By Rebecca Bowers and Ted Levy
Many of Levy · von Beck & Associates’ clients receive weekly requests from general contractors to provide lien waivers in exchange for payment. Exchanging waivers for payment can be one of the quickest strategies for sub trades to receive payment of invoices and is often essential once a preliminary notice (aka Notice to Owner, Notice of Right to Lien, Notice to Contractor, etc.) is mailed. However, it is essential to provide the correct waivers so as not to inadvertently compromise your lien or bond claim rights. From our experience, we can say that most lien claimants have at some point executed the wrong form.
Here are two important points to consider before executing a waiver:
- Does the state in which the project is located have statutory forms for their waivers?
- If so, it is essential to use those forms.
- How does your performance relate to your customer’s purchase order or subcontract? For example:
- Have you completed the contract work and are you just waiting for final payment?
- Is the project continuing and are you waiting for one or more progress payments?
More often than not, the general contractor will provide you or your customer with a waiver that is part of the construction contract and request that it be signed and returned. The burden of using the correct form and ensuring that the correct amounts and dates are stated rests solely with the party signing the waiver.
Without question the two most common mistakes made by suppliers and contractors are:
- Executing a final unconditional waiver prior to receipt of payment, or
- Executing a partial conditional or unconditional waiver with the incorrect “through date.” An example of this type of error is when the sub trade states that only $35,400 owing through June 15, 2016 when in fact $39,300 is owing through the 15th.
Here is the actual language taken from the statutory form used in California for the unconditional final waiver, which is printed at the top of the form:
NOTICE TO CLAIMANT: THIS DOCUMENT WAIVES AND RELEASES LIEN, STOP PAYMENT NOTICE, AND PAYMENT BOND RIGHTS UNCONDITIONALLY AND STATES THAT YOU HAVE BEEN PAID FOR GIVING UP THOSE RIGHTS. THIS DOCUMENT IS ENFORCEABLE AGAINST YOU IF YOU SIGN IT, EVEN IF YOU HAVE NOT BEEN PAID. IF YOU HAVE NOT BEEN PAID, USE A CONDITIONAL WAIVER AND RELEASE FORM.
Here is similar language from the Georgia interim waiver form:
NOTICE: WHEN YOU EXECUTE AND SUBMIT THIS DOCUMENT, YOU SHALL BE CONCLUSIVELY DEEMED TO HAVE BEEN PAID IN FULL THE AMOUNT STATED ABOVE, EVEN IF YOU HAVE NOT ACTUALLY RECEIVED SUCH PAYMENT, 60 DAYS AFTER THE DATE STATED ABOVE UNLESS YOU FILE EITHER AN AFFIDAVIT OF NONPAYMENT OR A CLAIM OF LIEN PRIOR TO THE EXPIRATION OF SUCH 60 DAY PERIOD. THE FAILURE TO INCLUDE THIS NOTICE LANGUAGE ON THE FACE OF THE FORM SHALL RENDER THE FORM UNENFORCEABLE AND INVALID AS A WAIVER AND RELEASE UNDER O.C.G.A. SECTION 44-14-366.
As you can see, these two states encourage the party signing a waiver to understand that they are giving up valuable rights. Many states, however, have not created statutory waivers. In those situations, the burden falls on the sub-trade signing the form to understand what is being asked and what he or she is giving up. In most instances, waivers produced by the property owner or the general contractor owner are written for the benefit of the owner to reduce or eliminate exposure. Here is a list of the four types of waivers you might be asked to sign:
1. Conditional Partial
2. Unconditional Partial (Interim Waiver)
3. Conditional Final
4. Unconditional Final
The Conditional Partial is meant to waive the claimant’s lien or bond claim rights to the extent of the payment amount listed in the waiver for materials or labor furnished THROUGH a specific date, but only after the payment has been received. “Received” means that the funds have been deposited and cleared the maker’s bank. Remember, the document is not tracking to an invoice date but the actual date that work or materials were furnished.
The Unconditional Partial is intended to COMPLETELY waive the signor’s lien or bond claim rights to the extent of payment and through the date listed, and the signor is acknowledging he has received the funds.
The Conditional Final is intended to clarify that the claimant is now waiting for one final payment, including the retained percentage, and when that amount is received, he will waive any and all lien or bond claim rights on the project.
The Unconditional Final means that the claimant has received final payment, the funds are in his account, and he has waived all rights.
Generally speaking, we advise our clients to avoid signing any waiver that includes an indemnification clause unless they review it first with our firm, and likewise to avoid signing waivers that contain inaccuracies or ambiguities. If you currently have a waiver form that seems particularly onerous or confusing and would like some feedback to ensure that you are not giving up rights unnecessarily, please feel free to contact our firm. Remember, waivers cannot be undone!
If you have any questions about waivers, forms, etc., please do not hesitate to call us at 206-626-5444.