First and foremost, thanks to my pal Scott Wolfe for the opportunity to discuss what is a major change in Virginia law regarding mechanic’s liens. I always appreciate the opportunity to guest post here at his blog.
When I first posted about Senate Bill 891 back in March of this year it sparked a minor debate between Scott and I relating to freedom of contract. However, my strong belief in almost unfettered freedom of contract won’t be my “soap box” of the day in this post. Instead I’ll discuss the bill itself, what it changes, and what I believe to be the questions raised by its language. As originally written, the bill amended Va. Code § 43-3 to add the italicized language in the quotation below:
Any right to file or enforce any mechanics’ lien granted hereunder may be waived in whole or in part at any time by any person entitled to such lien, except that a subcontractor, lower-tier subcontractor, or material supplier may not waive or diminish his lien rights, the right to assert payment bond claims, or the right to assert claims for demonstrated additional costs in a contract in advance of furnishing any labor, services, or materials. A provision that waives or diminishes a subcontractor’s, lower-tier subcontractor’s, or material supplier’s lien rights, right to assert payment bond claims, or right to assert claims for demonstrated additional costs in a contract executed prior to providing any labor, services, or materials is null and void.
Later, and upon signature of the Governor, a minor change was made when the final bill took out the bond claim language from the mechanic’s lien section of the code and added Va. Code §11-4.1:1 as follows:
A subcontractor as defined in § 43-1, lower-tier subcontractor, or material supplier may not waive or diminish his right to assert payment bond claims or his right to assert claims for demonstrated additional costs in a contract in advance of furnishing any labor, services, or materials. A provision that waives or diminishes a subcontractor’s, lower-tier subcontractor’s, or material supplier’s right to assert payment bond claims or his right to assert claims for demonstrated additional costs in a contract executed prior to providing any labor, services, or materials is null and void.
At its most basic level these changes void the fairly standard contractual terms found in many Virginia construction contracts that provide that a subcontractor waives its mechanic’s lien rights on the project prior to any work being performed. As I stated in my earlier posts, this is a big deal and brings Virginia in line with a majority of the states in barring the enforceability of such clauses. However, and despite much lobbying by the Virginia chapter of the Associated General Contractors, the language does not extend to general contractors. The wisdom of such an omission is best left to the politicians.
An interesting quirk of this law and its phrasing create some interesting legal questions. The first is that along with the clear prohibition against proactive waivers of bond or mechanic’s lien rights, it speaks of any provision that “waives or diminishes” a subcontractors right to payment for demonstrated additional costs. This last portion of the amendments seems to be broader than just lien or bond claims.
Questions raised by this broader language that come to mind and that may need court interpretation and answers could potentially include the invalidation of limits on costs that can be claimed for overhead, so called “no damages for delay” clauses, no payment without a written change order clauses, and even the bane of the subcontractors existence, the “pay if paid” clause. Each of these types of clauses could potentially be considered a “diminishment” of a subcontractor’s right to assert payment as each makes it harder for a subcontractor to be paid for additional work performed or a right to a mechanic’s lien in that it could lower the ability to receive payment based upon that lien due the inherent limitations on payment in the contract.
Do I know what could happen should these arguments make it before the Virginia Supreme Court? No, but I don’t think an argument against one of these types of clauses based on this language is one that will be dismissed out of hand.
In short, what seems like a simple matter of a few new sentences in the payment bond and mechanic’s lien statutes could be fertile ground for an experienced Virginia construction attorney to find more help for their subcontractor clients through some creative thinking.
Thanks again to Scott for letting me “muse” here at his blog.