Every state in the United States has its own unique lien laws. Because of the local nature of these statutes, there are major differences, state to state, in how and where liens are filed and perfected, who gets “notice” of the lien, and what types of claims are lienable. The one common element for all lien laws is the creation of a right by a contractor and subcontractor to secure against the property they improved.
For a subcontractor, this right can be highly significant, especially where the general contractor (GC) defaulted in payment. It is not a right that you should easily agree to waive.
That being said, it is typical that you be asked, or rather required, to waive lien rights. The GC commonly demands a notarized signature from you on a partial lien waiver document before each progress billing. Indeed, your subcontract may have language in it that you are not entitled to any progress payment unless and until this lien waiver is submitted.
This condition to payment is legal and enforceable in court. But do you know what you are signing?
The traditional partial waiver of lien form confirms, for the owner’s benefit, that you have been paid your share of the monies paid by the owner to the GC. In this way, the owner gets some assurance that it will not be exposed to paying twice—first to the GC and a second time to the subcontractor who files a lien because the GC kept the money.
If you have a partial waiver of lien form handy, you may want to take a look at it before reading the rest of this article.
The traditional form states that you are waiving your rights to a lien, or a claim of lien, to the extent of payment received. The reason for the verbiage of “lien or claim of lien” is that, in some states, a subcontractor can file a lien with the recorder of deeds, and the lien is effective from that moment; in other states, the subcontractor must first send a “claim of lien” notice. You should realize, however, that although you are waiving a right to lien, you are not waiving your rights under the contract for additional compensation under, for example, a changes clause, and you are not waiving your rights to sue for breach of contract for nonpayment.
It is important to know that, under the traditional form of lien waiver, the waiver only affects your lien rights and only to the extent of payments received. Are these two limitations apparent on the form you have? If they are not, you need to read the form more closely to find out what else you may be waiving or releasing.
Consider the very different waiver form that is becoming more common but still labeled “partial waiver and release of lien.” The following clause is the lien form from a shopping mall project: “For and in consideration of Payment by General Contractor of the amount of $101,296, the receipt of which is hereby acknowledged, for all labor and services performed and materials furnished up to and including the Trade Contractor’s Application for Payment No. 2 through December 1, 2013, Trade Contractor does hereby waive, release and discharge its right to lien, claims of lien, claims and demands of every kind for all work, labor, supervision, materials, supplies, services and equipment furnished and/or used upon the property through the date of this release.”
Take a moment to read this clause, and think about why you may not want to sign the form. Now that you are familiar with the language, answer the following questions:
The language in the release form states unequivocally that you have been paid fully for all labor, materials, etc., through Dec. 1. It also states, in case you missed it the first time, that you have waived and released all claims and demands you have through Dec. 1. You have waived your lien rights to those amounts, too. In the language quoted above, you are releasing “claims and demands of every kind.”
There is nothing hidden here. It would be difficult for you later to argue that you thought this partial waiver of lien was more limited or that you did not think “of every kind” really meant “of every kind.” When a court is asked to rule on the meaning of a partial waiver of lien, complete with a notary seal, it will look to the unambiguous language. The result: your claims are dead.
What can you do if you are presented with a release form that has this kind of global release wording? Your legitimate concern is that, if you object to the language, you will not be paid. Worse, you may not have even seen the form. In many companies, these releases are passed through the accounts receivable employees who may not read or understand exactly what is being signed.
A simple solution is to request the GC to use a standard form such as one issued by the American Institute of Architects. Persuading the GC to use a form you can accept is often more easily accomplished at the early stages of the job, and best, before contract signing.
When you are not permitted to substitute forms, or the GC refuses to modify the language of the release, you must add an appended statement to each partial lien waiver to clarify the form. The appended statement will list any and all outstanding extras, charges, pending change orders, claims, potential claims and, of course, contract retention.
As a last thought, it may happen that, when you voice concerns about the partial waiver, the general contractor assures you it is fine because it only covers liens. In general, these kinds of oral representations do not modify any signed document. If, however, a statement like this is made, write it on the lien waiver form and initial it.
When a court is asked to rule on the meaning of a partial waiver of lien, complete with a notary seal, it will look to the unambiguous language. The result: your claims are dead.