Key Takeaways

  • A no-lien contract prevents contractors, subcontractors, or suppliers from filing mechanics liens in the future.
  • States vary widely on enforceability—some prohibit no-lien clauses entirely, while others allow them in limited contexts.
  • To be valid, a no-lien contract often requires strict compliance with statutory requirements, including recording and acknowledgment.
  • These agreements are most common in construction projects, but can also appear in other contracts to confirm that property is free of claims.
  • Risk-shifting clauses like “pay-if-paid” or lien subordination can make no-lien agreements especially burdensome for subcontractors and suppliers.
  • Courts increasingly scrutinize no-lien clauses, and contractors should carefully review contracts before signing.

A no-lien contract contains a clause that allows a party to waive its right to file a mechanics lien on a project in the future. It's commonly used in construction contracts and is signed before work begins.

Legality of No Lien Contracts

Generally, most people do not like the use of no-lien contracts. Because of this, some states have even prohibited parties from using these types of contracts through various court decisions or statutes. However, this is not a universal guideline, so it's always important to see how your state has ruled on no-lien contracts in the past.

In many cases, a no-lien clause in a contract is similar to a preemptive lien waiver. There's really no practical difference between the two, as both types of waivers give the potential claimant no-lien rights.

Waiving lien rights before work begins is legal in some states, but the process might be subject to specific regulations. If you do face legal pushback on a contract between you and another party, realize that it might not be the contract that is causing the problem but the subsequent lien waiver.

State-by-State Enforceability

The enforceability of no-lien clauses depends heavily on the state where the project is located. Some states—such as California, New York, and Illinois—expressly prohibit contractors from waiving lien rights before work begins, making no-lien contracts unenforceable there. Other states, like Indiana, permit no-lien clauses in very specific circumstances, particularly when tied to certain classes of property or utility projects.

Meanwhile, a handful of states remain ambiguous, with no direct statute addressing the validity of such clauses. In these jurisdictions, courts may review the agreements on a case-by-case basis, often evaluating fairness, public policy, and contract language. Because the rules are inconsistent, contractors must always review both statutory law and court precedent in the project’s jurisdiction.

What Kinds of Projects Can Use a No-Lien Contract?

There are two main kinds of projects that can utilize no-lien contracts. These include:

  1. Class 2 structures, which Indiana code section 22-12-1-5 defines as single- and double-unit structures residential in nature.
  2. Construction owned by specific groups, such as rural membership utilities, municipal utilities, and public utilities. This is further defined by Indiana Code 32-28-3-1(3).

Broader Uses of “No Lien” Clauses

While no-lien provisions are most often associated with construction contracts, they can appear in other contexts. For example, commercial lending agreements sometimes require a borrower to guarantee that their property is “free and clear of liens.” Similarly, real estate transactions and equipment leases may include no-lien representations to reassure buyers or lessors that no third party holds an encumbrance.

In all cases, the core purpose of a no-lien clause is the same: to ensure that the property in question is not subject to competing legal claims that could interfere with ownership or transfer.

How to Make Your No-Lien Agreement Valid

Keeping a no-lien agreement valid means you won't be able to make liens against the owner's property. However, you will need to fully and accurately describe the property in question. Other requirements include:

  • Meeting the same requirements for acknowledgment as deeds.
  • Recording the no-lien contract in the office of the recorder in the county where the property sits.
  • Getting this record entered no more than five days after it is signed.

If you take these steps, you should gain protection against laborers, journeymen, mechanics, subcontractors, and any other party that is not specifically subject to the no-lien agreement directly.

Because a record of all construction being undertaken could be quite lofty and long, you don't need to include all of this in your no-lien contract. Instead, the principal and the owner simply need to sign an ancillary no-lien agreement separate from the main construction agreement. In most cases, this meets statutory requirements for no-lien contracts.

Common Challenges with Enforcement

Even when a no-lien contract meets statutory requirements, courts may hesitate to enforce it if the agreement appears overly one-sided. Many judges view these clauses as coercive, particularly when they force subcontractors to give up lien rights before they have been paid for their work.

For example, courts often distinguish between prospective waivers (signed before work begins) and waivers executed after partial performance. The former are more likely to be struck down, while the latter may be enforced if clearly and knowingly signed. Additionally, courts sometimes invalidate clauses that conflict with broader public policy favoring payment protections for laborers and suppliers.

Contract Stipulations to Watch Out For

In some cases, those at the higher end of the payment chain, such as prime contractors, owners, and lenders, will use no-lien contracts to push risk onto subcontractors and suppliers. To keep yourself safe, you also need to read each contract fully. Be on the lookout for some of the following problematic clauses:

  • Contingent payment clauses, which specify that payment is contingent on work being completed. Over the past 20 years, these clauses have become increasingly complicated in an effort to shift financial risk onto the parties lower in the payment chain. There are two main types of these clauses:
    1. Pay-when-paid, which sets a timeline for payment. For example, the contractor may have the right to give the subcontractor their wages after being paid by the owner themselves. While this gives the contractor more time to pay subcontractors, it does not release them from these debts if the owner never pays him.
    2. Pay-if-paid allows a contractor to never pay subcontractors if he doesn't receive payment from the owner. Because this is unfair, courts often view these clauses unfavorably, which lowers their odds of being enforced. However, if wording in the contract is clear, the contract may be enforced.
  • Lien subordination clauses, which move a mechanics lien from a priority spot in a contract to a lower position behind items that otherwise wouldn't have been high priorities. In many cases, lien subordination clauses are used in lending agreements, so lenders can claim priority for their deeds of trust instead of mechanics lien claims.

These are the two main unfair provisions to watch out for, but also keep an eye out for other issues like:

  • No-damages-for-delay clause.
  • Unfair lien waivers.
  • Over-the-top payment bond requirements.
  • Over-the-top indemnification requirements.
  • Over-the-top use of retainage.

Practical Steps to Protect Your Interests

Contractors, subcontractors, and suppliers should take proactive measures before agreeing to a no-lien clause:

  • Negotiate alternatives: Instead of agreeing to a blanket no-lien clause, request partial lien waivers tied to progress payments.
  • Seek payment bonds: In states where lien rights cannot be waived, owners may still request a payment bond to protect against nonpayment.
  • Document everything: Maintain detailed records of work performed, invoices issued, and communications in case the no-lien clause is later challenged.
  • Consult legal counsel: Because state law varies, obtaining legal advice before signing is critical to avoid unexpected loss of rights.

These steps can help balance the risks when presented with a no-lien contract and provide some recourse if payment disputes arise.

Frequently Asked Questions

  1. Are no-lien contracts legal in every state?
    No. Some states prohibit them entirely, others permit them under strict conditions, and many leave enforcement to court interpretation.
  2. How is a no-lien clause different from a lien waiver?
    They are similar, but a no-lien clause is a preemptive waiver before work begins, while lien waivers are usually signed after payment milestones.
  3. Can a subcontractor still file a lien if they signed a no-lien agreement?
    In states where such agreements are unenforceable, a subcontractor may still retain lien rights. In states that allow them, the clause may bar filing.
  4. Do no-lien clauses apply outside construction?
    Yes. They can appear in lending agreements, real estate sales, and leases to confirm that property is free of encumbrances.
  5. How can contractors protect themselves when presented with a no-lien clause?
    They can negotiate partial waivers, request payment bonds, and consult an attorney to ensure compliance with state law.

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