When is a Lien Waiver Valid?
In Pennsylvania, a general contractor can waive a subcontractor’s right to a mechanic’s lien in certain situations. This law has been modified in the past couple of years; however, lien waivers are always effective in exchange for payments received.
Contractors may also waive lien rights for lower tier subcontractors on residential projects if the contract between the owner and the general contractor is less than $1,000,000. Subcontractors will be able to waive lien rights on all projects if the general contractor posts a payment bond to cover the value of the labor and materials provided. Subcontractors should also be careful when signing for progress payments, which may contain waivers for future work. It remains possible to inadvertently waive lien rights for future undertakings.
Filing of Stipulation. In most cases, general contractor waivers are done by filing a “Stipulation against Liens.” This is a short waiver document separate from the general agreement. This Stipulation is filed in the department of court records (county filing office) in the county where the project takes place. The filing must occur with regard to at least one of any of the following:
1. Prior to commencement of work upon the ground, or
2. Within ten days after endorsement or execution of the principal contract, or
3. Not less than ten days prior to the contract with the subcontractor.
Thus, a subcontractor should check in the department of court records office immediately prior to signing a subcontract or doing any work, to make sure that no Stipulations have been filed.
To be readily found, the Stipulation must be indexed in the names of both the general contractor and the owner of the property. This way, the department of court records keeps track of waivers or stipulations. If not property indexed, the waiver will fail and the subcontractor will have lien rights, unless the sub has actual knowledge of the lien waiver before commence work.
Filing of General Agreement. In lieu of filing a separate stipulation against liens, the owner may file the entire general contract. If the agreement includes a waiver of liens and is properly filed and indexed, lien rights will be effectively waived on projects on which lien waivers are permissible.
Importantly, the filing of a general contract may establish a defense of payment, although it is more advantageous say in the general contract that it waives lien rights entirely on jobs on which lien waivers are permissible.
If a general contract is properly filed, the lien claims of subcontractors are be limited to their pro-rata share of the amount still owed (if any) to the general contractor at the time the lien claim exists on the owner.
