Lien Waivers – Too High a Price for Payment?
To obtain periodic or final payment due under a contract, contractors and subcontractors are frequently required to sign so called “waiver of lien” forms. There is nothing wrong with providing a waiver protecting the owner or contractor against liens for work on which payment is made. The difficulty is that many forms titled waiver of lien go far beyond what the title suggests. The fine print often includes a general release of claims, whether paid or not; and often requires the signer to indemnify the owner or contractor against claims of sub-subs or suppliers, whether or not payment is included to cover those claims. A contractor or subcontractor, who blindly signs such forms to obtain periodic payments, may discover, at the end of the project, that it has surrendered important legal rights. Not only may the contractor or subcontractor have surrendered lien rights needed to insure collection of final payment, it may have also released the right to recover for disputed items of extra work or the right to contest disputed back charges credited against the contract price. And to add insult to injury, it may have to defend and indemnify the owner or contractor against claims by its own subs or suppliers for amounts which it has not been paid and which it inadvertently surrendered by signing the “waiver of lien”.
Lien waiver forms are even commonly included with payment applications on public projects. Such requests should be an immediate red flag since there is no right to file a lien against public property and thus no lien to waive. The title of the form merely disguises its real purpose which is to impose release and indemnification obligations as the price for obtaining payments conceded to be due. Subcontractors on public work have the added concern that signing a “lien waiver”, where there is no right to lien, could be construed as intending instead to release the subcontractor’s right to recover against the statutory payment bond.
To avoid unpleasant and unintended legal consequences, any contractor or subcontractor presented with waiver of lien forms must review them carefully. All language that goes beyond waiving liens on work actually paid, or certifying that the contractor or subcontractor has paid its subs and suppliers amounts actually received on account of their work, should be deleted before signing. Also, care must be taken not to waive lien rights or claims on work not paid for in the current requisition, including retainage and extra work, whether billed or unbilled. And when the waiver of lien form accompanies an application for periodic payment, the title should be changed to “Partial” waiver of lien. When waiver of lien forms are included as an attachment to the form of contract to be executed, the provisions of the lien waiver must be addressed and amended during the pre-contract stage. If you sign a contract that includes a specific waiver of lien form, you may be committed to providing that form of waiver as a condition of obtaining payment, even if it includes provisions that are prejudicial. The remedy is to strike the objectionable provisions before signing the contract