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In this blog, presented by SunRay Construction Solutions and Theodore M. Baum, Partner, Adams Leclair LLP, construction professionals in New York can find out what type of lien waivers to sign, some key dos and don’ts related to lien waivers, provisions related to lien waivers, and more.
How to Navigate through Lien Waivers?
The first thing to bear in mind as a construction professional is that providing lien waivers in exchange for payments is unavoidable. It is a part of every construction job, and in fact, you should be asked to provide lien waivers when you are paid for the project. There are a couple of things that you need to be aware of when dealing with lien waivers:
- Every state has different lien waiver provisions, so make sure that you are aware of all the provisions that are applicable in the state of New York. For example, New York permits mechanics lien on both public as well as private improvements.
- Under New York law, the general rule is that you cannot waive your lien rights in advance.
- For example, you are a subcontractor, and you sign a contract which includes the provision that you will not have any lien rights on this project. In New York, this will not be valid and enforceable, irrespective of what the contract states.
Can you sign a Lien Waiver before you get the Payment? - Understanding the Exception
Now, you may be wondering that if you cannot waive your lien rights in advance, then how can you be asked to sign a lien waiver before you get the payment? There is an exception to this general rule.
- Under New York’s construction law, lien laws are recognized through case law interpretations.
- So, you can waive your lien right if you sign the lien waiver shortly before you get the payment. This is a recognized exception.
- A key point to remember here is that if you did sign the lien waiver, but you did not receive the payment within a reasonable amount of time, then it would not be considered that you have waived your lien rights.
- So, if you had to wait for an unreasonable amount of time to get paid after signing the lien waiver, then it does not preclude you from filing a lien prior to getting paid.
Signing a lien waiver before you get paid is perfectly acceptable, and in fact has become the routine on every construction job. But you just need to be aware of your rights and file a lien if necessary.
Although it is acceptable to sign lien waivers before you get paid, it comes with one key problem. The problem is that a lot of lien waivers that you will see now are not limited to just waiving your lien right, but they are used to waive a lot more. This is why you must read your lien waivers thoroughly.
Example of Pure Lien Waiver in New York
Here is an example of how a ‘pure’ lien waiver looks like:
- In consideration of $___________, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the undersigned expressly waives and releases any right the undersigned may now have, or in the future will have, to a mechanics’ lien against the above-described property and improvements on account of labor and/or material furnished or to be furnished by the undersigned in furtherance of the above described project.
- So, when you sign a pure lien waiver with the above language, you agree that should you get paid within a reasonable amount of time, you give up your right to file a lien for the amount that you were paid.
- For example, if it’s a partial payment valued at $10,000 and you are still owed another $90,000, then the lien waiver will only waive off your lien rights for the amount you have received, i.e., for $10,000. It will not waive off your lien rights for the remaining $90,000.
Example of Impure Lien Waiver in New York
Here is an example of how an ‘impure’ lien waiver looks like:
- In consideration of $________ paid to Subcontractor by Contractor, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the undersigned Subcontractor expressly waives, releases and discharges the Contractor and Owner from any right the Subcontractor may now have, or in the future will have from any and all claims, causes of action, suits debt sums of money, damages, claims and demands whatsoever in law or at equity any other obligations respecting payment for, upon and by reason of the materials, equipment and/or labor heretofore furnished for work or services heretofore performed or furnished by Subcontractor in connection with the project.
- Subcontractor further covenants in consideration of the payment referenced above that it shall not claim or file a mechanics lien or other lien for any materials supplied and/or work furnished to the project and hereby formally and irrevocably releases and waives any and every lien, claim or charge of any nature whatsoever which it has concerning the payment for the project described above.
- This is considered as an impure lien waiver because it contains broader items than just your ability to file a lien for the labor and materials furnished. The second paragraph also reinforces the same idea that as a subcontractor you will be waiving off not just your lien rights but also all other claims and charges of any nature whatsoever related to the payment for the respective project.
- What this essentially means is that when you sign an impure lien waiver like this, you may be giving up on your lien rights related to any proposed change orders, or any other unresolved open claims, etc.
How to handle Impure Lien Waivers?
So, how do you handle such impure lien waivers? It may be difficult to deal with them in any general way because the language of these lien waivers is going to be different from contractor to contractor, owner to owner, etc. Here’s one way to handle it:
- At the end of the first paragraph, you can add an Asterix (*) symbol. This Asterix mans that you are giving up rights to services performed, or furnished by the subcontractor in connection with the project except for the below:
- You can add different exceptions like unresolved proposed change orders either by listing just the change order number or giving a brief description about the change if possible.
- You can also add exceptions like issues relating to extra costs for the extra work described in the correspondence dated (DATE) and related to (TASK DESCRIPTION).
You must ensure you are being as specific as possible when identifying the proposed changed orders or open issues. You can either have a handwritten note about these exceptions, you could type it in, put it in a PDF or attach it as a separate piece of paper.
The courts have also helped in this issue, recognizing this risk of inadvertently waiving rights.
- Under certain circumstances, the way the parties deal with one another might demonstrate that even though they signed a sort of broad form of release (an impure lien waiver) you might be able to escape its effects if there was a course of dealing between the parties that makes clear that it wasn't intended to be a waiver of the rights.
- You may be familiar with the concept of many subcontracts containing provisions which say that there will be no changes unless there's a writing reflecting that change or a written change order reflecting the change. This kind of provision in a contract is enforceable in New York.
- However, if there is an oral direction, i.e., a contractor orally informs the subcontractor that they want them to perform some additional work for which they will be paid, then you have a direction which is contrary to what the contract says, and it occurred after you entered the contract.
- So, if there is a conduct which is contrary to what the writing says, then there may be way to get around the impure lien waiver.
Key Takeaways
- Although the court may offer some way to get around the impure lien waivers, it is recommended that you do not simply rely on them. This is because you are going to face an argument that if a contract requires you to submit a claim for extra work in a certain way, within a certain time, and in a certain format containing specific information, then the email or correspondence may not be enough to preserve that claim.
- So, if you do have any unresolved open issues, make sure to clearly identify them in your lien waivers. Sometimes, even where you have that written notice requirement to preserve claims, the oral directives to perform can trump it. So, just be sure to document what happened.
- Also, remember that oral direction is an exception to the written change order requirement or can be but make sure that you do not rely just on the oral direction. This is because proving something that was spoken is going to be very difficult if you ever had to get into it later down the road.
If you find yourself in a situation where you need assistance with your construction project in New York then ensure that you get in touch with SunRay’s experts well in advance, so that they can take all the required steps promptly. Call 800-403-7660 today and get paid what you deserve!
Common Questions Asked by Contractors
When Should a Lien Waiver be Used?
Lien waivers should be used whenever a payment is made to ensure that the payee cannot file a lien for the amount paid. This is typically done at various stages of a project, such as after progress payments or upon final payment.
How Does a Lien Release Differ from a Lien Waiver?
A lien release is issued after a lien has been filed and payment is received, releasing the lien from the property. A lien waiver is signed before a lien is filed, waiving the right to file a lien in the first place.
What Happens if There is a Dispute After Signing a Lien Waiver?
If a dispute arises after a lien waiver is signed, it typically involves the terms of the payment or the amount. Legal counsel should be consulted to address such disputes.
Can I Negotiate the Terms of a Lien Waiver?
Yes, the terms of a lien waiver can be negotiated between the parties before signing to ensure all parties agree.
Can a Lien Waiver Be Revoked in New York?
Generally, once a lien waiver is signed and the payment has been received, it cannot be revoked. However, if there was fraud or duress involved, legal action may be taken.
