Lien Waivers

From the Mo-Kan Construction Law Blog by Lee Brumitt

The statutorily protected rights to file mechanic’s liens or a bond claims are essential weapons in the collection arsenal of any contractor. Such rights should never be waived nor compromised without a sufficient exchange of money as consideration.

A contractor can unknowingly or accidentally waive a valuable lien or bond right, even when receiving money, by signing an overbroad or poorly-worded lien waiver. For that reason, it is of utmost importance that a contractor be skilled in recognizing problem lien waiver language.

Some construction contracts contain very broad waivers in which parties waive all of their lien and bond rights before construction has even commenced. These contractual lien waivers are void in Missouri and Kansas as against public policy. They are also void under the Miller Act governing federal projects. However, contractual lien waivers are valid in some states. Such provisions should be deleted from any contract.

No lien waiver should ever be signed that is not conditioned upon receipt of a specific dollar amount. Waivers that include language such as “receipt of payment of which is hereby acknowledged,” or which do not condition the waiver’s validity on receipt of a stated dollar amount, are problematic. Lien waivers are commonly provided to the owner with a payment application. When a lien waiver signed by a subcontractor or supplier contains a statement acknowledging receipt of payment (when, in reality, none has been made) or which, at least, fails to contain language conditioning the waiver upon receipt of payment, the unpaid sub or supplier is, by law, prevented from filing liens against the owner’s property. The rationale is that the owner paid the amounts requested in reliance on the statement of the unpaid party that it had, in fact, been paid and the owner made payment to its detriment. In that circumstance, courts have held that an owner should not be made to pay twice even if the payee absconds with the money.

Also, beware when the proposed waiver purports to waive liens and bond claims up to, and including, a specific date. Frequently, the date inserted in the lien waiver does not correspond to, and is later than, the date of the last unpaid pay application. Therefore, language that waives liens and/or bond claims on a date later than the date of the pay application not only waives the lien for the amount of the unpaid pay application, it also waives liens for work done after the date of the pay application up to the date inserted in the lien waiver. Lien waivers also routinely fail to identify exceptions for unpaid retainage, unpaid change orders and claims which are unknown.

The careful contractor will review all lien waivers as the project progresses and, if necessary, revise waivers to make sure they are consistent with the contractor’s intent. In order to preserve lien and bond rights, it is a recommended practice to use a stamp or attach a sticker to the lien waiver which states “this release shall apply only to work for which payment has been received in full; shall not apply to retention; shall not apply to unbilled changes or to claims which have been asserted in writing or which have not yet become known; and shall be conditional upon receipt of funds.” There may be other revisions that are necessary to correct the intent of the waiver and make sure all rights are preserved. The diligent contractor should make all revisions necessary without concern as to whether the party to whom the waiver is submitted objects.

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