Mechanic's Lien & Bond Waivers

Mechanic's lien & bond claim waivers can appear in contracts and in waiver forms for progress and final payments. These waivers may permanently eliminate lien or bond rights, even for future deliveries or even if a bankruptcy court forces you to repay a payment received. Contractors must be able to review waivers to preserve security rights.

Waiver in Contract. Many construction contracts state that the contractor waives lien rights on the project. This means what it says in most states. If you sign a contract with a waiver, courts may strike your lien. See more tips for reviewing and revising construction contracts at www.FullertonLaw.com

Waiver Forms for Payments. Lien and bond waiver forms required with payment requisitions can be the kiss of death. It is very important to get your money, but do not let cash flow urgency result in long-term losses. Waiver forms vary greatly in their wording and effect. Recognize and revise what you are signing.

1. Have Your Own Waiver Forms Available. There will be times that you have the opportunity to use your own lien waiver form. Your customer may simply say "send me a waiver." You want to be able to safely do that. The form available at www.FullertonLaw.com protects the interest of the owner and your customer without stripping you of legitimate security rights for unpaid labor or materials.

2. Bankruptcy Preference Risks. If you received a payment in the ninety days before a customer bankruptcy, you can be confident you will be sued. These preference actions have become common to the point of being expected. Preference actions are not normally filed, however, until almost two years after the bankruptcy filing. By that time, your lien and bond rights have long expired. There is no way to get these lien and bond rights back. You may need to repay the preference money, even though you had security rights at the time you received payment.

Make all of your lien and bond waivers conditional. You waive your security rights against the owner or bonding company as long as your customer does not file bankruptcy within ninety days after funds clear. Without such a condition in your waiver, your lien rights may be permanently gone, even if you have to pay the money back. Add the specific conditional waiver language discussed below to all lien and bond waivers. Other essential steps to solving Bankruptcy Preference problems are discussed in greater detail in the Bankruptcy Primer chapter at www.FullertonLaw.com.

3. Waivers for Partial Payment. A complete waiver of the right to ever lien a project often appears in a partial or progress payment waiver form, normally using some form of the "now or hereafter" language, something like this:

In consideration of the sum of $ paid on account of labor and materials supplied through the day of , 20___, and the receipt of which is hereby acknowledged, and other benefits accruing to us, and in favor of each and every party owning the property improved or in order to procure the making of one or more loans on said real estate, as improved, we do hereby waive, quit-claim in favor of each and every party making a loan on said real estate, as improved, and his or its successors and assigns, all right that we, or any of us, may now or hereafter have to a lien upon the land and improvements above described, by virtue of the laws of the state wherein said land is situate, or any amendments of said laws; and we do further warrant that we have not and will not assign our claims for payments, nor our right to perfect a lien against said property, and that we have the right to execute this waiver and release thereof.

In this example, the contractor would want to strike the underlined words. The contractor may also want to add the specific conditional language provided below.

4. Waiver of Retention or Unpaid Goods Delivered. Even a careful contractor may inadvertently waive the right to lien for retention or recent unpaid deliveries. Most contractors will sign the following waiver if put in front of them:

In consideration of the sum of $ the receipt of which is hereby acknowledged, the undersigned does hereby waive, release and quit-claim the right to lien the described real estate for labor and materials supplied through the day of _____________, 20__.

This form may look acceptable. This contractor is only waiving the right to lien for labor and materials supplied up until the day the waiver is signed. If retention is still held on the project, however, the contractor has probably just waived the right to lien for that retention at a later time, since the retention is "for labor and materials supplied through today." A contractor may also make multiple shipments or work multiple days on a job site, but now receive only partial payment for some of those materials. This contractor must be careful with the effective date of the release. Instead of filling in the date on which the release was signed, fill in the date of the last delivery being paid. In these cases the contractor should add the words "except for retention," be careful with the effective date for the release and use the cover-all specific conditional language below.

5. Make Lien Waiver Forms Conditional. If you cannot provide your own waiver forms, the safest practice is to review and strike out offensive wording in the waiver. I am always happy to review waiver forms with clients. If clients do this a few times, they quickly learn how to deal with most waiver forms. There are only a few recurring problems on these forms. Also add the following statement just above your signature:

"This release will be effective only to the total amount of payments actually received without any bankruptcy filing for ninety days thereafter"