Building in New Jersey: What Design Professionals Need to Know

Design professionals are responsible for the life, safety and welfare of people who use buildings, people who drive on roads and bridges, people who take public transportation and people who use parks. In short: everyone. For this reason, the design professions—architecture, engineering, landscape architecture and land surveying—are highly regulated by both state law and state regulatory agencies. Laws and regulations can vary greatly from state to state, and this article describes some essential business regulations that govern design professional firms that practice in, or have projects located in, New Jersey.

Business Formation: Know Before You Go

Many states restrict the entity types through which design professional firms can practice as a means of ensuring that licensed professionals are in charge of, and ultimately responsible for, the decision-making within the firm. Although New Jersey "allows" virtually all business-entity types to provide professional services, there are very specific requirements regarding ownership and management by licensed professionals. Moreover, requirements can vary depending on both entity type and profession, to wit:

• General Business Corporations/Limited Liability Companies that practice engineering, land surveying or landscape architecture need only have a New Jersey-licensed officer or full-time employee, N.J.A.C. 13:40 10-1, N.J.A.C. 13:27 8-11.
• General Business Corporations/Limited Liability Companies that practice architecture must show that at least two-thirds of the directors (or managers) are architects licensed in any state and the entity is at least two-thirds owned by architects licensed in any state; at least one New Jersey-licensee must be in responsible charge of the practice, N.J.A.C. 13:27 4-8.
• General Business Corporations/Limited Liability Companies that provide architecture plus other licensed design services must show at least two-thirds of the directors (managers) are architects or Closely Allied Professionals (CAPs) licensed in any state with at least one director (manager) a licensed architect; the entity is at least two-thirds owned by architects or CAPs licensed in any state, and a minimum 20 percent is owned by a licensed architect, N.J.A.C. 13:27 4-8. CAPs include architects, engineers, land surveyors, professional planners, landscape architects and persons that provide space planning services, interior design services or the substantial equivalent.
• In contrast, General Business Corporations/Limited Liability Companies that provide engineering plus architecture services must show at least two-thirds of the directors (managers) are licensed engineers and a minimum 20 percent is owned by a licensed engineer, N.J.A.C. 45:4B-8.
• Limited Liability Partnerships/Partnerships in all of the professions require all partners to be licensed in the profession or CAPs, including at least one partner licensed in the profession to be practiced, N.J.S.A. 45:3-17, N.J.S.A. 13:40 1-3.
• Professional Service Corporations in all of the professions require all shareholders to be licensed in the profession or CAPs, N.J.S.A. 14A:17-5.

While firms organized in jurisdictions other than New Jersey can qualify and be authorized to practice within the state, providing they meet the ownership and management requirements described above, New Jersey has a unique rule that bars foreign professional corporations from becoming authorized to practice within the state.

Regulatory Approval: It Ain't Over Until You Get the Certificate of Authorization

Many design professionals—and the lawyers, accountants and service companies that assist in their formation—do not realize that not only must the business be organized or qualified with the State, but also with the relevant professional regulatory board. All such boards come under the umbrella of the Division of Consumer Affairs in New Jersey, and must issue a Certificate of Authorization for all entity types other than professional service corporations. Without this authorization, the firm is considered to be practicing illegally in New Jersey.

In New Jersey, the first step is to organize the firm or qualify a foreign firm with the Department of Treasury, Division of Revenue and Enterprise Services. This step can be accomplished online with same-day turnaround. After entities are formed or foreign entities qualified, most must apply to their appropriate regulatory board for a Certificate of Authorization. This is where the process slows down.

Both the Board of Professional Engineers and Land Surveyors, and the Board of Architects (which also oversees landscape architects) that review the application packages and issue the authorizations meet only once per month. Before the application packages are presented at the board meetings, the submissions will be vetted by the administrative employees of the relevant board and an applicant may or may not learn on a timely basis that its application package is insufficient for consideration at the next board meeting. A word of caution: the instructions on the applications for a Certificate of Authorization and board employees' interpretations of those instructions are not always the same thing; it is a good idea to call the board after an application has been submitted to confirm that all is in order.

Other Compliance Issues for Design Professionals Providing Services in NJ: Good Behavior Rules!

The New Jersey regulatory boards are relatively active in bringing disciplinary proceedings against design professionals. These proceedings can result in formal reprimands, fines, suspension or permanent revocation of licenses.

While the boards investigate and prosecute complaints of substantive incompetency, this article is focused on breaches related to practice management. Since 2013, the most common practice management oversight resulting in board action is the failure to renew individual licensure on a timely basis; fines imposed for practicing after a license has expired can be anywhere from $500 to multiple thousands of dollars. In addition, there have been seven disciplinary actions published involving firms that were delivering design services without a Certificate of Authorization and have resulted in suspension of individuals' licenses, and penalties and fines that have in some cases exceeded $10,000 for a first offense. Unlicensed individuals who are holding themselves out as architects, engineers, etc., are also frequent targets of the boards. Finally, design professionals who have been convicted of crimes or had their licenses terminated or suspended in other jurisdictions often find their New Jersey licenses are terminated or suspended through these disciplinary processes.

Although not a frequent subject of disciplinary processes, it is worth noting that New Jersey has specific regulations pertaining to advertising by design professionals. Any advertisements for professional services must include the name and license number of the individual professional and, if applicable, name of the entity and its Certificate of Authorization number. Oddly, the Certificate of Authorization number is required of engineers and land surveyors but not architects and landscape architects. While "advertising" is not defined specifically by the regulations, it can be argued that business cards and stationery would come under the broad definition of advertising. The regulations require that design professionals retain copies of any advertising for a period of three years after the last publication or dissemination of the materials.

Design professionals tend to be very aware of requirements related to individual licensure and their substantive practices, but lack of familiarity with the rules governing firms in New Jersey can result in disciplinary actions that will be a distraction, at best, and could prove to be very costly both in terms of money and the continued ability to practice in the state.

Originally published in the New Jersey Law Journal on July 15, 2016