What is a “Trust Fund Claim” Under New York Lien Law?

April 5, 2023by Jeffrey Davis
Under New York lien law, a trust fund claim is a legal remedy available to certain types of contractors and subcontractors who have not been paid for their work on a construction project. The law establishes a trust fund for the benefit of these contractors and subcontractors, which is funded by the property owner or the general contractor on the project. The purpose of this trust fund is to ensure that these parties are paid for their labor and materials before any other debts are paid out of the project funds. By way of example, a general contractor receives money from the owner. The general contractor has an obligation by law in New York to pay those monies out to its subcontractors. The general contractor in this example is  a “trustee” because it holds “in trust”, for the benefit of its subcontractors, the monies received from the owner. The subcontractor in this scenario is the trust beneficiary. You as the subcontractor/trust beneficiary are entitled to demand from the general contractor a verified accounting of all the monies received and paid out by the contractor as it pertains to the project or work. This is no small demand. It requires the sophistication of a skilled attorney or accountant and it is expensive to produce. As such, it is a powerful tool for the subcontractor. What makes this an even more powerful tool is the fact that under New York Lien Law there may be personal liability where an accounting is not produced under the assumption that failure to produce the accounting is part of a scheme to embezzle or misappropriate trust funds. Do not overlook this weapon in your breach of contract arsenal!