Securing Your Payment Rights: What to Know Before Signing Releases in Washington

In this blog, presented by SunRay Construction Solutions and Christopher Grady, Attorney, Aldrich Goldstein, construction professionals in Washington can learn in detail about what these key items are and what are the different dos and don’ts to follow before they sign a release to ensure that they get paid correctly and successfully.  

The Construction Contract

As construction professionals, you must be aware of how important your lien and bond rights are. These are quite technical in nature and if you don’t do all the required things the right way or if you don’t perfect them as per the statutory requirements, then your lien or bond rights can disappear. However, what is even more important here is your construction contract. This is because even if you have perfected your lien and bond rights, if you don’t have a good construction contract, then things may not work out for you. In general, it is your contract that determines whether or not you have a right to payment under the contract.  

This is why it is important to have a good contract. Irrespective of what your role is in the construction project, you must ensure that the contract contains the required basic information. If you have control over the contract, then you can negotiate and include favorable terms in it; but if you don’t have control over it, then the bare minimum would be to ensure that it has the below basic information:

• Parties: The contract should clearly state the party names, i.e., ownership/entity names and names of those who have the authority to make and execute decisions. You should also ensure that your entity name is also entered correctly.

• Project Info: Basic project information should be included, such as description of the project, address and owner information, etc.

• Price and Payment Terms: List down the basic price and payment terms, such as is it fixed price or cost price, does it include Guaranteed Maximum Price, does it include payment provisions like pay-if-paid / pay-when-paid, etc. Ideally, if you are subcontractor, then it is best to avoid the pay-if-paid or pay-when-paid provisions because if the owner does not pay the general contractor, then they are not obliged to pay you also even if you have performed your work diligently.  

• Schedule: It is very important to include your schedule as it will help in establishing your relationship with lien timing. So, include your date of commencement, substantial and final completion dates, terms that address delays, remedies for the delays, who has the burden to prove the delays, etc. Sometimes, subcontractors often encounter delays that are not their fault, and they get dragged unnecessarily in the project. In such cases, if their contract is not set up correctly, they may not get paid for the delays.  

• Scope of Work: It is important to have your scope of work well defined in the contract. You must describe what work is being performed (labor, materials, equipment, services), define the change order process, are there any design / build elements, who will bear the cost of permits and inspections, etc.

If there is one change that you should make in your construction contract, then it is a provision related to attorney fees. As a subcontractor or contractor who is especially contracting with the owner, you will often see an attorney fee provision in your contract. What this provision essentially says is that the prevailing party in a lawsuit will get to recover their attorney fees, expert fees and other costs from the losing party in the lawsuit.

Now, if you are contracting with the owner, then it is recommended that you delete this provision. This is because as a contractor or subcontractor, you have lien rights and if you have perfected your lien rights in a litigation, then you will be able to recover your attorney fees.  

If you don’t delete it, then once the project is completed and everybody has been paid, the owner can use this prevailing party provision against you in a defect claim. If you get this provision removed, and you are not paid, but you have properly set up your claim and you are able to prosecute a claim, then you will get the attorney fees for your lien rights.

How to Secure Your Lien Rights?

As mentioned earlier, liens are a very process-oriented statute and if you don’t do things as per the statute, then you will lose your lien rights. Let’s take a look at some of the basics.

A) Basics – What is a Construction Lien?

• A construction lien is essentially a security interest in real property.

• It is available to any person or entity who provides labor, materials, equipment or professional services for improvement of real property as part of a private construction project.

• If done correctly, then the lien gets attached to the property (typically, land and improvements) and it has priority over some other types of debts.

• The ultimate remedy of a lien is a forced judicial sale of the property, and the proceeds of the sale is used to pay the debt.

• The prevailing party may have the right to attorney fees.

• The lien must be perfected by following the requirements based on the type of project and claimant under Washington law.

• The lien laws are strictly construes which means that you have to pay close attention to the notice and timing requirements. Failure to meet these statutory requirements will result in your lien becoming invalid or unenforceable.

Ideally, if you have your construction lien rights set up properly, you may not even end up requiring an attorney. This is because experienced owners and general contractors will understand that if you have your lien rights set up correctly, then they may get into trouble if they don’t pay you.

B) Basics – Ensuring You Have the Right to Lien

• Type of Project – Lien rights are applicable only on private construction projects.

• Type of Contractor or Supplier – Lien rights are available to anyone who provides labor, materials, equipment or professional services for the improvement of real property.  

C) Lien Basics

• A lien is measured by the contract price for the work. This is another reason why you need to clearly mention the contract price in your contract because at the end you will be fighting for whatever is mentioned in your contract.  

• The lien is applicable for the work authorized by the owner.

• It is typically for improvement and in most cases the lot, tract, or parcel of land which is improved.

How to Secure Your Bond Rights?

Liens are not available on public projects, instead the law provides for payment bonds in place of liens. Public projects are government projects wherein the Washington and federal laws require prime contractors to furnish a payment bond in order to provide security for the payment rights of suppliers and subcontractors.

So, who are the claimants under a payment bond? All laborers, mechanics, subcontractors and material suppliers, and all persons who supply such person or persons, or subcontractors, with provisions and supplies for the carrying on of such work.

• Pre-Claim Notices

• Pre-claim notices are required for all potential bond claimants who do not have a direct contract with the prime contractor (except for laborers).

• Pre-Claim Process

• The claimant must sign a written ‘Notice of Claim’. This is a very specific form prescribed by the statute and you must follow it properly.

• The claimant must present and file the notice of claim with the correct recipient (board, council, commission, trustee, etc.)

• The written notice must be filed within 30 days from and after the completion of the contract with an acceptance of the work by affirmative action by the recipient.

Lien: Rules and Exceptions

Let’s look at some of the lien rules and exceptions to follow.

A) Pre-Claim Notice Requirements

• Commercial Projects – For commercial projects, a pre-claim notice must be given by material or equipment suppliers who do not contract directly with the owner and subcontractors who do not have a direct contract with the prime contractor.

• Owner-Occupied Single-Family Residences – For owner-occupied single-family residences, a pre-claim notice must be given by persons or entities who do not have a direct contract with the property owner. An exception to this is people whose claim is solely for labor and first-tier subcontractors who have a direct contract with the prime contractor.  

B) Pre-Claim Notice Form & Delivery

• There is a specific form of notice provided by the statute (RCW 60.04.031). You must ensure that you are using the statute-provided form.

• The notice must be given to owner or reputed owner.

• The notice must be sent via certified/registered mail or by personal service. If you fail to follow these forms and delivery requirements, you may lose your lien rights.

C) Pre-Claim Notice Timing

• Commercial Projects – For commercial projects, the notice must be given within 60 days of starting work, supplying materials or equipment. This will preserve your lien right for all the work done, materials supplied, and equipment furnished. Later notice will only preserve part of the work, materials, or equipment.

• Single Family Residences – For single family residences, if it is a new construction, then the notice must be given within 10 days of starting work, supplying materials or equipment. If it is occupied single-family residences, then the notice must be given prior to the time the owner-occupier pays the prime contractor.

D) Lien Filing Requirements

• Once you have performed the above steps, the next step is to file your lien within 90 days after the claimant has ceased to furnish labor, equipment, or materials to the project (or last date on which employee benefit contributions were due).

• Ideally, it is recommended that you don’t wait until the end. You should start marking your calendar from the earlies date that anybody could argue that you have ceased to provide labor, materials, or equipment.

• Also, it is recommended that you start the lien filing work at least two weeks before the 90-day deadline so that you have sufficient time to file your lien properly.

E) Form and Delivery of Lien Claim

• The statute provides a form of lien claim and it states that a lien claim that substantially follows the statutory form is sufficient.

• Once you file your lien, the claimant must provide a copy of the lien to the owner or reputed owner.

• This should be done via certified or registered mail or by personal service.

• The claimant should provide a copy within 14 days of the time the lien is filed for recording.

F) Foreclosing a Construction Lien Claim

• If you are still unpaid, then you will need to hire a lawyer to foreclose the construction lien claim.

• A foreclosure action must be filed in the Superior court in the county where the property is located.

• This foreclosure action must be filed within eight calendar months after the lien claim is recorded.

• Ideally, you should contact your lawyer by the sixth calendar month so that they have enough time to evaluate your claim without worrying about the deadline.

Lien Law Traps to Avoid

Here are some of the key lien law traps that you should avoid.

A) Avoid Pre-Emptively Waiving Your Lien Rights in the Contract

• Although it is not common in Washington, there are some construction contracts that ask the contractors or subcontractors to waive their lien rights in advance. In general, do not agree to give up your lien rights in advance.

• Try to avoid pay-if-paid and pay-when-paid provisions in your contract. If you have such provisions in your contract and if the general contractor does not get paid for let’s, say two years, then you will also not get paid for two years. So, make sure you do not have such unfavorable provisions in the contract.

• You can provide appropriate lien releases as part of the payment process.

B) Follow Notice Requirements in Contract

• Washington strictly enforces notice provisions in contracts.  

• So, apart from following all the lien statutory processes and requirements, if there are any notices requirements in your contract or subcontract, then you need to fulfill those requirements as well.

• These notice requirements can be completely different from your lien requirements and if you fail to fulfill them, then you may not be able to recover on your lien.  

C) Register as a Contractor

• You must ensure that you have registered as a contractor prior to entering into a contract.  

• An unregistered contractor cannot sue an owner to foreclose lien claim.  

• It's a gross misdemeanor to perform construction without being registered, so you will get fined for that.

The Right Way to Exchange a Release for a Check

Here is the recommended way to exchange a release for a check.

A) Owner’s View

• From the owner’s point of view, their main concern is to ensure that the work has been completed properly and in a timely manner at the price that was agreed upon.

• Owners should typically get a full release of all claims as of a certain date (however, contractors should avoid agreeing to this).

• Owners basically want to ensure that they don’t end up paying twice for the same work.

B) Contractor’s View

• The primary objective of the contractor is to get paid.

• They want to preserve pending and potential claims to the extent possible.

• They also want to ensure that the subcontractors and suppliers will not lien the project once they get paid.

C) Subcontractor’s/Supplier’s View

• The primary objective of the subcontractor and suppliers is also to get paid.

• They also want to preserve pending and potential claims to the extent possible. This is especially important because there may be instances where you might have pending change orders, dispute about scope of work etc., and you don’t want to waive your rights in advance for these instances.

Now, there are two types of lien releases – conditional and unconditional.

• A conditional release is used prior to getting paid and an unconditional release is used after the payment has been received.  

• Again, your lien release should be to the extent of payment. You should avoid singing broad release that release all claims as of a certain date.

• Make sure you have the right to make claims to the extent possible.

• You should also list down all your know claims and open change order requests.

• Another key action item is to pay attention to what is written on the check. Some owners include language, such as, ‘Payment in Full’ or ‘Endorsee hereby waives all claims. If you notice such language, it is better to strike them off or modify the language unless you really intend to waive any remaining claims.

So, these are some of the key action items that you should follow to preserve your lien rights and ensure that you get paid successfully. Also, make sure that you are signing a release only for the work for which you have received the payment.  

If you find yourself in a situation where you need assistance to get paid, 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 Contractors Ask

Why is it important to understand lien rights?

Understanding lien rights is crucial because they serve as a legal security interest in real property for those who provide labor or materials. Misunderstanding these rights can lead to losing your right to payment or enforceability of your claims.

What should I do if I’ve already signed a release?

If you've signed a release and are concerned about your rights, it's advisable to consult with a legal expert who can review the release and provide guidance on your specific situation and options moving forward.

Will I receive any materials or resources after the webinar?

Yes, participants will receive a checklist of key items and tips discussed during the webinar, which will help you navigate the signing of releases more effectively in the future.

How do I know if my construction contract is adequate?

An adequate construction contract should clearly outline the parties involved, project details, price and payment terms, schedule, and scope of work. It’s important to review these elements and consult a legal expert if you're unsure about any aspects of your contract.

What are the risks of signing a broad release?

Signing a broad release can waive your rights to any future claims related to the work completed before a specific date, potentially leaving you unprotected if issues arise later. It's essential to ensure that your release is conditional and only pertains to the payment received for specific work.

Are there any common mistakes to avoid when signing releases?

Yes, common mistakes include not understanding the terms of the release, failing to address pending change orders, and overlooking the language on the check associated with the payment. It’s crucial to read all documents carefully and seek clarification when needed.

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