Effect of Contractor’s Lien Wavier on Subcontractor Clarified by the Courts

As some of you may be aware, in 2006 the Pennsylvania legislature adopted amendments to Pennsylvania Mechanics’ Lien Law of 1963.  The amendments which became effective in 2007 substantially modified the effectiveness of lien waivers (No Lien Agreements), which prior to the amendments, eviscerated any protections under the statute.

The 2007 amendments generally prohibited pre-construction lien waviers as void and against public policy.  There are some exceptions separated into residential and non-residential construction projects.

In non-residential construction the contractor may only waive lien rights in exchange for the actual receipt of payment for labor, material and equipment provided.  A subcontractor may only waive its lien rights in exchange for the actual receipt of payment for labor, material and equipment provided or if the contractor has posted a payment bond.

In residential construction the contractor may waive its lien right if the cost of the work is less than $1,000,000.  The wavier is accomplished through a written instrument signed by the contractor or “… by any conduct which operates equitably to estop such contractor from filing a claim.”  Presumably, in residential construction in excess of $1,000,000 a lien waiver cannot be obtained from a contractor.

A subcontractor in residential construction may also waive its lien right if the cost of the work is less than $1,000,000.  The wavier is accomplished through a written instrument signed by the subcontractor or “… by any conduct which operates equitably to estop such contractor from filing a claim.”  If the cost of construction is in excess of $1,000,000 the same wavier may occur but only if the contractor has posted a payment bond.

The statute further provides rules regarding the effect of contractor’s wavier of the right to file a mechanics’ lien on a subcontractor.  It provides that when such right can be waived, a written contract or a separate instrument signed by the contactor which provides that no claim shall be filed by anyone shall be binding on a subcontractor, but the only admissible evidence as against the subcontractor shall be proof of actual notice to it before it provides labor or materials or proof that such instrument was filed in the office of the prothonotary prior to the commencement of the work on the ground or within ten (10) days after the execution of the principal contractor or not less than ten (10) days prior to the contract with the claiming subcontractor.

With regard to subcontractors, some have argued that the recent amendments limit a subcontractor’s wavier only when the subcontractor specifically signs a document waiving its right.  A recent Superior Court case decided in January of this year, Floors, Inc. v. Altig, clarified that no, a contractor, when allowed by the statute, may still waive a subcontractor’s right to file a mechanics’ lien without obtaining the subcontractor’s signature if a no-lien wavier is properly filed with the prothonotary.

Accordingly, no-lien agreements entered into between the owner and contractor, in limited circumstances, still prohibits subcontractors from exercising their right to file a mechanics’ lien.