Mason Rollins | Bradley
If you get into a construction dispute concerning payments made to your contractor, subcontractor, or supplier, you want to be sure that your lien waivers are enforceable in your jurisdiction. A lien waiver is an agreement between an owner and a contractor, a contractor and a subcontractor or supplier, and so on down the line, where the payee agrees to not record a lien on the property in exchange for payment for its labor or materials. Lien waivers can be conditional, meaning they go into effect upon receipt of payment. Some lien waivers are unconditional, meaning they can be used as proof of payment being received.
Lien and claim waivers are important for key reasons. The owner does not want liens recorded or placed on its property or to have his or her property encumbered. Also, the general contractor usually agrees in the prime contract with the owner to ensure the property stays free and clear of liens. The general contractor also typically agrees to indemnify or defend the owner against subcontractor and supplier nonpayment claims when the owner has paid for those labor and materials. Finally, if a lien or claim for payment is filed, the owner or contractor may be able to use the lien waiver as a defense. Courts generally enforce lien waivers and claim waivers as binding contracts, though the specifics may vary jurisdiction to jurisdiction.
But why would a payee ever agree to sign a lien and claim waiver that waives rights? Contractors, subcontractors, and suppliers want to be paid for their labor and materials. With that in mind, requiring fully executed lien and claim waivers as a condition of payment usually incentivizes the payee to sign it. Courts may enforce agreements that require receipt of a fully executed lien and claim waiver as a condition of payment.
Many jurisdictions mandate that parties use a statutory form or conform with certain specific requirements in order for the lien waiver to be enforceable. The eleven states that currently have statutory lien waivers forms are: Arizona, California, Georgia, Massachusetts, Michigan, Mississippi, Missouri, Nevada, Texas, Utah, and Wyoming. Missouri’s statutory lien waiver form is only required for residential projects. Florida also has a statutory lien waiver form, but Florida’s statute specifically permits a party to use other forms. Other states have other statutory requirements. While Colorado does not have a statutory form per se, it requires lien waivers to include a statement by the person waiving the lien rights that all debts owed to any third party by the person waiving the lien rights and relating to the goods or services covered by the waiver of lien rights have been paid or will be timely paid.
The statutory lien waiver requirements can be very specific. Some statutes require that lien waivers comply exactly with the statutory form, that the legal description be included, certain font sizes, all caps, bold or underlined text, or affidavit requirements. There are other requirements in many states, as well. Failure to comply with statutory lien waiver requirements may result in an unenforceable lien waiver. Because some of the statutory lien waiver forms do not include claim waiver language, it is recommended that the party seeking a waiver explore other ways to obtain a waiver.
If you are a payor on a project, you may want to have your lien and claim waiver contractual tools reviewed before the project commences to bolster your lien and claim defenses. By the same token, if you are an entity which is to receive payment, you should likewise make certain that you do not sign an overly broad waiver form.
When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.