Originally posted 2015-03-03 10:28:12.
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 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.
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.
As always, I welcome your comments below. Please subscribe to keep up with this and other Construction Law Musings.
It’s about time, Virginia. Welcome to the other side – where those who do the work and supply the materials are not the ones holding the bag of financial risk.
While I’m not unhappy with the change, I’m not quite to the point of making contracts that both sides negotiate as “unfair”. This will be a good change though.
The problem is that the contracts aren’t actually negotiated. sure, the parties can negotiate them, but the reality is that too many subcontractors don’t have the leverage in the negotiations. Bankers, GCs, and sureties are handing out the work and they can pretty much set the terms how they want it, and the subcontractors will agree.
This is precisely why these type of protections are passed in legislatures across the US. The very existence of the lien right, as well as provisions prohibiting pre-contract waivers, prompt pay legislation, labor laws, etc – are all for the purpose of offsetting that unnatural leverage.
So I agree with you that the contracts are negotiated. But I disagree that the parties in those negotiations have the same leverage or level of sophistication…and thus, the contracts are often unfair :).
What you think?
Ironically, the new bill doesn’t apply to GC’s. Generally, I am against the legislatures second guessing contracts. I also represent many subs so know where you’re coming from. I also know that when my clients strike the waiver clause it is generally agreed to by GC’s so isn’t a huge problem for those that actually read the contracts.
Chris.I think the General Assembly may have unwittingly included language in its bill to prohibit up front mechanics lien waivers, which may have an impact on other provisions commonly found in many subcontract agreements. Not only does the amendment to Code Section 43-3 make up front waivers of mechanics lien and bond claim rights unenforceable but the amendment also declares unenforceable any provision which “diminishes” the right of a subcontractor to assert claims for demonstrated additional costs. Conceivably, provisions such as a “no damage for delay” clause, provisions limiting the types of costs allowable for added work, provisions waiving claims for added work without a written change order, notice provisions coupled with waiver language and even, perhaps,”pay-if-paid” provisions,” may no longer be enforceable under the amendment if such provisions are interpreted as “diminishing” a subcontractor’s right to assert a claim for demonstrated additional costs. Of course, no one can predict how a court might interpret the amendment in the future but the new language prohibiting any “diminishment” of a subcontractor’s right to be paid for extra work certainly raises some interesting questions as to the impact it may have on a number of provisions commonly found in many subcontracts.
Always great to hear from you on topics such as this Jack. It will likely be a while before we realize the unintended consequences of these amendments.