A Ten Item Punchlist Dealing with Subcontractors

When a client hires a general contractor to build or renovate property, that company is legally responsible for completing all of that work. The contractor may go out and hire different companies or subcontractors to help execute that work, but the prime contractor still remains liable, and the subcontractors are liable to the general contractor, not the client. Subcontractors have what is called "privity of contract" with the general contractor. The general contractor also has privity of contract with the client.

1) The general contractor is obligated to pay the subcontractor, even if 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 his subcontractors until he himself has been paid by his 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 it runs against public policy.

2) 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. Alteration agreements are often evidence of the co-op's consent to renovation work. The presence of subcontractors on the work site should not be a secret. Owners should be aware that subcontractors have been hired to perform some of the work. This disclosure should be required in the contract with the general contractor.

3) The subcontractor can foreclose on that mechanic's lien; however, he can only recover up to the amount that the general contractor is owed by the client at the time that the lien was filed. Thus, if a general contractor was paid in full for an application for payment and for some reason he did not pay the subcontractors, the subcontractors would not be able to file a valid mechanic's lien, but they still could sue the general contractor for breach of contract.

4) The clerks who accept mechanic liens for filing have no way of knowing whether the general contractor has been paid in full or not. A mechanic's lien may be accepted for filing, but if the property owner can show that the general contractor has been paid, that may be a basis for vacating the mechanic's lien. This is why waivers of lien and partial waivers of lien are so important.


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