The lack of a retainage payment to a general contractor did not bar payment to the general contractor’s subcontractors, regardless of a condition precedent requiring that the general contract be paid before the subcontractors.

As addressed in the unreported case of J &M Interiors, Inc. v. Centerton Square Owners, LLC, (A-2536-19, 2021 WL 1976648 (N.J. Super. Ct. App. Div. May 18, 2021), the lack of a retainage payment to a general contractor (GC) did not bar payment to the GC’s subcontractors, regardless of a condition precedent requiring that the GC be paid before the subcontractors. This “condition precedent” has been dubbed a “pay-if-paid” provision. Seeing such a provision as a matter of first impression in this case, the court has confirmed that “pay-if-paid” provisions in construction contracts are enforceable “as long as the contract on its face contains clear and unequivocal language that unambiguously sets forth the parties’ intention and agreement that owner payment is a condition precedent to the general contractor's obligation to pay the subcontractor.” Thus, the risk of payment is shifted to the subcontractors, unless the GC has “prevented or hindered” the owner’s payment, which would shift the onus back to the GC.

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