Christopher G. Hill | Construction Law Musings | October 3, 2019
In the past few years, the Virginia General Assembly has, with certain caveats, precluded pre-furnishing waiver of mechanic’s lien rights. While this essentially outlawed the types of mechanic’s lien waiver clauses that pervaded construction contracts in Virginia, the key to the previous sentence is “pre-furnishing.” What the General Assembly left intact were the usual waivers of mechanic’s lien rights typically required to be provided to Owners and others in the payment chain in exchange for payment.
These lien waivers come in a few “flavors” from conditional to unconditional, partial to full. Their terms usually include an acknowledgement of receipt of payment (we’ll get to this later), and a statement that the one seeking payment knows of no possible claims by lower tier subcontractors and then waives all mechanic’s lien rights against the property for work performed and included in the request for payment. Often over my years as a Virginia construction attorney, I have noticed that these waivers are often signed without comment or review. They are just part of the process and more often than not are not even an issue for most projects. Of course, if they are an issue they can be a big one, and their terms can come back to bite a claimant that has not properly vetted them.
The first potential issue is waiving lien rights while acknowledging receipt prior to actual receipt of the check or wire. Many of the waiver forms that are out there list a payment amount, or possibly simply state that the waiver is in exchange for some small payment, and then state “receipt of which is acknolwedged” or something similar. The issue here is that receipt may not have happened yet because these lien waivers are submitted as part of the payment package in order to get paid in the first place. In short, should you sign the waiver prior to payment, you may have acknowledged a non-event and in the event of non-payment have a written document stating that you waived your claim to a lien for that money. What a court would do with this, I am unsure, but why risk it? My advice, be sure your waiver is contingent on actual clearance of payment as well as receipt.
Another issue is that many of these forms waive “all claims” against the paying party up to the date of the waiver. If you have other projects going with the same paying party, this could potentially waive your claims on those as well. Again, this waiver is broader than necessary and puts payments at risk for other work. Why take the chance? Be sure your waiver is limited to the project at hand.
A third issue is that, particularly with final or unconditional waivers, the waiver may simply waive all rights for now and forever, but not accurately state what exceptions there may be (for instance outstanding claims, currently unresolved change orders, retention and the like) for payments in the future. In theory, these could waive your rights to such claims if you do not properly state what exceptions or claims are out there. As with the prior two, why take the chance with your money, be sure to note exceptions, should they exist and do so whether the form calls for it or not where the waiver is unconditional.
These are far from the exhaustive list of items to look out for but are illustrations of the potential pitfalls for payees with lien waiver forms. As always, I recommend consulting with an experienced construction lawyer when presented with a waiver form.