One of the most fundamental payment protections that
you have as a construction subcontractor is the mechanic’s lien. The
mechanic’s lien represents security for the credit that your company has
extended to upper-tier contractors and construction owners in the form of
uncompensated labor, materials, etc. While the importance of the mechanic’s
lien is universally accepted — such liens are legally recognized in all
50 states — this important form of security is challenged almost every
day in subcontract agreements that you are asked to sign. How can you
avoid losing the protection that the mechanic’s lien offers?
The most common threat to your mechanic’s lien rights
is the contractual lien waiver. When you examine lien waiver language, ask
yourself how well the language protects your (present and future) right to
assert a lien claim. The proposed subcontract may contain weak protections
or no protections at all, allowing you or requiring you to
"release" or "waive" rights to "all liens"
or "all claims" through "the date the waiver is
signed." Or, the subcontract document may contain stronger
protections, not allowing lien waivers or limiting them only to
"previous payments" to your company for materials, labor, etc.,
as paid through "the last invoice."
Weaker language puts your company in a position where,
for example, you might not be able to file a lien claim for retainage, or
for payments for completed or future work, or for changes. Stronger
language preserves your right to make lien claims for all of your company’s
interest in the project.
Subcontractors in some states are very fortunate.
Contractual lien waivers are not valid if signed before the subcontractor
begins work in California, Connecticut, Delaware, Georgia, Illinois,
Indiana (commercial projects only – waivers permitted on residential
construction), Maryland, Massachusetts, Michigan, Minnesota, Missouri, New
Jersey, New York, Rhode Island, Utah, Vermont and Washington. In these
states, subcontractors start their contract negotiations concerning lien
waivers in a more advantageous position than elsewhere.
Wherever your company is performing work, it is a good
idea to familiarize yourself with the laws that apply to your work. In
addition to addressing lien waivers, the law may set notice and other
legal requirements for perfecting liens, and might even exempt certain
types of construction from lien protection. Not knowing the law can be an
expensive mistake! You may wish to keep current on mechanic’s lien laws
with ASA’s Lien and Bond Claims in the 50 States and the District of
Columbia CD-ROM, available for purchase at
ww.contractorsknowledgenetwork.org.
In contract negotiation, the model language of
paragraph 14 of ASA’s "Addendum to Subcontract" (2003
edition), should help your company preserve its lien rights:
