What exactly does this mean; “Liens – Subcontractor (which is us in the case) agrees to satisfy, remove or discharge any lien or claim , at its own expense, by bond, payment or otherwise, within ten (10) days of the date of filing of a lien or claim. (This sounds like a circle and makse no sense to me) Can someone explain? Thank you.

Question

What exactly does this mean; “Liens – Subcontractor (which is us in the case) agrees to satisfy, remove or discharge any lien or claim , at its own expense, by bond, payment or otherwise, within ten (10) days of the date of filing of a lien or claim. (This sounds like a circle and makse no sense to me) Can someone explain? Thank you.

1 year ago

This is No. 16 on a “Short – Form Subcontract Agreement”. We are the material supplier / installer on a project hired by the GC.
I do not understand this part of the agreement, and until I can explain it to our controller, she will not sign off on this Agreement.

Nate Budde · Answer 1 · 2019-03-22

Just like the statutory requirements surrounding liens and notice requirements, the contractual obligations that some companies attempt to require can also be confusing.

In many cases, a contract between a GC and an owner will include a provision that the GC must keep the property free of liens arising from the project, and/or bond off any liens that may be filed. This type of provision can then trickle down the contracting chain and be included in subcontractor / supplier agreements. And, some GCs just want to attempt to use their position to leverage lien risk to other parties, to the extent possible.

This type of clause should be limited to liens filed by parties “beneath” the company obligated to satisfy or bond off the lien. This type of clause creates a contractual obligation to deal with a lien claim that arises from a party that the obligated party hired, and on down the chain. While such a clause doesn’t change the ultimate effectiveness of a filed lien, it creates a mechanism by which a breach of contract action can be initiated against a contractually obligated party when a lien arises.

It’s important to clarify which parties’ liens may trigger such an obligation of the contracting party to satisfy or bond off the lien, to limit potential exposure.

Unclear provisions in contracts create many more headaches than they get rid of, however. Unless it is very clear what liability can arise such a clause can be dangerous. Further, to the extent the clause is meant to apply somehow to a lien filed by the contracting party itself, it is likely unenforceable as a prohibited “no lien clause.”