DID I WAIVE MY RIGHT TO FILE A MECHANIC’S LIEN IN MARYLAND?
by Brian Loffredo, Esq. You aren’t getting paid and you’re not happy. When you signed your subcontract for the job, you never thought it would come to this. Maybe your general contractor has never missed a payment or you thought your business could withstand late payments. For the first time you are being faced with the possibility of having to file a mechanic’s lien against the property owner. During your preparations for the lien, you review your contract and discover two daunting provisions. The first provision states that you aren’t entitled to payment until the general contractor is paid from the owner. This known as a “pay-when-paid” clause. The second provision states that you have waived your rights to file a mechanic’s lien. You begin to panic. But don’t worry, chances are you can still move forward with your lien. Maryland recognizes the validity of “pay-when-paid” clauses in subcontracts. In Gilbane Bldg. Co. v. Brisk Waterproofing Co., 86 Md. App. 21 (1991) and Architectural Systems, Inc. and Gilbane Building Company, 760 F. Supp. 79 (D. Md. 1991), Maryland courts specifically upheld the use of these clauses, even though the result is particularly harsh on subcontractors. However, you can take solace in the fact that the Maryland legislature has enacted certain protections for subcontractors with respect to mechanic’s liens. Maryland Real Property Code § 9-113 states that a subcontract cannot abrogate or waive a subcontractor’s right to claim a mechanic’s lien. It also states that a pay-when-paid clause does not abrogate or waive a subcontractor’s right to assert a mechanic’s lien. These provisions also apply to payment bond claims. Therefore, even if you agreed to waive your rights in the subcontract, your mechanic’s lien rights against the property owner remain intact. If you’ve read this far, you probably have recognized an inconsistency here. Based on the above, it appears that a pay-when-paid clause would keep you from suing the general contractor, but would allow you to move forward against the owner of the property. If you reached this conclusion, you are correct. While the law protects mechanic’s lien claimants, it does not interfere with a subcontractor’s collections rights against the general contractor. Pay-when-paid clauses are dangerous beasts, but they are common in the construction industry. If you must sign a contract with such a provision, your only remedy might be to pursue the owner by moving forward with your lien. But since the owner controls the purse strings, you are bound to get some attention.
Brian Loffredo is a principal in Offit Kurman’s Baltimore/Washington office. If you have any questions about the content of this article or other construction matters, please contact Mr. Loffredo at 301.575.0345 or firstname.lastname@example.org.