“Partial” Lien Waivers – Are They As Harmless As They Seem?
To obtain periodic payment due under a contract, contractors and subcontractors are frequently required to sign “partial” waiver of lien forms. There is nothing wrong with providing a partial waiver protecting the owner or contractor against liens for work on which payment is made. The difficulty is that many forms titled “partial” 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 and/or contractor against claims of sub-subcontractors 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, including retainage, 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 and/or contractor against claims by its own subcontractors or suppliers for amounts which it has not been paid and which it inadvertently surrendered by signing the “partial” waiver of lien.
It is increasingly important that all contractors and subcontractors carefully read the language of these “partial” waivers. Indeed, you should not be afraid to mark-up these documents to ensure that you are fully protecting your rights. All language that goes beyond waiving liens on work actually paid, or certifying that the contractor or subcontractor has paid its subcontractors 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, extra work and any claims, whether billed or unbilled.
When waiver of lien forms are included as an attachment to the form of contract to be executed, the provisions of the lien waivers, partial and final, 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 your contract.
If you find yourself in the position of having already signed a broadly-written “partial” lien waiver without having understood its full effect, don’t panic. Massachusetts courts have occasionally looked beyond the four corners of a waiver to protect the rights of those who had no expectation of surrendering claims. In these cases the courts have tried to determine the true intention of the parties by considering “extrinsic” evidence to determine, amongst other things, whether the signing party received any value – over and above the undisputed payment – for allegedly having waived its rights to pursue future and/or disputed monies. However, it is best to avoid this fight by modifying your “partial” lien waiver at the appropriate time.
In sum, “partial” lien waivers must be read carefully and revised accordingly since they could impact your right to recover future monies due under your contract.