Exhaustion of Lien Foreclosure Action Is A Condition Precedent to Suing General Contractor, by Andrew Richards, Esq., published by STA Legal Log, 8-2025

Andrew Richards, co-chair of KD’s Construction Practice Group and Co-Managing Partner of the firm’s Long Island office, wrote this insightful article below that appeared in STA Legal Log.

Many prime contracts require the subcontractor to file a lien in full accordance with the Lien Law and the complete the prosecution of that lien claim to finality in the courts, and even exhaust collection efforts on any judgment for amounts owed before the subcontractor may commence an action against the prime contractor or its surety on a payment bond.

General Obligations Law §5-322.1.2 states that such a provision is against public policy and renders such contract provision void as against claims against the surety. However, the statute does not preclude a prime contractor from requiring a fully exhausted lien foreclosure action as a condition precedent to commencing an action against the prime contractor itself. This could prove very problematic if a subcontractor is working on a private improvement project without a payment bond in place.

First, non-payment by an owner can be for many reasons other than that the owner does not have funds to pay. For example, the owner may refuse to pay the prime contractor due to the acts or omissions by other subcontractors or the prime contractor itself. Notwithstanding the fact that one subcontractor is owed money, there may still be no “lien fund” to which the claiming subcontractor’s lien may attach as there is only one account between the owner and the prime contractor.

Also, a subcontractor may not be able to complete the lien foreclosure action, and collection on any judgment, prior to a shortened contractual limitations period (e.g., one year from substantial completion) or even a statutory limitations period of six years. The subcontractor would be time barred from bringing the claim against the prime contractor.

While I believe that this clause violates the “pay if paid” doctrine under West-Fair, case law is unclear on this, and courts have upheld the contractual clause requiring the subcontractor to exhaust its remedies first in a lien foreclosure action.