Construction Lien Waivers: Signers Beware
By Kevin N. Tharp — RBE Partner
As the end of a calendar month approaches, construction subcontractors finish preparing and submitting their monthly application for payment for each of their projects. Often included in the payment application is a lien waiver, in a form provided either by the Owner or general contractor. Subcontractors frequently sign these lien waivers without much thought, for two primary reasons: (1) they believe all lien waivers are the same, and (2) it does not really matter what the lien waiver says, because if they want to be paid, they have to sign the form. However, not all lien waivers are the same, and what the lien waiver says can have a big impact on the subcontractor’s right to assert claims for damages against the Owner and general contractor.
In its most basic form, the lien waiver operates as its name implies: the signing subcontractor agrees to waive any right to a mechanic’s lien for the work described on the payment application. Upstream parties (such as the Owner and general contractor) require lien waivers for the purpose of providing certainty that, upon its receipt of payment for an amount certain, the subcontractor will not have a right to assert a mechanic’s lien against the Owner’s property for work performed during the period covered by the payment application. However, general contractors frequently include language in their form lien waivers that, when signed by the subcontractor, have the effect of waiving not only the subcontractor’s mechanic’s lien rights against the Owner’s property, but also any claim that the subcontractor has against the general contractor arising out of subcontractor’s work at the project to date, including claims for extras, delay, and acceleration.
Because lien waivers are signed and submitted by commercial actors who are presumed to understand the documents they sign, courts typically enforce such lien waivers in accordance with the plain language of the waivers. If the plain language of the waiver states the amount of the payment sought is sufficient to compensate the subcontractor for all work performed during the period in question — including additional costs the subcontractor incurred due to delay — the subcontractor should expect the waiver will bar any claim for additional costs during that period, regardless how strong the claim is or whether the subcontractor previously provided notice of the claim.
Before signing any lien waiver, subcontractors should review the lien waivers carefully and ask themselves the following questions:
- Have I performed any work that is the subject of unsigned change orders (whether pending or disputed)?
If so, consider noting those pending change orders as exceptions to the lien waiver. Otherwise, the lien waiver may operate to bar your claim for additional work if the pending (or disputed) change orders are not signed later.
- Do I have any claims against upstream parties (e.g., for delay or acceleration) that I may be waiving by signing this lien waiver?
If so, consider noting those claims as exceptions to the lien waiver, often by referring to the date of the first notice given regarding the claim. For delay claims that span multiple pay periods, it is critical that the subcontractor note the claim as an exception to each and every lien waiver signed during the period of delay. Otherwise, the lien waiver may bar the claim in whole or in part.
- Does the waiver apply to rights to payment I previously earned but are currently in dispute (e.g., a waiver of disputed claims to liquidated damages withheld by an upstream party)?
If so, strike that language before signing.
In short, a few minutes spent reviewing each lien waiver — and considering whether the stated amount is sufficient compensation for all costs incurred during the period for which payment is sought — can save a subcontractor a lot of money and headaches in the long run.
Author Kevin N. Tharp
Kevin Tharp’s diverse business and litigation practice focuses on the construction industry. Kevin counsels owners, general contractors and subcontractors, and represents them in disputes involving claims for payment, delay, and design and construction defects, as well as mechanic’s liens.
Kevin also counsels clients in the selection and formation of business entities, mergers and acquisitions, business selection planning, and general contractual matters.
Kevin currently serves on the Firm’s Management Committee.
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Posted on August 29, 2023, by Kevin N. Tharp