Contractors cross state lines for jobs all the time. It’s just smart business to go where the work is. But one aspect that might be overlooked when crossing state lines is what to do with lien waivers.
Will your California waiver forms be valid in Arizona? (No.) What about in Texas? (Also, no.)
Keep reading for an important discussion about which lien waiver forms you should use when your cross state lines to take on a new construction project in another state. But first, we’ll begin with a brief discussion about the lien waiver forms you should be using at home.
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What Lien Waiver Forms Are You Using in Your Home State?
As we’ve stated numerous times, lien waivers are incredibly important to the construction payment chain. The problem is that lien waivers can be trickier than they should be.
Initially, lien waivers had a simple function: to act as a receipt of payment in exchange for a waiver of rights. No problem! But as you work in different jurisdictions, this can become much more complex.
The best place to start, then, is to know your own state’s lien waiver requirements first! As I mentioned above, some states have very specific and strict requirements for lien waivers.
Where It Matters Most
For instance, there are 12 states that provide statutory lien waiver forms that must be used. These states are Arizona, Florida, California, Georgia, Massachusetts, Michigan, Mississippi, Missouri, Nevada and Texas. If you are furnishing materials, labor or services to one of these states, you must use these forms or risk your waiver being invalid. Even within these states, there is a varying degree of how closely the form must be adhered to. Nevada, requires word for word compliance, while Florida provides standard forms, but parties are not required to use them.
The Wild, Wild West
The real problem comes when operating in a state without any regulations on lien waivers. Without specific guidelines, this is where we enter the “wild, wild west of lien waivers.” The lack of any specific requirements leads to inconsistency and confusion. In these states, courts have enforced waivers that do a lot more than just waive lien rights. Parties are given broad discretion to draft lien waivers however they choose. Of course, that doesn’t mean contractors should use this as an opportunity to take advantage of the process.
What to Do When Crossing State Lines
For states that don’t have required lien waiver forms, contractors should standardize their waivers – or at least utilize some standardized waiver. By doing so, the contents of a lien waiver will never come as a surprise. Considering the large majority of states don’t have a required form – a contractor could even use the same standardized form in all of those states.
In a state where waiver forms are largely unregulated, it may be tempting to slip other language into a lien waiver. It’s unfortunately relatively common for a waiver to waive more than just lien rights. But to have another party unwittingly sign away rights beyond their right to lien is just bad business. It’s sneaky, will lead to disputes, and could even be damning to your reputation in the industry. At the end of the day, everyone just wants what’s fair and to be paid what they’re owed. We often state that communication and transparency are the keys to solving payment chain issues and greasing the wheels for payment. On top of that, operating fairly will always be good business.
Given the widespread use and inherent difficulties with non-statutory forms, there seems to be a trend of states moving towards more regulation and standardization. Lien waivers were never intended to be used as other than a receipt of payment and waiver, if you find that you have lost other rights or leverage, the drafter is taking advantage of the state’s lack of regulation. They are designed to prevent abuses, not facilitate them. Believe it or not, more regulation from these “unregulated states” would really simplify performing work across state lines – it would eliminate the confusion, uncertainty, and downright messiness surrounding innumerable different waiver forms. Until then, though, it’s up to contractors to understand waiver requirements and standardize sound waiver practices.