Real Estate Law

Wow! A Mechanic’s Lien Bill That Helps Subcontractors and Suppliers

You know how I’ve stated on many occasions that the contract is king here in Virginia? You know how that included contractual provisions waiving mechanic’s lien rights for subcontractors and suppliers? You know how I thought that the General Assembly would not do anything to make mechanic’s liens in Virginia easier to prosecute?

Well, it seems, at least for waivers of mechanic’s lien rights by subcontractors and suppliers (more about general contractors later) I was wrong. This General Assembly session, the Senate introduced a bill, that has now passed both houses as of February 25, 2015, that adds language to Virginia Code Section 43-3, [enhanced version available to lexis.com subscribers], that effectively nullifies any contractual waiver of lien rights prior to any work having been performed by any tier of construction company aside from general contractors.

Where Paragraph C of this code section currently reads that any right to a lien may be waived in whole or in part without exception, the amended language that will be effective July 1, 2015 (assuming it is signed into law by the governor and I can’t imagine it won’t) will read:

Any right to file or enforce any mechanics’ lien granted hereunder may be waived in whole or in part at any time by any person entitled to such lien, except that a subcontractor, lower-tier subcontractor, or material supplier may not waive or diminish his lien rights, the right to assert payment bond claims, or the right to assert claims for demonstrated additional costs in a contract in advance of furnishing any labor, services, or materials. A provision that waives or diminishes a subcontractor’s, lower-tier subcontractor’s, or material supplier’s lien rights, right to assert payment bond claims, or right to assert claims for demonstrated additional costs in a contract executed prior to providing any labor, services, or materials is null and void.

You can review the entire text of Senate Bill 891 here, [enhanced version available to lexis.com subscribers].

For subcontractors and lower tier suppliers, the italicized language is huge. This language brings Virginia in line with most states that find it against public policy to allow prospective waiver of rights.

Now, what about general contractors? The AGC of Virginia lobbied hard to try and have general contractors added to the bill but could not get that language added over title company and bank objection so had to settle for most of a loaf. In short, general contractors can still be forced to proactively waive lien rights by contract.

What does this all mean? Well, it does not change the fact that you should always work with an experienced construction attorney when reviewing construction contracts. Pitfalls still exist, for instance the bill does nothing with subordination clauses and the language of lien waivers relating to payment for work already performed. What it does do is give subcontractors and suppliers a bit more negotiating room knowing that any prospective lien waivers will be null and void after July 1 of this year.

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