Mechanic’s Lien Waiver Found Unenforceable because Violation of Public Policy


Where a lien waiver provision incorporated by reference into a subcontract applies to prohibit all liens regardless of whether the subcontractor received any payment, the court concluded that such a provision violates public policy.   Enforceability of a lien waiver clause must be resolved on a case-by-case basis to determine, whether public policy is violated.  Likewise, a pay-if-paid clause was found to be a violation of public policy as a violation of public policy to secure payment for contractors.

In Lehrer McGovern Bovis, Inc. v. Bullock Insulation, 185 P.3d 1055 (Nev. 2008), the  Nevada Supreme Court affirmed the decision of the trial court that both the mechanics lien waiver provision and the pay-if-paid provision of a subcontract violated public policy and could not be enforced to bar the subcontractor’s claim.  The critical facts giving rise to the underlying dispute between the subcontractor (Bullock Insulation), prime contractor (Bovis), and project owner (Venetian Resort), involve a dispute over subcontractor entitlement to be paid for certain services and certain re-work that Bullock asserted was additional work beyond its original scope of services.

Bovis was the construction management firm for the project.  Bullock Insulation was under subcontract to Bovis to provide firestopping work on the project. This included installation of “firestop putty pads” around the electrical boxes in the separation walls of the hotel rooms.  Due to reasons that are not completed fleshed out in the decision, Bullock did not install putty pads in all the walls in which such pads were ultimately required by the county building department.  Bovis directed Bullock to retrofit all of the guest room walls by installing the omitted putty pads.  After completing this retrofit work, Bullock recorded a mechanic’s lien on the project and filed a complaint in the local court to foreclose on the mechanic’s lien and pursue other claims.

In response to the Bullock complaint, Bovis counterclaimed for breach of contract.  At the conclusion of the trial, a jury found that the subcontract required Bullock to install the putty pads in all the rooms, but nevertheless found that Bullock was entitled to be paid for the retrofit work.  Although this jury verdict appeared internally inconsistent, Bovis and Venetian Resort did not object to the verdict before the jury was discharged.   On appeal, the court found that because the jury verdict and the jury interrogatory answers had internal inconsistencies, the trial court abused its discretion by entering the judgment as to the extra compensation for the retrofit work.

The court then focused its analysis on the lien as to the other issues and amounts claimed by Bullock, and whether the lien waiver and/or the “pay-if-paid” clause of the subcontract barred Bullock from recovery.

Bovis argued that the pay-if-paid clause precluded Bullock from recording a valid lien.  The trial court rejected that argument by finding that the pay-if-paid clause was unenforceable as a matter of public policy because “[i]t deprives people who work on construction projects of a statutory right” to a mechanic’s lien.”   At a subsequent hearing on Bullock’s request to enforce its lien, Bovis argued the lien waiver provision of the contract nevertheless precluded Bullock from filing a lien.  The trial court refused to enforce the lien waiver provision, however, because it found that public policy prohibited lien waiver clauses.

In reviewing the question of whether contractors may be required by contract to waive their statutory rights to a mechanic’s lien, the court had to decide whether to follow it previous precedent in the case of Dayside v. District Court.   In that case, the court had held that absent a prohibitive legislative proclamation, a waiver of mechanic’s lien rights is not contrary to public policy and will be enforced if it is clear and unambiguous.   In overruling that previous precedent, the Bovis decision states: “Because Nevada’s public policy favors contractors’ rights to secure payment, [and] because Dayside removes public policy from the analysis of the enforceability of particular lien waiver provisions, we now overrule Dayside and conclude that it is appropriate for the district court to engage in a public policy analysis particular to each lien waiver provision that the court is asked to enforce.”   In this case, because the lien waiver applied regardless of whether Bullock Insulation received any payment, the court held that the waiver provision violates public policy.  The court then turned to the pay-if-paid clause (which predated state legislation that currently declares such clauses unenforceable), and found that even without the current legislative prohibition, the clauses violated public policy and could not be enforced against Bullock.

About the author: J. Kent Holland is a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners. He is also founder and president of ConstructionRisk, LLC, a consulting firm providing consulting services to owners, design professionals, contractors and attorneys on construction projects. He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk.com Report at www.ConstructionRisk.com (Jan 2009).