{"id":894103,"date":"2018-05-02T14:28:10","date_gmt":"2018-05-02T20:28:10","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=894103"},"modified":"2018-05-02T14:28:10","modified_gmt":"2018-05-02T20:28:10","slug":"can-contingent-payment-provision-affect-construction-lien-claim-washington","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/can-contingent-payment-provision-affect-construction-lien-claim-washington\/","title":{"rendered":"Can a Contingent Payment Provision Affect a Construction Lien Claim in Washington?"},"content":{"rendered":"

Bart Reed | Stoel Rives LLP<\/a> | April 24, 2018<\/p>\n

During Seattle\u2019s current construction boom, general contractors and subcontractors may be concentrating more on finalizing work on their projects than on worrying about the niceties of their construction contract documents. It is no less prudent now, however, for the parties to remain aware of their contractual rights and responsibilities\u2014especially those tied to payment.\u00a0 One payment term commonly contained in subcontract agreements is the contingent payment provision, which, depending on its terms, may pose an interesting challenge to construction lien rights.<\/p>\n

Contingent payment provisions (e.g., \u201cpay-if-paid\u201d or \u201cpay-when-paid\u201d clauses) are frequently inserted in subcontract agreements. The hallmark of pay-if-paid clauses is usually \u201ccondition precedent\u201d language, where the general contractor and subcontractor expressly agree that the general contractor\u2019s receipt of payment from the owner is a condition precedent to payment by the general contractor to the subcontractor.\u00a0 Under this clause, the subcontractor assumes the risk of non-payment by the owner.\u00a0 On the other hand, pay-when-paid clauses have been interpreted to delay the subcontractor\u2019s entitlement to payment until the owner pays, or for some reasonable time if the owner does not pay.<\/p>\n

It is unclear whether Washington courts would enforce a pay-if-paid clause, but pay-when-paid clauses have been enforced.\u00a0See<\/em>\u00a0Amelco Elec. v. Donald M. Drake Co<\/em>., 20 Wn. App. 899, 902-03, 583 P.2d 648 (1978) (contract specifying that the subcontractor would receive payment only \u201cto the extent that the Contractor has received payment . . . from Owner\u201d did not create a condition precedent to the subcontractor\u2019s payment; rather, it postponed payment for a reasonable period of time after the work was completed, during which the general contractor was afforded an opportunity to obtain funds from the owner to pay the subcontractor).<\/p>\n

The challenge to construction lien rights could arise as follows: faced with a lien claim filed by a subcontractor, a general contractor may argue: \u201cA lien must be supported by an underlying debt, and there is no debt here. You (sub) have no right to be paid by me, because I have not yet been paid by the owner.\u201d Recall that a lien claim must be filed within 90 days of the claimant\u2019s last work.\u00a0 If the \u201cpay-when-paid\u201d defense is accepted, it could deprive the subcontractor of its lien rights (if the owner fails to pay the general within 90 days of the sub\u2019s last work).\u00a0 Should the general contractor be able to make this defense?<\/p>\n

The answer is probably no under current Washington legal authority, although a Washington appellate court has yet to rule on the issue. Although general contractors may be pressured to exert such a defense (emanating from possible contractual duties owed to the owner to keep the property lien-free), the lien statutes in Washington are remedial in nature and liberally construed to safeguard the payment rights of those furnishing lienable improvements to real property. RCW 60.04.021.<\/p>\n

A general contractor (as a \u201cconstruction agent\u201d of the owner) may assert defenses to the underlying debt\u2014for example, that the claimed work was not done, or that the claimant has been paid. But, if the claimant has furnished labor, material, equipment or services to improve the property for which it has not been paid, a court will probably look for ways to permit the lien claim to go forward.<\/p>\n

One possible approach would be to say that, when lien rights are in question, it is not \u201creasonable\u201d for a general contractor to delay payment to a subcontractor more than 90 days, so the debt will always mature, as it were, in time for the lien filing. Another approach is to permit the lien filing but to stay any foreclosure lawsuit until a \u201creasonable\u201d time for payment (as construed by the court) has expired.\u00a0 A third approach is to interpret the lien claim statute, RCW 60.04.091, which requires the claimant to list the \u201cperson indebted to the claimant,\u201d to be satisfied by listing the general contractor, even if the general\u2019s obligation to pay has not yet matured.\u00a0 Any of these approaches would, to some extent, enforce the pay-when-paid clause without stripping away the subcontractor\u2019s lien rights.<\/p>\n

It is unclear how a Washington court would handle the collision of two established principles, the enforcement of contracts and the protection of lien rights. Each case will depend on its unique set of facts and whether the general contractor seeks to rely on a pay-if-paid or a pay-when-paid clause.\u00a0 As long as this uncertainty remains, general contractors should be wary of relying on contingent payment clauses to challenge lien rights.<\/p>\n","protected":false},"excerpt":{"rendered":"

Bart Reed | Stoel Rives LLP | April 24, 2018 During Seattle\u2019s current construction boom, general contractors and subcontractors may be concentrating more on finalizing work on their projects than on worrying about the niceties of their construction contract documents. It is no less prudent now, however, for the parties to remain aware of their… Continue reading Can a Contingent Payment Provision Affect a Construction Lien Claim in Washington?<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[9,8],"tags":[9895,72,256,10447,289,290,306],"class_list":["post-894103","post","type-post","status-publish","format-standard","hentry","category-construction-contracts","category-mechanics-lien-rights","tag-advise-consult","tag-construction-contracts-2","tag-construction-lien-claim","tag-contingent-payment-provision","tag-pay-if-paid","tag-pay-when-paid","tag-washington","entry"],"jetpack_publicize_connections":[],"yoast_head":"\nCan a Contingent Payment Provision Affect a Construction Lien Claim in Washington? 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