Lien Releases & Waivers – PROCEED WITH CAUTION
“Please sign and return the attached lien release/waiver.” This is a routine request received by contractors and suppliers throughout the life of a construction project. Because it is so routine, and because the request is often tethered to a coming payment, you may find yourself in the dangerous habit of quickly filling out and signing the lien release without sufficient analysis. Beware: that dangerous habit could lead to a nasty “gotcha” outcome – your inadvertent release of amounts/claims that are validly due. Ouch. If you slow down and pay attention to the following issues, you should be able to mitigate that risk:
Identify the Type of Release.
Before you do anything, address the fundamental question of: what type of release is it? Is the lien release tied to a project progress payment, or is it for a final payment? Is the lien release a conditional release (conditioned upon a coming payment to you) or an unconditional release? (Sometimes both the conditional and unconditional release are contained within the same document.) An unconditional release is effective immediately – it should not be signed unless the appropriate funds are already sitting in your bank account. Critical point: while many of these documents are called lien “releases” or lien “waivers,” they almost always operate not only to release a lien claim, but also to release/waive ALL other rights to compensation, additional time and all associated disputes/claims you may have relating to a project.
Verify the Amount and Date.
Check, double-check and triple-check the amount and date reflected in the lien release. A conditional lien release will usually include a payment amount for all work performed (or materials supplied) through a particular date. That payment amount must be rock solid through that date. If you inadvertently miss an invoice and sign the conditional release with a wrong amount, expect the other side to do its best to hold you to the amount reflected. The unconditional release will reflect that you’ve been paid in full for all work (or materials supplied) through a particular date. Do not sign unless and until you have confirmed that to be 100% accurate.
Other Work/Supplies on Same Project?
As a corollary to the above caution, make sure that your company left hand knows what the right hand is up to. For example, most lien releases contain such broad language that you are releasing all claims relating to the entire project, period. Here’s the worry for such broad language: what if you are working for or supplying to different contractors on the same project? A lien release executed tied to your first customer could work to release all claims for all work provided (or materials supplied) to your second customer. This type of issue regularly surfaces for large companies/suppliers.
Release Tied to Particular Project?
Many contractors/suppliers are working with their customer on more than one project. Accordingly, make sure that the lien release is tied to a particular project so that you do not mistakenly release/waive all rights to payment against your customer for all pending projects.
Reserve All Unpaid/Disputed Amounts or Claims.
Do not inadvertently release disputes or other claims as part of any lien release. If applicable, the lien release language needs to be crystal clear that you are reserving any rights/claims relating to prior unpaid balances, withheld retention, unpaid change orders, delays, and/or any other unpaid or disputed claims. If you do not expressly carve out such items as not covered by the lien release, you are effectively waving “bye bye” to those items. Some lien releases contain a section to fill in disputed amounts/claims. Some do not. Do not be afraid to handwrite on the lien release – “Notwithstanding any language herein to the contrary, this lien release does not apply nor operate in any manner to waive or release ABC Company’s following claims and/or amounts due:__________________.” The more detail and clarity as to what is not covered by the lien release, the better. If you are reserving such claims/amounts, you must do so on each subsequent project lien release as well.
Payment Deadline for Conditional Release?
For conditional lien releases (conditioned upon the payment of a coming sum), consider adding a payment deadline such that the language reads something like: “This Lien Release is expressly conditioned upon the receipt and successful negotiation of a check in the amount of $__________ on or before ____________ . . .” The payment deadline should encourage a prompt payment. Moreover, including the payment deadline may reduce the ability of the contractor to sit on your conditional lien release for months and then issue payment without also remitting any additional amounts that may have accrued over the months, such as interest. (Note: your contract documents and/or other circumstances may effectively preclude a payment deadline.)
Don’t Go Further than Necessary.
Refrain from signing off on a “multi-function” lien release. For example, sometimes the drafter of the lien release will include a broad indemnification and hold harmless obligation over and above the release language. Consider striking out that language (unless you previously contractually committed to the lien release form).
Assess Contract Documents for Binding Lien Release Form.
If your up-front project contract documents include the language of the project lien release (sometimes attached as an exhibit to a subcontract agreement), then you must pay close attention at the outset and negotiate appropriately. Otherwise, you could commit to problematic lien release language by signing the contract, and may have zero ability to revise the language if the need arises during the project.
Are You Presenting the Lien Release?
If you happen to be the party presenting the lien release to the contractor or supplier for signature, then the calculus flips – i.e., you want a broad lien release with all of the bells and whistles, etc.
Lien releases/waivers are part of your everyday construction project life. Navigate their pitfalls by taking your time, carefully reviewing each document, verifying your amounts and dates, and confirming that by signing a lien release you are releasing precisely what you intend to release, and nothing more.
If you have questions regarding a lien release/waiver, please feel free to contact Matt McCafferty – firstname.lastname@example.org – (206) 728-0260. He has been assisting clients on construction and business law matters for nearly three decades.
This information has been prepared for general informational purposes only; is not legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship.