When remodeling or putting an addition on a residential or commercial property, a property owner generally turns to a general contractor. The contractor then hires one or more subcontractors to complete specific tasks within the job, such as electrical, plumbing or roofing work.
Typically, the contractor pays the subcontractors and suppliers out of the funds the property owner has paid the contractor. But for various reasons, this does not always happen as agreed in the contract. One way a subcontractor can get leverage for payment for services rendered is to obtain a mechanic’s lien.
A mechanic’s lien is a legal claim against a piece of real property. In other words, it puts the responsibility to pay the subcontractor on the developer or other party that owns the property — not the general contractor. And it does not matter if, as the property owner, you have already paid the contractor in full. It is possible that you would have to pay the subcontractor twice for one job.
Why is this allowed?
The theory behind the mechanic’s lien states that the subcontractor’s or supplier’s need to get paid is greater than the owner’s need to enjoy their improved property. It also presumes that it is possible for the property owner to turn around and sue the general contractor to get their money back. However, in many cases, contractors that fail to pay their subcontractors often do not have the assets to pay a judgment — if the business still exists.
There are things that real estate developers can do to help protect themselves from a future mechanic’s lien against one of their properties. For example, they can negotiate a lien waiver into the contract they make with the contractor. Another option is to write checks made out jointly to the contractor and each subcontractor so that they cannot be cashed until both beneficiaries endorse them.
The best defense against mechanic’s liens
Legal advice from a trusted construction law attorney can help you minimize your liability in contractor/subcontractor disputes, as well as help you find a solution to litigation.