Home>Levelset Community>Legal Help>Am I legally able to withhold final payment to my GC?

Am I legally able to withhold final payment to my GC?

We have had significant delays with our home remodel. We are heading into our 6th month of a “3-4 month” project. Our GC tells us it’s sub and supplier delays. Our cabinet maker would not deliver our cabinets because he’s had issues getting paid by our GC on previous projects. He did deliver and I witnessed our GC write him a check; however, I’m concerned. Am I legally allowed to ask fro lien waivers from my GC, his Subs and suppliers prior to giving him the last payment of the project? From reading your page, it seems the waiver would not be effective until payment was made. We will pay in full, but want the lien waivers to protect us. Also, if work is not done to our satisfaction, are we legally able to withhold payment until done correctly (I.e., we got a new window, the mortar does not match the rest of the house. It’s obviously a very different color).

1 reply

Jan 29, 2020

It's extremely common for owners to wonder about the mechanics lien waivers and withholding payment. Let's look at those topics separately.

How to use mechanics lien waivers to protect the project property

It's a good idea to obtain lien waivers from everyone working on the project. Notably, Utah is one of the relatively few states which requires specific statutory mechanics lien waiver forms. And, those forms are both conditional lien waivers. Meaning, the waiver isn't fully effective until the payment on that waiver has actually been made to the party who's waiving their rights. Practically, that means a contractor, subcontractor, supplier, etc. should be more comfortable providing a lien waiver before the payment is made. Or, it should at least be easier to time the exchange of a waiver and check since the waiver won't automatically waive all rights on the spot. Regardless - owners are legally allowed, and even encouraged, to request lien waivers from the parties performing work on their project. And, I think the following two articles will provide a lot of helpful insight into how owners can and should utilize lien waivers: (1) The Property Owner’s Guide to Lien Waivers; (2) How To Handle Requesting & Tracking Lien Waivers; and (3) Utah Lien Waiver Forms & Guide – All You Need to Know.

Withholding payment from a direct contractor

Withholding some portion of payment is a common tactic for ensuring that work is performed on time and done free of defects. However, withholding payment is also one of the most common causes for construction payment disputes. So, it's important to do so with care - even when a contractor hasn't done a great job of following the contract. First, if the contract contains any language regarding if, when, or how payments can be withheld - then those provisions should be followed. Failing to follow the contract could end up exacerbating the issue if there are specific terms relating to withholding payment. Further, if payment will be withheld, it's a good idea to provide explicit written notice as to why payment is being withheld and what the contractor can do to be paid in full. That way, communication on the issue is clear and open, plus the contractor will know exactly what they need to do in order to get their hands on final payment. Ultimately, withholding payment can be a powerful tool to get a contractor to finish the job right. But, it's important to be careful to ensure that withholding payment won't spur a larger dispute. Clear communication, transparency, and fostering a collaborative atmosphere is key.

1 person found this helpful

Helpful