The Risk of Waiving Lien Rights in Commercial Construction Contracts

Because, all too often, subcontractors jump into a project without a reserve parachute. 

A skydiver almost never jumps out of a plane without two parachutes: The main one and a backup — just in case. 

For contractors and subcontractors, that reserve parachute often comes in the form of a mechanic’s lien. 

In Ohio, every contractor, subcontractor, and supplier has the right to file a mechanic’s lien against a property they improved. 

Broadly speaking, the lien helps ensure that – in the event there’s a problem at the project, or someone upstream unreasonably stops paying – you can secure your right to payment against the real estate itself.  

As in many other states, Ohio has a whole bunch of requirements you need to hit in order to make a mechanic’s lien valid. But a sure way to guarantee you can’t file such a lien is to waive your right to do so before ever even setting foot on the job.

And subcontractors do this all the time. 

Often, subcontract language will state that you have no lien rights. Basically, you agree that you will not file a lien on the project, and you’ll ensure that your subcontractors or suppliers will not ever file a lien.  

This is enforceable in Ohio.  

In a post yesterday, we talked about “Pay if Paid” clauses and how they can leave you out to dry. Well, some subcontractors have both a Pay if Paid AND a waiver of lien rights. 

When that happens, it’s like jumping without any chute at all. Because if the developer loses its bank financing and goes out of business before the job is done…

(A) You’d have no right to be paid for work that you performed, since your customer is not going to be paid for your work, and 

(B) You can’t even attempt to recapture your right to payment through a lien. 

Under the law, that should never be a permitted outcome. But it is if you allow your contract to make it one.