By Bruce Jervis
Mechanic’s liens usually provide contractors and subcontractors with their most effective form of payment security on private construction projects. But, contracts sometimes call for constructors to waive or limit their lien rights before they have even performed the work. Are these prospective lien waivers enforceable? Are they conscionable?
The mechanic’s lien statutes in some states prohibit prospective waivers. These prohibitions may result from lien rights enshrined in the state constitution. Not all states protect lien rights so zealously, however. And, sometimes only second-tier parties such as subcontractors and suppliers are protected.
Prospective mechanic’s lien waivers can come in subtle forms. A prime contractor may be required to subordinate its lien rights to the security interest of the construction lender. It’s not labeled as a lien waiver. But, as illustrated in a recent California case, it has that effect if there is only enough value in the property to satisfy the lender’s interest.
What is your opinion? Should prospective lien waivers be barred and rendered unenforceable altogether? Or, do they serve a legitimate purpose, for instance in facilitating project financing? Should they just be considered another term of the bargain? I welcome your comments.