A “pay-when-paid” clause in a construction contract is a provision that applies the payment terms of the contract between the property owner and the general contractor to the contract between the general contractor and sub-contractor. Often times, a general contractor will use this clause as a basis for refusing payment to a sub-contractor because the general contractor claims it has not been paid for the sub-contractor’s work.
In Maryland, however, such a clause does not prevent a subcontractor from seeking a mechanic’s lien. In addition, the way in which the clause is written may make it unenforceable. Finally, if a property owner is justifiably refusing payment for issues unrelated to the subcontractor’s work, this can also make the clause unenforceable.
Whether you are a general contractor or a sub-contractor, you will likely run into a situation like this at some point. Therefore, it is critical to speak to a knowledgeable construction law attorney to ensure that you are properly protected.