Mechanics lien rights provide crucial protection to construction industry participants by protecting their ability to get paid. This protection is provided in many ways, but most crucially, by giving the claimant an interest in the improved property itself, which can be foreclosed upon and sold to satisfy the debt. Because of this power, mechanics liens can be feared (as well as misunderstood), and lien rights have become a central issue in the ongoing struggle of shifting the risk of nonpayment between parties on a construction project.
In some cases, the property owner or GC will attempt to limit the availability of mechanics liens by including “no lien” clauses, or pre-emptive waivers of lien rights in their contracts.
Generally, the public policy of protecting the rights of construction participants to be paid for work they perform is greater than the right for freedom of contract, but that’s not always the case. Whether or not mechanics lien rights can be eliminated or waived prior to the performance of work is an exceptionally important question that can have a significant impact on the ability to get paid.
No-Lien Clauses Generally Not Allowed
Generally, these types of clauses are unenforceable regardless of whether or not they are “agreed to” in the contract. As noted above, parties are usually allowed to contract between themselves however they wish, as long as the contracts are consistent with the state’s public policy (in other words, you can’t agree to something that’s illegal).
And, luckily for construction project participants, it’s generally the case that public policy comes down on the side of protecting construction participants against non-payment, and not on the side of industry participants seeking to limit this right by inserting a clause into a contract, or any other means.
Lien rights can explicitly be waived by lower-tiered parties on construction projects in Nebraska and Colorado, and on some projects in Arizona, Missouri, and Wisconsin. In another 15 or so states, there is no explicit law on the topic so it is not necessarily clear on which side a court would come down. This still means, however, that in the majority of states, waiving lien rights in a contract is prohibited.
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What Does This Prohibition Look Like?
For an example of what this type of prohibition may look like, we can examine a state – New Jersey – that prohibits waiving lien rights by contract. The pertinent law in the Garden State is N.J.S.A § 2A: 44A-38 which specifically notes that:
“Waivers of construction lien rights are against public policy, unlawful, and void, unless given in consideration for payment for the work, services, materials or equipment provided or to be provided, and such waivers shall be effective only upon and to the extent that such payment is actually received.”
This and corresponding statutes in many other states provide just about the clearest prohibition on preemptively waiving lien rights that one could expect. The desire to protect the ability of construction participants to get paid what they deserve is strong and has been for well over 200 years. It’s not a right that’s easily limited, by a contract clause or anything else.
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