Don’t Sign a Waiver or Release Without Reading - Kansas - Webinar

In this blog, presented by SunRay Construction Solutions and Leslie A. Boe, Share holder / Director, Dysart Taylor, you will learn about the difference between a lien waiver and a lien release and some key points to consider before you sign either of these forms.

What is the difference between Lien Waivers and Releases?

So, what’s the difference between a lien waiver and a lien release? Although both these terms are used interchangeably in the construction world, they are different.

• A lien waiver is a document that you will sign in advance, i.e., before you actually file a lien, thus, waiving off your right to file a lien.
• A lien release on the other hand is a document that you will sign after a lien has already been filed. As the name suggests, the purpose of the lien release is to release an existing line, so that if anyone searches the title on a property, they will not only see the lien but also that the lien was released.  

What is a Typical Lien Waiver / Payment Process?

Here is how a typical payment process works:

• A progress payment will be due from the owner to the general contractor.
• The general contractor will then ask the subs and the suppliers to sign their partial waivers.
• The general contractor will submit their partial waiver along with the partial waivers received from the subs and suppliers.
• Upon receipt, the owner, lender, agent or a title company will review the documents received to make sure that everything is in order.
• Once everything is verified, the general contractor gets paid, who then will pay the subs and suppliers.

When it comes to waivers, many of the subs and suppliers often think that they are just signing another document to go along with their payment application. However, the language present in these waivers is very important as they can even limit your lien rights in the future.

Know more: A Contractors, Subcontractor’s & Supplier's Step-By-Step Guide to Getting Paid

Another reason why you should read your waivers thoroughly is because there may be third parties relying on what you have signed. The courts often rely upon this third-party reliance while enforcing the very first result on someone who signed the waiver.  

What are the different Types of Lien Waivers?

Mechanics lien and bond claims can be waived off either through a partial lien waiver or a final lien waiver.

• A partial lien waiver is something that you will be signing all along in exchange for progress payments.
• A final lien waiver, which usually has more language than a partial lien waiver, is signed in exchange for final payment. When you sign a final lien waiver, it means that you are giving up on all your lien or bond rights for that project.  

Both these types of lien waivers can include terms that may be harmful to you. So, ensure that you read the documents carefully before signing them.

For further reading, check out our article: What Happens After I Record My Lien? How Do I Get Paid?

There are two primary types of limitations or quantifications when working with lien waivers:

• Time-based lien waiver – This type of waiver waives all your lien and bond claims as of a certain date.  
• Amount-based lien waiver – This type of waiver waives all your lien and bond claims attributable to the amounts listed.

Time-based lien waivers can be quite problematic, which is why it is preferred to work with amount-based waivers. As you must be aware, the payment process is a long and tiring process, and if you are working with time-based lien waivers, you may run into some problems.

When you are working with a time-based lien waiver, sometimes the date that you are waiting for all your rights to be through might be the date when the payments are actually made or the date of the check. For example, your payment application is due on the 15^th but the date when you sign your lien waiver may be the date that you waived off all your lien rights and it may not actually equate with the money that you are getting.

What is the Typical Lien Waiver Language?

Here is a typical lien waiver language:

The undersigned waives all right to file a mechanics lien or bond claim against the property or any improvements thereon, for any labor and/or materials supplied

1. Conditioned upon receipt of $________

Or

2. As of a specific date (date of invoice, date of payment, etc.).

The underlined language ‘conditioned upon’ is very important because you want your lien waivers to go into effect only after you have received the money. Also, if you are going ahead with a time-based lien waiver, then you need to be very careful that the effective date is the date that matches up to all your invoices and labor for which you are getting paid.

What are the various problems with Lien Waivers?

Below are some of the problems that you may see with different types of lien waivers:

• Contractual Lien Waiver – This is a lien waiver that shows up in your contract even before you start working on the project. When you sign such a contract, it means that you are waiving off your lien rights. However, this type of lien waiver is not enforceable in Kansas. However, it may be enforceable in other states, so make sure that you are reading your contract thoroughly.  
• Unconditional Lien Waiver (not conditioned upon payment) – Make sure to include the language ‘conditioned upon receipt of” and avoid language like “receipt of which is hereby acknowledged”, especially if payment has not been received at the time the lien waiver is signed.
• Lien Plus Waiver – Make sure that the waiver that you are signing is only waiving off your lien rights and bond claims and not “any and all claims” that you may have.
• Indemnification Clauses – A sample language would be, ‘Signor agrees to indemnify and hold lender and owner harmless from any and all liens, claims or actions made against lender, owner and/or the property for said labor and/or materials.” Such a clause may be appropriate if all the other terms of your lien waiver are limited.  
• Lien Waivers on Checks – Another very common situation is having a lien waiver on the back of a check. A sample language would look like, “By endorsement hereon, the undersigned hereby acknowledges payment in full and does release and waive any and all right and claim against maker hereof and the real property described by address on the voucher attached to this check…on account of equipment or material furnished and/or labor performed to date in relation to the said real property…”

You need to make sure that you are checking the back of a check for such waivers as the amount included in the check may not be accurate. For example, it may not include any outstanding change orders which have not been approved, delay claims, etc.

Preserving Lien and Bond Rights

If you have been presented with a waiver that does not include favorable terms or if it looks a bit sketchy, then the best option is to reach out to a lawyer and ask them to look at it before you sign the waiver. Here is a sample language that you can either include in your contract for all releases and waivers or include it in your actual waiver or release forms:

• “This release or waiver shall apply only to work, or material furnished for which payment has been received in full and shall not apply to retention, unbilled changes, claims which have been asserted in writing, or claims which have not yet become known to Subcontractor/Supplier; and shall be conditional upon receipt of funds to Subcontractor’s/Supplier’s account.”

The above language pretty much covers all the things that we have discussed in the blog so far. Another recommendation is to be as specific as possible. For example, if you know that change orders 4 and 5 have not been approved yet, then mention clearly that you are not waiving off your rights for change orders 4 and 5 and any other unbilled claims.  

Conclusion

Many people also believe that they cannot suggest edits and simply go ahead and sign the waiver as is. However, you have every right to make changes before you sign the waiver. Again, remember never to sign your waivers and releases without reading the document thoroughly and ensuring that the terms are not harmful for you in any way.