Joint Check Agreements in Construction
Our Tampa construction lawyers know all too well the risks construction professionals face daily. An area that plagues many in the industry revolves around liens and bond claims. Beyond having an understanding of lien law, how can construction professionals protect themselves and ensure payment? Some turn to joint check agreements.
What are Joint Check Agreements?
A joint check agreement is a contractual agreement between project parties where one party agrees to make a joint payment to two or more parties.
Who Enters Into Joint Check Agreements?
Owners and prime contractors generally use them as protection against lien foreclosures by subcontractors and material suppliers when upper contractors or subcontractors have failed to make payments. Joint checks serve as mitigation against having to pay twice for the same work or materials. General contractors, subcontractors, and material suppliers use them to protect themselves against nonpayment. Every party agrees that any payment made to the general contractor for work that has involved their services or materials will be written jointly to subcontractors and material suppliers as well.
The Joint Check Rule
This agreement may sound straightforward and easy, but there are risks. Understanding what is known as the “joint check rule” is critical as you proceed with this device. This rule implies that upon receiving and endorsing a joint check from an upper tier party, the lower-tier party is thereby certifying payment of all amounts due to them up to the date of the check. This is why the language of a joint check agreement is critical. For example:
If a material supplier is owed $30,000 for supplies but through a joint check receives and deposits a check for $20,000, that supplier is waiving rights to the remaining $10,000 owed for supplies. The material supplier will not able to file a lien or bond claim against the property. To avoid this, the supplier should request a separate agreement that states that the joint check does not account for what is owed entirely.
Joint check agreements can be an effective tool to reduce risk on construction projects. In order for parties to avoid a disaster, our Tampa construction attorneys admonish parties to fully understand the joint check rule before entering a joint check agreement and to carefully draft the agreement with language that will not leave lower-tier parties losing out on money that is rightfully theirs.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.