When Was the Last Time You Really Read a Lien Waiver?
Lien waivers are everywhere in construction. Chances are, you’re already signing lien waivers in exchange for payment on many if not most of your projects.
But when was the last time that you closely read a waiver you were signing? When was the last time you really took the time to examine the waiver language? If you’re like most of your peers in the construction industry, the answer to both of these questions is “not recently.”
And that could one day become a problem.
One key to making sure lien waivers are used correctly and appropriately is to understand the lien waiver document and realize how minor changes in the wording can have major effects. Becoming well-versed in lien waivers doesn’t require a law degree, however. This article will provide some hints and tips and provide insight on how to read a lien waiver like a pro.
First Things First – Have You Been Paid?
Before you can even begin to answer the question of how to read a lien waiver, you have to be able to understand why lien waivers are required in the first place. And that’s for one reason: to get paid.
Lien waivers are meant to function as a sort of receipt – if a party is paid a certain amount, that party waives his or her right to claim a lien for that amount. Or, a party is promised a payment of a certain amount and says they will waive the right to lien for that particular amount provided he or she actually gets paid. This is it. Those two sentences constitute the totality of the lien waiver’s purpose. Everybody is protected, and the payment process is fair.
In order to begin understanding how to read a lien waiver, you must first understand your payment situation. And to do that, you must be able to answer these 2 questions:
1. Have you been paid?
2. What is the nature of the payment?
Knowing the answer to these questions is critical to being able to read and understand a lien waiver. And, reading and understanding the lien waiver is important because what the lien waiver says happened may be more important than what actually occurred. If you sign a document that says you were paid, the law thinks you got paid.
With the knowledge of whether or not payment has been received, the first step in how to read a lien waiver can be undertaken and that’s determining what type of waiver you have in front of you.
The Four Kinds of Waivers and How To Recognize Them
There are two main types of lien waivers, each broken down by two sub-types. The main types of waivers are Conditional Waivers and Unconditional Waivers, and each main type can either be pursuant to Final Payment or a Progress Payment.
If your project is in one of the states that have mandatory lien waiver forms, the type of lien waiver being provided will likely be included as a title of the document. However, the specific wording of the lien waiver is what determines the type, so waivers should always be read carefully to see which type of waiver they are.
If you’re done with the project and have been paid everything you are owed (and you literally have the money in hand, and NOT just a check or a promise to pay), an Unconditional Waiver on Final Payment is likely appropriate. But if you’re still working on the project and haven’t been paid, any Final Payment waiver, or any Unconditional waiver, will probably not be a good idea.
Determining the waiver type is crucial, but how do you do it? The language (and potentially the title) of the waiver give away its type. If the document contains phrases like:
This document waives and releases lien, stop payment notice, and payment bond rights the claimant has for labor and service provided, and equipment and material delivered, to the customer on this job.
Rights based upon labor or service provided, or equipment or material delivered, pursuant to [anything] prior to the date that this document is signed by the claimant, are waived and released by this document.
The Claimant has been paid in full
…that are not qualified by limiting language are typical of unconditional waivers used for final payment.
A conditional waiver would contain language to the effect that the document is not effective until receipt of payment, and may caution third-parties not to rely on the waiver unless they are otherwise confident the claimant has been paid.
Unconditional and Conditional waivers for progress payments work in a similar manner, however, there will be a “Through Date” listed on the document that provides an endpoint the waiver is effective through, but not beyond.
Does the Document Waive More Than Just Lien Rights?
Now that you are confident you have identified the waiver type and that it corresponds with the nature of the payment received or promised, you can take a look at the document to check for other potential issues.
The fact that lien waivers are provided to be signed in exchange for payment (an important part of a project, and one in which the paying party seems to hold all the leverage and may not be adverse to using it) the documents can end up being much more than the receipt they are intended to be. Because the party signing the lien waiver may feel obligated to sign whatever document is presented in order to get paid, unscrupulous or oblivious parties may attempt to use the lien waiver as a legal positioning tool and cram all sorts of other language into the lien waiver that really has no real legitimate right or reason to be there.
Is It Too Long?
One quick step in evaluating a lien waiver is to look at its length. Remember, a lien waiver is supposed to be a “receipt” for payment made or promised and the relinquishment of the associated security rights. There’s almost no reason why a lien waiver would ever be over a page long. If the waiver received is multiple pages, or full of really tiny print, or just appears long, it may be worth taking special precautions in looking through the waiver for unnecessary and/or unfair language.
Is It Unclear?
Further, lien waivers should be clear. While lien waivers are a legal document, they should be clear and easily understandable. The document should clearly state what has been paid (or promised to be paid), whether the payment is a progress or final payment, whether there are any exceptions to the waiver, the through date (if applicable) and what, specifically, is being waived. Additional information, other than identifying the parties or the project, is extraneous and may be potentially harmful.
Is It More Than Just a Waiver?
It’s important to read the waiver carefully in order to look for language not related to the simple act of waiving security rights for money that has been paid. Predatory companies may attempt to use the lien waiver document as a means to sneak in terminology that alters the contractual relationship between the parties. Understanding how to read a lien waiver means understanding that a waiver should be examined for language that modifies the underlying contract, or waives rights other than the mechanics lien security it was designed to do.
In one Texas case, a $20 million dollar judgment was overturned, and the previously victorious party was on the hook for $10 million in attorneys’ fees due to additional language contained within lien waivers it had signed. It pays to be careful when reading a lien waiver so that you understand what is being waived. If you have questions about what a lien waiver actually says, whether you just don’t understand the implications of a certain clause, or it’s written in such a way as to cause confusion, it may be worthwhile to ask your lawyer.
Conclusion: How To Read A Lien Waiver – Actually Read It
This article began with the mission to teach hints and tips on How To Read A Lien Waiver. In case your eyes glossed over a bit in the journey to this point, here are some quick take-aways into reading a lien waiver like a pro.
Before you start, know if you’ve been paid and the nature of the payment
Match the nature of the payment to the appropriate lien waiver type (look for specific language)
Look at the length of the document
Look at the clarity of the language
If the document is long and/or confusing keep a sharp eye out for language that waives more than what you intend
If it’s too confusing, ask a lawyer