Construction Lien Waiver Provisions Contractors Should Be Using

Jason Lambert | Construction Executive

It is common in construction for a subcontractor or material supplier of any tier to be required to provide a lien waiver when receiving payment. But not all lien waivers are created equal. While at a minimum, a lien waiver, by definition, needs to include a release of liens, it can also include many other terms that can tie up loose ends or resolve potential problems before they begin. 

ADDITIONAL RELEASES

A typical lien release is going to release any liens and right to claim liens on the subject property. But a lien waiver can also include releases of any claims against surety bonds, other statutory rights or claims, and at its broadest, claims against the paying party. One example of a provision that could help accomplish this is a release of “any right arising from a payment bond that complies with a state or federal statute, any common law payment bond right, any claim for payment, and any rights under any similar ordinance, rule, or statute related to claim or payment rights.” Broad release language can also be used to effectively preclude any claims arising prior to the date of the release. 

PAYMENT REPRESENTATIONS AND WARRANTIES

A typical lien release has no representations or warranties about payment to subcontractors or material suppliers of a lower tier. But contractors can include language requiring the company receiving payment to represent and warrant that all subcontractors of a lower tier have been paid or will be paid within a certain timeframe using the funds provided and that these are material representations and inducements into providing payment. On a related note, if the contract requires subcontractors to provide lien releases from lower tier subcontractors in addition to their own release when seeking payment, contractors can require the sub-subcontractor releases to include representations that they have been paid by the subcontractor to try and tie up payment loose ends all around. 

PAYMENT AFFIDAVIT

Piggybacking on the prior suggestion, contractors can also turn a lien waiver into a miniature payment affidavit and require the party receiving payment to swear that subcontractors have been paid or will be paid. They can also require that a list of unpaid subcontractors or material suppliers be listed on the affidavit to give them the ability to track a continuing lack of payments or to confirm that previously unpaid subcontractors have been paid as the project continues. 

INDEMNIFICATION

To the extent the contract does not already include indemnification language, a contractor can include an indemnification provision requiring the party receiving payment to indemnify them (and maybe even the property owner) from payment claims made by lower tier subcontractors or material suppliers. This can provide another incentive to a payee to use the funds to pay downstream subcontractors if they know that failing to do so will subject them to additional liability. 

OTHER REPRESENTATIONS AND WARRANTIES

The lien waiver can also include representations that the work for which payment is being made is free from defects, that no defective work was covered by their work and that local code requirements were followed by the subcontractor. While the “sky’s the limit” in terms of what could be included, it’s important to consider that many of these types of provisions should be included in the main contract and any reference to them in a lien waiver should be a short “belt and suspenders” type provision. One exception to this could be a reaffirmation that there are no additional agreements between the parties other than those in writing and that compliance with those documents has not been waived. 

There are two additional points to be made with regarding to using a more comprehensive lien waiver form. First, these lien waiver forms can be used by anyone in the chain of work. Subcontractors can use a more substantial lien waiver form, even if the general contractor is not requiring one. 

Second, not every state allows the use of more substantial lien waiver forms. California, Nevada, Utah, Arizona, Colorado, Texas, Missouri, Michigan, Massachusetts, Mississippi, Georgia and Florida all have statutory lien waiver forms that must be used for some or all construction projects. These statutory forms vary in complexity and comprehensiveness. For example, Florida’s statutory final lien waiver form is just 73 words long. 

That being said, some states will allow use of a more comprehensive lien waiver form so long as the parties agree to use that form in their contract. Contractors should consult with an attorney if in one of the aforementioned states to see if they can contractually alter the statutory requirement or if they must use the statutory form. 

Georgia’s Court Of Appeals Holds That Lien Waivers Waive Breach Of Contract Claims

Derek M. Andre, Darren G. Rowles and William E. Burnett | Smith Gambrell & Russell | November 15, 2019

A recent decision by the Georgia Court of Appeals will force most construction professionals to radically change their view of the scope and effect of statutory lien waivers in the state of Georgia. In ALA Construction Services, LLC v. Controlled AccessInc., the Court of Appeals held that a lien claimant’s executed statutory lien waiver waived not only the claimant’s lien right but also rights the claimant may have to bring a related breach of contract action.1

In ALA Construction, ALA Construction Services, LLC (“ALA”), contracted with Controlled Access, Inc. (“Controlled Access”), to provide equipment and other services for a project in Gwinnett County, Georgia. Controlled Access signed two statutory lien waivers with the expectation that it would be paid for its work. However, Controlled Access was never paid, but it did not file either a statutory Affidavit of Nonpayment or a Claim of Lien within 60 days of its execution of the lien waivers, which had the effect of nullifying Controlled Access’ rights to assert a claim of lien. Having waived its lien rights, Controlled Access instead brought a breach of contract action against ALA seeking payment for the work performed by Controlled Access. The trial court held that Controlled Access did not waive its right to assert a breach of contract claim against ALA by executing the lien waivers.

On appeal, the Court of Appeals reversed, holding that Controlled Access’ lien waivers waived not only its lien rights, but also any related claims for breach of contract. The court relied on portions of the lien waiver statute, O.C.G.A. § 44-14-366, which provides that:

“(1) When a waiver and release provided for in this Code section is executed by the claimant, it shall be binding against the claimant for all purposes, subject only to payment in full of the amount set forth in the waiver and release. (2) Such amounts shall conclusively be deemed paid in full upon the earliest to occur of: (A) Actual receipt of funds; (B) Execution by the claimant of a separate written acknowledgment of payment in full; or (C) Sixty days after the date of the execution of the waiver and release, unless prior to the expiration of said 60 day period the claimant files a claim of lien or files in the county in which the property is located an affidavit of nonpayment[.]”2 (emphasis in original).

The Court held that the “plain and unambiguous language” of the statute showed that the “[Georgia] General Assembly intended for [the lien waivers] to be binding against the parties for ‘all purposes,’ not just for purposes of preserving the right to file a lien on the property,” reversed the trial court’s decision, and ruled in favor of ALA. In doing so, the Court stated:

“[T]he statute clearly and unambiguously provides that upon signing the Waivers, Controlled Access had a statutorily imposed responsibility to file either a claim of lien or an affidavit of nonpayment if it wished to keep the debt alive beyond 60 days. Controlled Access did neither and the debt is extinguished.”3

The decision in ALA Construction marks a substantial shift in most construction professionals’ understanding of the treatment of lien waivers in the state of Georgia. Previously, most lien claimants and their counsel believed that a statutory lien waiver waived a claimant’s lien rights, but did not affect the claimants’ right to bring a breach of contract action. As a result of this decision, lien claimants who execute lien waivers risk losing their rights to bring breach of contract actions unless they file an Affidavit of Nonpayment or a Claim of Lien within 60 days of execution of a particular lien waiver. Simply put, it makes the timely filing of the foregoing documents more important than ever before. Under the Court’s holding, a party executing a lien waiver without receiving payment that does not subsequently file an Affidavit of Nonpayment or a Claim of Lien risks losing its ability to seek collection of payment for its work even if it can show that it performed the work and was not paid for it.

If you have questions about Georgia’s mechanic’s lien law or this particular case, please contact the construction group at Smith, Gambrell, & Russell, LLP. We can help businesses in the construction industry navigate this recent change to Georgia lien law and provide recommendations on how to protect against the effects of this decision.

Footnotes

1 ALA Constr. Servs., LLC v. Controlled Access, Inc., No. A19A0923, 2019 WL 4463305 at *1 (Ga. Ct. App. Sept. 18, 2019). A copy of the decision can be accessed at https://law.justia.com/cases/georgia/court-of-appeals/2019/a19a0923.html (last visited 10/30/2019).

2 Id.

3 ALA Constr. Servs., LLC, supra.

Liens With Intentionally Incorrect Information May Still Be Enforceable

Adam L. Gill and Jeffrey L. Hamera – Duane Morris – September 8, 2014

Generally, lien waivers that contain fraudulent information are not enforceable. However, not all intentionally misleading statements are fraudulent. The crux of the issue is whether a lien waiver simply states that the subcontractor has been paid a specific amount or whether the subcontractor claims that the work completed is worth the amount stated in the waiver.

The Illinois Appellate Court addressed this issue briefly in Casablanca Lofts, LLC v. Blauvise (2014 Ill. App. Unpub. Lexis 1377 (1st Dist. June 26, 2014)).  In arbitration, prior to litigation, the developer/owner of a condominium project, Casablanca Loft, discovered that the electrical subcontractor had submitted three lien waivers totaling $135,000 and had been paid $135,000.  Id. at ¶6.  However, the electrical subcontractor had only provided material and labor with a value of $19,000.  Id.  Casablanca Lofts then filed a complaint against the electrical subcontractor alleging that it fraudulent misrepresented the amount owed for labor and materials.  Id. at ¶¶5, 7.  The trial court found that the electrical subcontractor and its owner did not make false statements in the lien waivers, because “the mechanics lien waivers don’t say anything about the amount of work done….”  Id.  at ¶12.  The Illinois Appellate Court affirmed the trial court’s ruling without comment on the issue.

This case provides a sobering reminder to owners and general contractors.  Obtaining lien waivers is not merely a clerical requirement.  Lien waivers are a critical element of the construction payment process.  The lien waivers provided by the Casablanca Lofts subcontractor did not provide a statement regarding the value of the work actually performed or provide a percentage of work completed.  Owners and general contractors should require that subcontractors provide lien waivers prior to disbursing funds.  Owners, or their agents, and general contractors should examine lien waivers to verify that the amount stated in the lien waivers conform to the work actually performed.  Finally, in order to avoid overpaying subcontractors, lien waivers should indicate the value or percentage of work actually performed.

via Liens With Intentionally Incorrect Information May Still Be Enforceable – Real Estate and Construction – United States.