inspection before entering your facility to perform an inspection.  The inspector who arrives at your workplace, may not inform you of your rights.

If denied entry to perform an inspection without a warrant, OSHA has the authority to obtain a warrant by ex parte application to the United States District Court (i.e., OSHA will ask the court to issue a warrant to allow the inspection).  If OSHA seeks a warrant, you will not receive advance notice that OSHA is seeking a warrant or receive copies of any materials supplied to the court by OSHA in applying for the warrant. 

The decision regarding whether to allow OSHA to inspect your facility is not always clear cut.  We recommend that you discuss your options with your lawyer and have a plan in place should an OSHA inspector show up.  That plan should be made as a matter of company policy developed prior to the actual inspection.  Your managers and key employees should be familiar with the plan and who to contact should they have questions.

4. What does OSHA look for?

There are three phases to an OSHA inspection, the opening conference, the walkthrough and the closing conference.

At the opening conference, the inspector will seek general information concerning your business (e.g., name, address, etc.) as well as your safety and health program.  For instance, the inspector may inquire into the following:

• The details of your company’s safety and health program;
• How information on your company’s safety and health program is communicated to employees;
• How your company enforces violations of its safety and health rules;
• The type of safety and health training programs that your company has established and how they are implemented;
• How your company performs an accident investigation and whether your company implements preventative measures as a result of the investigation; and
• Whether the OSHA Notice is posted on site in your facility.

In addition, the inspector will request access to the records that you are required to maintain under the OSHA’s standards (e.g., injury and illness records and Hazard Communication Records, etc.).

The next phase of the OSHA inspections is the walkthrough.  The main purpose of the walk-through is to allow the inspector to identify potential safety and/or health hazards in the workplace.  You and the employee representative will be given the opportunity to accompany the inspector.

During this phase of the inspection the inspector will assess your safety and health program, collect information on your business and document any hazards found in the workplace.

The final phase of the OSHA inspection is the closing conference.  The inspector is required to have a closing conference with you and the employee representative.  At the closing conference the inspector is required to describe any and all alleged violations that were observed during the inspection and identify the applicable sections of the OSHA standards or Occupational Safety and Health Act that were allegedly violated.  The violations that are found by the inspector will be outlined in a Citation.  Citations are not issued at the closing conference, but are issued at a later date under the signature of the Area Director.  In addition, the inspector is required to advise you and the employee representative of your rights following an OSHA inspection.

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Subcontractor’s bids, when coupled with its backlog of uncompleted contracts, must not cause subcontractor to exceed aggregate rating limit in public school projects.  If so, contractor’s bid will be rejected due to subcontractor exceeding its aggregate rating limit.

On June 20, 2011, the Appellate Division decided Brockwell & Carrington Contractors, Inc. v. Kearny Board of Education, Hall Construction, Inc. and Dobco, Inc., Docket No. A-1806-10T4, (“Brockwell”), which may have a significant impact on bidding on public school contracts.  Brockwell involved a bid for a public school contract in which the contractor’s bid, which included a subcontractor’s bid, was rejected because the subcontractor’s bid exceeded the aggregate rating for the subcontractor for public school projects.  As a result, the contract was awarded to the next lowest bidder.

In Brockwell, defendant Kearny Board of Education (“BOE”) sought bids for the Kearny High School – Aircraft Noise Abatement and Renovations Project (the “Project”).  Bids were opened for the Project on September 15, 2010.  Defendant, Dobco, Inc. (“Dobco”), was the lowest bidder, followed by plaintiff, Brockwell & Carrington Contractors, Inc. (“B&C”).  The BOE awarded the contract to Dobco.  Dobco’s bid identified Environmental Climate Control, Inc. (“ECC”) as the heating, ventilation and air-conditioning (“HVAC”) subcontractor for the Project.  The Division of Property Management and Construction (“DPMC”) classifies contractors by permissible aggregate work volume based upon each contractor’s submissions detailing financial ability.  The purpose of this classification is to prevent contractors from taking on more work than they can handle.  At the time the bid was submitted, ECC’s aggregate limit with the DPMC was $15,000,000.  ECC submitted a proposal for its portion of the HVAC work at the Project of $7,250,000.  ECC also submitted a Form 701, which is required by the DPMC, indicating that it had a backlog of uncompleted contracts totaling $3,500,000.  Thus, the total amount charged against ECC’s aggregate limit was $10,750,000.

B&C challenged Dobco’s bid, claiming that it had received a Form 701 from ECC a month earlier on an unrelated contract in which ECC disclosed a backlog of uncompleted contracts exceeding $9,000,000.  As a result, B&C claimed ECC, with its $7,250,000 bid and $9,000,000 backlog, exceeded its $15,000.00 aggregate limit and could not work on the Project.  After an investigation by the BOE, it was determined that ECC exceeded its aggregate limit. 

B&C then filed a complaint seeking to disqualify Dobco’s bid, as it was based on ECC’s improper bid for the HVAC work.  ECC and Dobco claimed that the aggregate limit did not apply to subcontractors and that, even if it did, much of ECC’s backlog of uncompleted work was subcontracted out to others, which did not count against its aggregate limit.  The trial court rejected Dobco’s arguments and found that ECC was subject to the aggregate rating limit set by N.J.A.C. 17:19-2.13(a).  The trial judge concluded that Dobco’s bid was materially defective and denied Dobco the opportunity to correct its bid.  The trial court also ordered BOE to award the contract to B&C, the next lowest responsible bidder. 

On appeal, the Appellate Division rejected Dobco’s arguments and concluded that both the Public School Contracts Law, N.J.S.A 18A:18A-1 to - 59 (“PSCL”), and prior case law, support the conclusion that any subcontractor’s bid on a school project must not exceed the subcontractor’s aggregate rating limit.  The Appellate Division further found that the Educational Facilities Construction and Financing Act, N.J.S.A. 18A:7G-1 to - 48 (“EFCFA”), provides an independent basis for holding that ECC must meet the aggregate rating limit requirements set by N.J.A.C. 17:19-2.13(c).  Thus, the Appellate Division affirmed that ECC’s non-compliance was a material defect that was fatal to Dobco’s bid.

The Appellate Division concluded that the aggregate rating limit applied to both subcontractors and contractors.  The Court noted that when considering the applicable law, “it is clear that the Legislature intended to ‘ensure that only qualified bidders perform the work.’” To differentiate between subcontractors and contractors would not advance this goal.

The Appellate Division also held that any contractor, including a subcontractor, is entitled to the benefit of the eighty-five percent (85%) reduction provision of N.J.A.C. 17:19 2.13(a) and (c), which allows a contractor to reduce the value counted against its aggregate limit by the backlog of uncompleted contracts, provided that the backlog is limited to single prime contracts in which it subcontracted work to others.  Here, ECC did not certify that its backlog included single prime contracts in which it subcontracted work to others.  Thus, ECC was not entitled to the benefit of the eighty-five percent (85%) reduction.  As it included ECC’s improper bid, Dobco’s bid was defective and “permitting a post-bid cure under these circumstances would afford Dobco an unfair advantage.”  The decision of the trial court to reject the award of the contract to Dobco and award the contract to B&C was affirmed.

This decision may have a significant impact on the bidding process for public school projects as it makes clear that not only contractors, but subcontractors too, must comply with the aggregate rating limit of N.J.A.C. 17:19-2.13 and N.J.S.A. 18A:7G-37.  In addition, contractors have to be clear when submitting Form 701 and any related certifications to disclose if they have prime contracts in which a portion of the work is subcontracted to others, thereby getting the benefit of the eighty-five percent (85%) reduction provided in N.J.A.C. 17.19-2.13 (a) and (c) and reducing the amount counted against their aggregate limit.  Lastly, contractors who are the second or third lowest bidder should consider a challenge to a bid result if they have questions as to the aggregate limit rating of the lowest bidder and/or its subcontractors.

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