Be Careful With Your Lien Waivers!
Date Posted: November 2, 2014
Posted In: Discussion, Ideas, White Papers,
By: Joseph C. Blanner, Esq. McCarthy, Leonard & Kaemmerer, LLC, President, Construction Forum STL
One of the more frequent problems I encounter occurs when contractors sign overly broad lien waivers. When a contractor signs a lien waiver, it needs to make sure that it is not: (1) making representations that are not true; and (2) agreeing to waive too much. Below are some of the mistakes that contractors, subcontractors or suppliers frequently make regarding lien waivers.
1) Dates. Often a lien waiver will say that payment is payment for all work, labor or materials furnished through either the date of payment or a given date. Let’s assume that Subcontractor X has furnished work from July through the present on a given project. Subcontractor X has given invoices for August, September and October. He is asked to sign a lien waiver today that indicates that rights are waived for liens up to the date of payment, but payment is only for the August invoice. By signing this, he may be waiving his right to a lien for the September and October invoices (and for any other work since the last invoice). Similarly, assume Subcontractor X is asked to sign a lien waiver waiving his right for all work furnished through October 1, but is only being paid for the August invoice. This may also waive his right to lien for work in the September and October invoices. Generally, a contractor should not agree to waive its right to a lien for any work that remains unpaid.
2) Partial / Final: I have seen many instances where contractors have not paid attention to the designation included on the lien waiver. If the lien waiver says it is “Final”, but the contractor has not been paid everything it is owed, it should not sign it. If the contractor is receiving partial payment, the lien waiver should be called a “Partial” lien waiver. The contractor should also pay close attention to the wording. Even if it is not called a “Final” lien waiver, the contractor should make sure the language does not indicate it has been paid in full, unless that is the case.
3) Conditional: If a lien waiver is not conditional, a party (specifically an owner) may be able to use it against the contractor even if the contractor has not been paid. As an example, lets assume that Supplier A has furnished materials on a given construction project. He has been asked for a lien waiver by Subcontractor Z in order to get payment. He gives Subcontractor Z an unconditional lien waiver. Subcontractor Z never pays. However, Subcontractor Z has been paid by the General Contractor after furnishing Supplier A’s unconditional lien waiver. Can Supplier A file and prosecute a mechanic’s lien? If the General Contractor can prove that he relied on the unconditional lien waiver, then Supplier A’s lien may be unenforceable and Supplier A may not end up collecting. Supplier A should have furnished a conditional lien waiver. A conditional lien waiver says that a party’s waiver of its mechanic’s lien rights is conditioned upon the party’s actual receipt of payment. So, if there is no payment, the party signing the lien waiver has not waived his right to a lien.
In addition to the foregoing, contractors should make sure lien waivers do not make any representations that are untrue. Do not sign a lien waiver that says you have paid your subcontractors or suppliers if that is not true.