One of the most important documents exchanged in the construction payment process is a lien waiver. California regulates lien waivers pretty tightly, but there are still some potential pitfalls for construction businesses. Here are some of the common mistakes and how to avoid them.
For a deep dive on California lien waivers:
1. Requesting improper lien waiver forms
California is one of 12 states that provide statutory lien waiver forms. This is an attempt to simplify the lien exchange process and even the playing field for those seeking payment. The lien waivers must be in substantially the same form as the ones provided by statute. Requesting an incorrect form from subs or suppliers can not only invalidate the waiver, but it could also open up the possibility of penalties. CA Civ Code §8122 states that any and all waivers, except those provided by statute, shall be void and unenforceable. But, that’s not where the story ends.
“no contractor that is required to have a license under this chapter, shall require a waiver of lien rights from any subcontractor, employee or supplier in violation of §8122.”
Violation of this provision can result in fines that can range anywhere from $100 to $1,000 per violation. For a project with a lot of subs and suppliers, that can add up quickly. Be sure you are using the right forms.
2. Modifying the statutory lien waiver
California is particularly strict concerning lien waivers. The California Civil Code repeats the same language over and over; “the waiver and release shall be null, void, and unenforceable unless it is in substantially the same form.” The keyword here is substantial. Although the statute presumably leaves some leeway into the form, California courts tend to enforce this rule pretty rigidly.
Adding any sort of language or modifications is a risky proposition. This will open the possibility of invalidation, or worse squabbling over the lien waiver form in court.
Parties need to ask themselves, “Is the addition is worth the risk of an unenforceable lien waiver?” If you are considering adding something to the forms, it’s likely important. The more important the addition is, the greater the chances of the form being substantially different from the form provided. Even the simple act of notarizing a California lien waiver can put its validity in jeopardy. Do not waste the usefulness of this lien waiver by adding unnecessary language to the form.
3. Getting the “through-date” wrong on progress payment waivers
The “through date” on California progress payment lien waivers (§8132 & §8134) is crucial in determining what rights being waived. Therefore, when a claimant signs a progress waiver, they’re waiving lien rights for any work or materials provided up until the through date.
Essentially, this is the date a claimant is invoicing the job through. Claimants should never waive their rights for work that hasn’t been invoiced yet. Providing the wrong date or leaving it blank, can result in waiving more rights above and beyond the payment currently being collected. Any labor or materials furnished after the invoice period will no longer be protected by lien rights.
Lien waivers are powerful, this is why California has attempted to make this process easier by providing statutory forms. However, there is still some margin of error. Avoiding some of these common mistakes can help ensure you get paid what you’ve earned. Review these documents carefully, and never waive more rights than you should.