Good News for Subcontractors and Suppliers: Prospective Lien and Bond Claim Waivers are Null and Void

Until now, Virginia has been among a number of states that allow a subcontractor or supplier of materials to a construction project to waive its rights to a mechanic's lien or a payment bond claim prospectively, before even beginning work, by agreeing to such a waiver in a subcontract, purchase order or even a progress payment lien waiver. With the passage of Senate Bill 891,Virginia joins the ranks of a majority of states that prohibit such waivers. This is great news for subcontractors and suppliers, for whom lien rights and payment bond claims are powerful remedies for nonpayment, but who often have little leverage to negotiate such provisions out of their contracts prior to signing.

The change in the law for mechanic's lien waivers is found in Va. Code §43-3C in the following italicized language:

Any right to file or enforce any mechanic's lien½may 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 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 in a contract executed prior to providing any labor, services, or materials is null and void.

The change in the law voiding prospective waivers of bond claims and claims for additional costs is found in a new statute, Va. Code §11-4.1:1:

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.

Virginia is generally known as a "freedom to contract" state meaning that its legislature has rarely passed a law providing that a particular contract provision is against the public policy of the Commonwealth and therefore null and void. By the same token, Virginia courts usually hold sophisticated parties accountable to whatever rights and liabilities they have expressed in their contracts unless a particular provision violates the public policy of the Commonwealth. Thus, as harsh as they are, prospective lien and claim waivers historically have been valid and enforceable.

Virginia has now established that, for subcontractors and other lower-tier subcontractors and suppliers, prospective lien and bond claim waivers violate public policy. Effective July 1 of this year, the law goes into effect and such provisions included in agreements on or after that date will be void and unenforceable. It remains to be seen whether in future sessions the legislature will enact a similar law declaring prospective waivers unenforceable against general contractors.