NC Lien Waiver Update: Are Your Standard Waivers Enforceable?￼
By Steven Hemric, Spilman Thomas & Battle, PLLC
Lien waivers are an integral part of the payment process on every construction project, often being a prerequisite to any contractor, subcontractor, or supplier being paid. Because of the prevalence of these waivers, many construction disputes hinge on whether or not a party waived its claims for extra work or added costs in a lien waiver it submitted with an interim payment application earlier in the project. Unfortunately, businesses often waive claims without realizing it. This can be true even when the work associated with a claim was not part of any prior payment applications.
These situations are possible because most interim lien waiver forms include broad waivers of all claims a contractor may have through the date of payment. Some crafty project owners that also have a general contracting business have even taken that a step further and had the general contracting arm of their business execute sweeping lien waivers early in a project. In states like North Carolina where subcontractor and supplier lien rights are limited by the general contractor’s lien rights, those early waivers—or any broad lien waiver—by the general contractor can cut off future lien rights for lower-tiered subcontractors and suppliers.
However, North Carolina recently made a significant move in favor of preserving contractor and supplier lien and claim rights. Under the newly-added N.C. Gen. Stat. § 22B-5, upstream parties can no longer require interim lien or claim waivers unless the waiver is “limited to the specific interim or progress payment actually received . . . in exchange for the lien waiver.” The new limitation specifically does not apply to waivers or releases associated with final payments or settlement of disputed claims, but it imposes an important limitation on typical interim lien waivers that invalidate many commonly used lien waiver forms and practices.
Moving forward, owners and general contractors planning projects in North Carolina should evaluate their standard contract language and lien waiver forms to ensure they comply with the new N.C. Gen. Stat. § 22B-5. Otherwise, they run the risk of having invalid waivers that open them up to unexpected claims or the possibility of having to make progress payments without getting any waivers at all. Subcontractors and suppliers should be aware of their rights and push back on any attempts by upstream parties to require overly broad lien or claim waivers in exchange for progress payments. As is the case every time a legislature forces a change in how projects function, owners, general contractors, subcontractors, and suppliers will have to work together to make a smooth transition and continue executing successful projects.
If you have questions about your contracts, lien waiver forms, or the impact of a lien or claim waiver on a specific project, contact Steven Hemric at Spilman Thomas & Battle, PLLC (email@example.com or 336-631-1063) to learn more about how Spilman’s team of construction lawyers can assist you in protecting your interests on current and future projects.
This information has been prepared for general informational purposes only and is not legal advice. This information is not intended to create, and receipt of it does not constitute an attorney-client relationship.