How often do you review the payment terms of a contract with an eye toward whether you are waiving lien rights under that contract? This is something you should consider if your contract contains a pay-if-paid clause.

 I am often times asked about the difference between a pay-when-paid and pay-if-paid clause. The real difference is that a pay-when-paid clause simply allows a contractor a reasonable amount of time by which to make payment. A pay-if-paid clause can be interpreted to eliminate any obligation of the contractor to pay a subcontractor if the contractor is not paid by the owner.

 But, if the contract contains a pay-if-paid clause, do you retain your lien rights? The argument against lien rights is that you have no right to payment, thus you have no right to file a lien. And, a number of state courts have held that valid pay if paid clauses do preclude lien rights.

Nebraska courts have not weighed in on this issue and the lien statutes do not specifically address the impact of a pay-if-paid clause on lien rights. Indiana statutes, for example, specifically note that a pay-if-paid clause does not impact a contractor’s ability to file a lien.

 Pay-if-paid clauses may have a significant impact on your ability to file a lien. Knowing this at the front end will allow you to better assess your risk with the contract and price it accordingly.