Why “Pay-When-Paid” Clauses Are a Trap (And What NYC Contractors Need to Know)

If you're a subcontractor in New York City, don't let tricky contract language or delayed payments crush your cash flow. Here’s what the law says—and what you can do if you're shortchanged.

Let’s Talk About the Fine Print That’s Costing You Thousands

If you're a subcontractor working in New York, you’ve probably run into a line in your contracts that sounds something like this:

“Subcontractor will be paid when the Contractor receives payment from the Owner.”

Maybe you're used to it. Perhaps you think it’s just how the game works.

 But here's the truth: That clause doesn't hold water in New York.

Worse? It’s often used to justify delayed or partial payments, putting your business at risk while someone else sits on the money.

Let’s break it down.

What Is a “Pay-When-Paid” Clause?

This type of clause makes payment to a subcontractor contingent—or appears contingent—on the general contractor (GC) getting paid by the project owner.

• Sometimes, it’s just about timing: “We’ll pay you after we get paid.”

• Other times, it’s about risk: “If we never get paid, you never get paid.”

That second one is called a pay-if-paid clause. And in New York? It’s illegal.

New York Courts Don’t Allow Contractors to Push Risk Downstream

New York has some of the strongest protections in the country for subcontractors.

Here’s what you need to know:

In private projects, New York courts have ruled (most famously in West-Fair Electric v. Aetna) that clauses that make a subcontractor’s right to payment dependent on the owner paying the GC are void and unenforceable.

It’s even stricter in public projects. General Municipal Law § 106-b and State Finance Law § 139-f both make it illegal for a GC to withhold payment from subs just because the owner hasn’t paid yet.

Whether installing drywall on a Brooklyn townhouse or piping mechanicals into a municipal building, you have the right to be paid in full for properly completed work—regardless of the owner’s status.

What If the GC Hasn’t Been Paid—But Still Pays You a Portion?

This happens more than most people admit:

The GC hasn’t received payment from the owner yet, but they pay you part of your requisition—maybe 30%, 50%, or some other portion—while holding the rest until they get paid.

They might say, “I’m paying what I can for now, but I can’t cover the full invoice until the owner cuts a check.”

It may sound reasonable. It may feel fair. But here’s the problem:

You are still entitled to full payment—on time—regardless of the owner’s status.

Even though the GC shows some goodwill by issuing a partial payment, they’re still responsible for the full balance under New York law. The law does not give them the right to:

• Delay full payment indefinitely or

• Use their own lack of payment as a defense

New York courts have been crystal clear:

“A subcontractor’s right to payment is not contingent on whether the owner has paid the GC.”

Even partial payment doesn’t change this.

So What Should You Do?

If you’ve received only part of what you’re owed—even if the GC is being transparent about why—it’s essential to:

• Acknowledge the partial payment—but request full payment in writing.

• Do not sign a lien waiver stating you’ve been “paid in full” unless you truly have.

• Remind the GC (professionally) that under NY law, their payment obligation is not conditional.

• Protect your rights by tracking timelines for mechanic’s liens or bond claims.

• Consider invoking the Prompt Payment Act if the GC is delaying the remaining balance past the legal threshold.

What About “Agent of the Owner” Clauses?

Sometimes, GCs try to get clever. You might see a clause that says:

“The contractor is acting as an agent of the owner and is not liable unless the owner pays.”

New York courts have already shut this down. In the 2022 case Bank of America v. ASD Gem Realty, the court said the language was just a “thinly disguised pay-if-paid provision”—and it wouldn’t fly.

Bottom line: You’re contracted with the GC. They owe you payment. Full stop.

Don’t Finance the Job for Free

This comes down to: If you’re a subcontractor, you shouldn’t be financing the project while others delay or deflect payment.

If your GC only pays you based on what they get from the owner, that’s not a business partner—it’s a liability.

At GRPM Services, We Help Subcontractors Get Paid—Fully and On Time

Navigating contracts and enforcing your payment rights shouldn't be something you do alone. We work directly with subcontractors across NYC to:

• Review contracts before you sign them

• Protect your business from one-sided clauses

• Take action when payment is delayed or partial

• Set up systems so your payment process is bulletproof

• Book a Free “Fix My Contract” Session

Let’s make sure your next job doesn’t leave you chasing checks.

www.calendly.com/grpmservices/30min?

Final Word: You Built It. You Deserve to Be Paid for It.

Don’t let the fine print bury your hard work. Whether framing a building or finishing high-end millwork, your payment shouldn’t hinge on how fast someone else cuts a check.

New York law is on your side. So is GRPM.

Quick Disclaimer:

This post is meant to share insights and practical info based on real-world experience, not to give legal advice. Every project and contract is different, and laws can change. If you’re dealing with a serious payment issue or legal dispute, it’s always best to talk to a qualified construction attorney. GRPM Services isn’t a law firm—we’re here to help you build smarter, not practice law.