Most boards of co-ops and condominiums spend a lot of time negotiating the terms of their contracts with general contractors; however, it is often subcontractors who do most of the work. Sometimes the Boards are not even aware of how much work they are doing. Despite this fact, their contracts, if they even have one, are the least thought out and the terms of their work are often very unclear. However, the legal issues that can arise from work by subcontractors can be profound for buildings and general contractors who have not been well-briefed by knowledgeable legal counsel.
When a co-op or condominium building hires a general contractor to renovate property, that company is legally responsible to the owner for completing all of that work. The contractor may go out and hire different subcontractors to help execute that work, but the prime contractor still remains liable for the entire project and the subcontractors are in turn liable to the general contractor, not to the client. They have what is called “privity of contract” with the general contractor. The general contractor also has privity of contract with the client.
Know Who’s at the Worksite
However, a subcontractor who has done work, with the knowledge and consent of the client, may file a mechanic’s lien, the same way that a general contractor can. The subcontractors presence on the work site is not generally a secret. In fact, owners should make it their business to be aware of the names and contact information of the subcontractors have been hired to perform some of the work. I usually make disclosure of this a provision in the contract between the general contractor and the building.
The general contractor is obligated to pay the subcontractor, even though the owner has been slow or late in paying him. Many a general contractor has tried to claim that he is not liable for paying subcontractors until he has been paid by the client, but that is not a legally correct position. In fact, a clause in a contract between a general contractor and a subcontractor in which the general contractor seeks to absolve himself of liability for payment until the client has paid him, is void as against public policy. There are also situations in which the general contractor has been paid by the owner, but for some reason has not paid the subcontractor. The best insurance for an owner that subcontractors have been paid is insisting on partial waivers of lien throughout the project and final waivers at the end.