In the Spotlight: Lien Waivers ' What Do They Really Mean?

In these cases, it is important that a contractor read the waiver form and understand the difference between a lien waiver and a claim waiver. When the waiver releases contract claims as well as lien rights, the company signing the waiver will have released its right to recover costs or damages for pending change orders or delay claims that are otherwise being submitted or processed on the project. The waiver could result in an inadvertent and unintentional release of claims under the contract that are otherwise entirely valid.

These waivers are enforced according to their terms like any other legal document, particularly because waivers are sworn documents. Courts are loath to allow an attack by a contractor on its own sworn lien waiver. Therefore, when signing a waiver that includes a release of contract claims (as well as lien rights), a contractor should carefully list and exclude those claims and matters that are still pending. Most owners find the list of excluded claims to be acceptable, as their main intent in using the claim waiver is to obtain information on claims that might be in the offing. Owners should ensure that this list of claims is as specific as possible to preclude any argument as to what is included in that claim at a later date.

Another issue regarding lien waivers that requires careful attention is whether the state in which the project is located has restrictions on the type of waivers that can be used. For example, in the South, Georgia and Florida have statutory lien waiver forms, and the statutes generally provide that all waivers must be substantially in the form provided in the statute to be effective. In the West, Arizona and California have very strict requirements on the form of a lien waiver. There are a few other states with similar requirements. If a waiver contrary to the terms of these statutes is used, it will be deemed unenforceable.

Most of the statutory waiver forms are merely waivers of lien, and not claims. While these statutes often do not speak to the issue of whether claim waivers can be included in a waiver form (and there are no cases bearing on this issue at the present time), Arizona and California do, in fact, prohibit claim waivers. Other states, like Florida and Georgia, do not seem to prohibit claim waivers, although there are no cases that would permit a final answer to this question. Additional states will likely pass lien waiver form provisions in the future, and a contractor going into any state for the first time should always check to make sure its form complies with any statute that exists.

Owners and contractors should pay careful attention to the lien waivers used on every project they undertake. If statutory lien waivers are required, the parties should ensure they have the proper forms. They should read and analyze the lien waivers to obtain a clear understanding of what rights and claims are being waived every month. If owners and contractors pay close attention to statutory requirements and the contents of lien waivers, they can avoid unintended and potentially devastating consequences.

Lien waivers are a staple of construction projects. Everybody knows the importance of obtaining a lien waiver, although many owners and contractors never bother to collect them. However, do they know where the waiver forms themselves come from or what the waivers really mean? Unfortunately, many owners, contractors and subcontractors cannot answer these questions, and the consequences are often devastating.

The most generic form of lien waiver simply waives a contractor's right to assert lien claims on a project. For interim pay applications, this waiver of lien rights might extend through the date of the waiver, or might be effective only to the extent of payment. This is an important distinction. From the owner's perspective, it is preferable to use a lien waiver form that waives lien rights through the date of the waiver, as this may serve to waive lien rights for as yet unresolved claims for extras or delay. A contractor, however, will want to limit the lien waiver's coverage to the payment that is being received.

Owners can obtain additional protection by including language that waives contract claims as well as lien claims on the project, through the date of the lien waiver. The purpose of this additional language is to “bring the project current” and give the owner comfort that no hidden or unknown claims exist at the time of each progress payment, or at the time of final payment.

In these cases, it is important that a contractor read the waiver form and understand the difference between a lien waiver and a claim waiver. When the waiver releases contract claims as well as lien rights, the company signing the waiver will have released its right to recover costs or damages for pending change orders or delay claims that are otherwise being submitted or processed on the project. The waiver could result in an inadvertent and unintentional release of claims under the contract that are otherwise entirely valid.

These waivers are enforced according to their terms like any other legal document, particularly because waivers are sworn documents. Courts are loath to allow an attack by a contractor on its own sworn lien waiver. Therefore, when signing a waiver that includes a release of contract claims (as well as lien rights), a contractor should carefully list and exclude those claims and matters that are still pending. Most owners find the list of excluded claims to be acceptable, as their main intent in using the claim waiver is to obtain information on claims that might be in the offing. Owners should ensure that this list of claims is as specific as possible to preclude any argument as to what is included in that claim at a later date.

Another issue regarding lien waivers that requires careful attention is whether the state in which the project is located has restrictions on the type of waivers that can be used. For example, in the South, Georgia and Florida have statutory lien waiver forms, and the statutes generally provide that all waivers must be substantially in the form provided in the statute to be effective. In the West, Arizona and California have very strict requirements on the form of a lien waiver. There are a few other states with similar requirements. If a waiver contrary to the terms of these statutes is used, it will be deemed unenforceable.

Most of the statutory waiver forms are merely waivers of lien, and not claims. While these statutes often do not speak to the issue of whether claim waivers can be included in a waiver form (and there are no cases bearing on this issue at the present time), Arizona and California do, in fact, prohibit claim waivers. Other states, like Florida and Georgia, do not seem to prohibit claim waivers, although there are no cases that would permit a final answer to this question. Additional states will likely pass lien waiver form provisions in the future, and a contractor going into any state for the first time should always check to make sure its form complies with any statute that exists.

Owners and contractors should pay careful attention to the lien waivers used on every project they undertake. If statutory lien waivers are required, the parties should ensure they have the proper forms. They should read and analyze the lien waivers to obtain a clear understanding of what rights and claims are being waived every month. If owners and contractors pay close attention to statutory requirements and the contents of lien waivers, they can avoid unintended and potentially devastating consequences.