Contract Law and Lien Rights Flashcards

What is a 'pay-when-paid' clause in a subcontract?

Answer: A provision making subcontractor payment contingent on the GC first receiving payment from the owner

Pay-when-paid clauses shift the timing of payment to subcontractors based on when the general contractor receives funds from the project owner.

What is required for a construction contract to be legally enforceable?

Answer: Offer, acceptance, consideration, and mutual assent

A valid contract requires an offer, acceptance of that offer, consideration (something of value exchanged), and mutual assent between competent parties.

What is a 'notice to owner' or 'notice to owner' (NTO) document used for?

Answer: To inform the property owner that a subcontractor or supplier has potential lien rights on the project

An NTO preserves a subcontractor's or supplier's right to file a mechanics lien by giving the owner early notice of their involvement in the project.

Under most US state laws, unlicensed contractors:

Answer: Cannot sue to collect payment for their work

Many states bar unlicensed contractors from enforcing contracts or filing liens to collect payment, making licensing essential to legal remedies.

What is an 'arbitration clause' in a construction contract?

Answer: A provision requiring disputes to be resolved by a neutral arbitrator rather than through court litigation

An arbitration clause mandates that contract disputes be settled through binding arbitration, typically faster and cheaper than going to court.

What is the 'right to cure' provision in a construction dispute?

Answer: A contractual right allowing the contractor to fix defective work before termination

The right to cure gives a contractor an opportunity to correct deficiencies identified by the owner before the owner can terminate the contract.