Are you waving goodbye to your lien rights in your contract? Can owners do that? Recently levelset reported that Virginia law permits a contractor to waive its lien rights in any project. While this certainly is not uniform across all states, there are a number of states which follow this line of thinking.
The existence of these laws can undermine a contractor’s true security in getting paid on a job, while providing assurances to consumers and builders that financing will not be held up by downstream contractors.
In Nevada, recent law effectively made it possible to limit lien rights during contracting. John Foust and John Ralls of Howrey LLP offer the case of Dayside, Inc. v. First Judicial District Court, 75 P.3d 384 (Nev. 2003) as an example of this unique legal protection. In that case, a contractor signing a standard form contract, which contained a waiver of lien rights clause was prevented from asserting its lien claim. The court found that a knowing assent to a clear and unambiguous term, waiving lien rights, was an enforceable clause which was not adverse to public policy.
In the book Fifty State Construction Lien and Bond Law By Robert Frank Cushman, Stephen D. Butler, Laurence Schor, the authors illustrate that the State of Alabama has permitted contractual waiver of lien rights prior to the work being initiated. The book, which can be found on Google Books, illustrates that Alabama further provides builders with the right to obtain a list of all other contractors working on the job from the general contractor.
On the contrary, states such as Pennsylvania have taken steps to ensure that contractors’ rights are not upended through contract. Joshua Lorenz of Meyer, Unkovic and Scott addresses the effect of a 2006 law, taking effect January 1, 2007, which unanimously passed through the state legislature with the intent to prevent contractual waiver of lien rights. Joshua’s analysis was that the law would have an immediate impact upon construction lending, title insurance and delays on projects.
A second opinion by Michael Zukowski, of Kirkpatrick & Lockhart states that in some instances, where contractors post a payment bond, or for residential construction under $1,000,000.00, a contractor may still expressly waive its lien rights prior to beginning work. Regardless, Pennsylvania’s stance clearly prevents builders from running amuck of the mechanic’s lien statutes.
Florida also prevents the pre-performance waiver of lien rights. An article by Jeffery Wertzman indicates that contractors cannot contractually release these rights until after they have actually performed the work to be released.
In 1994, New Jersey’s legislature passed sweeping reform to its mechanic’s lien statutes. The effect of these laws, among other things, abolished lien waivers during contracting as against public policy. Peter J. Smith of Connell Foley, LLP opines further in his article which can be found in the firm’s publications section.
Similarly, Illinois law expressly prohibits the waiver of lien rights during contracting. Heidi Hennig Rowe, of Schiff Hardin LLP’s Chicago practice, opines that the Illinois mechanic lien statute provides no avenue for a project owner to prevent a contractor from liening its project during contracting. Seemingly becoming the majority position, contractors’ rights are once again protected in the Midwest.