Lien waivers are routinely exchanged by parties on construction projects. Interestingly, however, there are only 12 states that set forth what must be on those lien waiver forms. The above color-coded map of the United States identifies the states with specific statutory lien waiver form requirements, and this article explains the details about what this means for your company’s legal and financial risk.
12 States with Statutory Lien Waiver Forms Mean Business
It’s the minority rule in the United States that lien waiver forms are regulated, as only 12 states have mandatory waiver forms. However, for these 12 states (highlighted in blue in the above chart), the law is serious about its mandate.
First, when a state statute requires use of a statutory lien waiver form, the statute almost universally invalidates any document used by the parties that does not “substantially” conform to the law. When reading the term “substantially,” you might as well consider it to be “exactly.” The courts will allow for some stylistic or formatting changes, but the parties will be unable to make any changes to the substance of the document. The penalty of invalidating the waiver document as a whole is a pretty stiff penalty.
Second, many states build it into their laws that a lien waiver will be ineffective as a rule if payment was not exchanged in consideration of the waiver. This is the case in Georgia where O.C.G.A. 44-14-366(b) provides specifically:
Waiver not effective or enforceable unless: (1) It is pursuant to a waiver and release form duly executed by the claimant prescribed [in the statute]; and (2) The claimant has received payment for the claim.
Absent actual payment, therefore, the waiver is not effective, regardless of what the waiver document says. All in all, lien waiver forms regulated by statute promote clarity between the parties. And just for note, the states with regulated lien waiver forms are below.
Click on each state’s link to see the Lien Waiver FAQs for that state. You can also download all of the waiver forms used in each state, all for free.
*Florida does not require that parties use the statutory lien waiver, but it offers the waiver as a safe option, and seems to prohibit parties from requiring a non-statutory form.
Are States Without Lien Waiver Forms the Wild, Wild West?
Subcontractors and suppliers have a huge problem when it comes to lien waivers: 38 states don’t have statutory waiver forms. The result of this is a legal wild, wild west, where lien waiver forms vary from general contractor-to-general contractor, or owner-to-owner, and you can bet that each are written to leverage legal rights in favor of the drafter.
Making a mistake or overlooking negative language within a lien waiver can be very expensive.
Take, for instance, a situation in Texas with Zachry Construction who lost over $10 million because of an easy-to-make lien waiver mistake (before Texas switched to statutory lien waiver). A nearly identical thing happened to JH Larson Electrical Company in Minnesota (notice Minnesota does not have statutory waivers), when a court said this about the lien waiver:
[L]ien waivers are “customarily used on both public and private construction projects to keep the general contractor . . . informed of the payment status of subcontractors and suppliers and to protect the projects from . . . bond claims.” … these documents permit the court’s finding that [the claimant] never indicated amounts owing in the lien waivers it furnished …The evidence in the record, although not overwhelming, is sufficient to support the district court’s findings on the customs of the industry and reasonable reliance.
Very often, subcontractors and suppliers get a lien waiver document sent to them, and they wonder: Should we sign this lien waiver? In the 39 states without statutory forms, this is a complex legal question. The forms are left to the whim of attorneys designing the document to maximize the GC’s or owner’s legal position. And you’re waiting anxiously for a payment…be careful.
Is There a Trend to Create Statutory Lien Waivers? Is This Good?
Fortunately for subcontractors and suppliers, state legislatures are starting to see the forest for the trees with respect to lien waivers. There appears to be a trend towards passing legislation to regulate the form of lien waiver documents. This happened recently in California (January 2013) and Texas. Further, in a separate article we’ll explore other states that are passing laws to prohibit lien rights getting waived before furnishing or before payment is received for furnishing (see recent law changes in North Carolina, Mississippi, and Utah, for instance).
The reality in the construction marketplace is that general contractors and property owners will take any advantage they can get, and when it comes to lien waivers, they pad unregulated waivers with strong language that can rob subcontractors and suppliers of hard earned money.
Lien waivers were never meant to be used as a leverage tool, or as any tool at all. If a party gains a legal advantage over someone on a construction project because of a lien waiver, then one party has taken advantage of the other. It’s that simple. These documents are designed to prevent abuses, not to act as a tool of abuse.
The reality in the construction marketplace is that general contractors and property owners will take any advantage they can get, and when it comes to lien waivers, they pad unregulated waivers with strong language that can rob subcontractors and suppliers of hard earned money. Getting more regulation from the 38 unregulated states is unfortunately necessary.
Be Smart about Lien Waivers — Legal Integrity of Form Is Important
Generating a fair construction lien waiver is a critical moment for subcontractors and suppliers on a construction project. Unfortunately, all of the tools designed to assist in this process are designed with the general contractor or property owner in mind, and not the subcontractors and suppliers. Not only is this a legal problem for those sub-tiers and suppliers, but it’s also adverse to the administrative burdens placed on companies by lien waivers. Subs and suppliers, after all, are the ones who generate a high volume of these waiver documents (not the generals).
Get a Demo of zlien’s Lien Waiver Inbox
Companies who let waivers fly on and off of their desks are going to get burned. Intelligent management of this process is critical and it starts with reliance upon a set of forms that will be fair to your interests. These are the exact benefits provided by zlien’s new lien waiver module, Waiver Inbox.
zlien’s construction lien waiver management module, Waiver Inbox, enables companies to generate, store, and electronically transmit construction lien waivers in all 50 states. Intelligently generating and managing lien waivers is critical to a company’s control over the entire lien process. Savvy companies will utilize lien waivers to avoid payment flow abuses and shouldering financial risk on a construction project.
Waiver Inbox enables companies to generate an unlimited number of waivers for any project. Users have control over a waiver’s content and the platform keeps track of all waivers created and sent for a project.
Other features of the construction lien waiver manager include:
Electronically sign lien waivers to avoid generating, printing, and scanning steps
Email lien waivers to other parties directly within the interface
Attorney drafted explanations for every lien waiver to help users understand implications of the forms
Conditional Final, Conditional Progress, Unconditional Final, and Unconditional Progress waivers available in every state
Includes statutory forms mandated in 12 States
Mechanics lien and bond claim deadlines calculated using Lien Waiver data
All of this is absolutely free. Learn more by scheduling a demo (see below), or sign up for a free account and build waivers today.