Lien waivers are integral to keeping cash flowing on a construction project. Each higher tier won’t release payments until collected from the tier below them. Although the act as mere receipts for payment, the effect on mechanics lien rights are severe. Signing a lien waiver with unfair terms, or the wrong type of waiver for your situation could seriously damage a contractor’s ability to recover payment for work performed. Let’s take a look at how lien waivers work in Nevada.
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Exchanging lien waivers
On just about every construction job, lien waivers are required in exchange for payment. The importance of lien waivers can’t be overstressed, as it affects nearly everyone associated with the construction project:
- Lenders– loan funds will typically be tied to the receipt of lien waivers from all project participants
- Developers and owners– will almost always require lien waivers on the project to protect the property and to ensure they don’t pay twice for the same work.
- General contractors- collect lien waivers not only to protect themselves from liability but also to ensure that the owners will draw funds.
- Subcontractors & suppliers– won’t be able to receive payment unless they have executed a lien waiver in exchange or to induce payment.
In order to keep the cash flowing on any given construction project, it’s important to get the lien wavier exchange process right. The state of Nevada regulates the lien waiver process rather closely, that’s why anyone working on a Nevada construction process needs to know how to execute these properly. Any mistakes could invalidate the entire lien waiver and inevitably delay payment even further.
For a quick reference guide:
Nevada lien waivers must be in statutory form
Yes, Nevada law requires lien waivers to follow a certain prescribed form. In fact, they are just one of 12 states that provide statutory forms. The Nevada statute explicitly states that any written consent given by a lien claimant that waives or limits any lien rights is unenforceable unless the lien claimant, “executes and delivers a waiver and release in substantially the same form set forth in this section.”
Any deviation or additional language added to these forms could result in an unenforceable lien waiver. The courts are typically quite strict about this. The whole point of using statutory lien waiver forms is to avoid the disputes that can arise by using custom or alternate waiver forms. This ensures no additional rights are being waived.
How to choose the right lien waiver form:
Providing statutory lien waiver forms is an attempt by the state legislature to simplify the process of choosing lien waiver forms. However, there are still 4 different types of lien waiver forms to choose from. The correct form must be used with every payment exchange, or complications can arise. Here’s how to choose the best form for your situation.
What type of payment is being received?
All payments made on a construction project can be categorized as a “partial” payment or a “final” payment. The first step in choosing the right form is to determine the type of payment is being exchanged for the waiver.
If the potential claimant is getting paid during the project close-out, and no other payments are expected on the project, then this is the final payment. Alternatively, if the contractor or supplier is anticipating future installment payments, then this is a progress payment.
Has payment been received?
This is important to decide whether to use a conditional or unconditional lien waiver. If payment has been actually received, then an unconditional should be used. If providing a lien waiver to induce payment, then a conditional lien waiver should be used. These are the best kind of lien waivers, as they are not fully enforceable until payment is actually received.
Selecting the right form
Once you’ve answered these two questions, choosing the right form is rather simple. Here is a quick chart to selecting the right form, along with links to free, downloadable templates and guide on how to fill out each form:
|Final Or Partial Payment?||Payment Made Already or Not?||Lien Waiver Form Download|
|Partial||Payment Not Made||Conditional Progress Lien Waiver|
|Partial||Payment Already Made||Unconditional Progress Lien Waiver|
|Final||Payment Not Made||Conditional Final Lien Waiver|
|Final||Payment Already Made||Unconditional Final Lien Waiver|
Unconditional waivers can actually be conditional
Each Nevada unconditional lien waiver form needs to include certain notice language. In order to substantially comply with the statutory form, they must include the following notice in type at least as large as the largest type on the document;
Notice: This document waives rights unconditionally and states that you have been paid for giving up those rights. This document is enforceable against you if you sign it… even if you have not been paid. If you have not been paid, use a conditional release form.
This is pretty standard language on statutory unconditional lien waivers. But, there’s a catch. After the form requirements are listed in the statute, there is another provision that seems to turn this on its head;
Notwithstanding any language in the waiver and release form set forth in this section, if the payment given in exchange for any waiver and release of lien is made by check, draft or other such negotiable instruments, and the same fails to clear the bank on which it is drawn for any reason, then the waiver and release shall be deemed null, void and of no legal effect.
In a decision by the Supreme Court of Nevada, a bounced check will invalidate an unconditional waiver. So even if signed an unconditional waiver before the check clears, the statute will invalidate the waiver to protect subs and suppliers. Nevada courts, as a matter of public policy, usually tend to favor the protection of payment rights for contractors.
Lien waivers don’t need to be notarized in Nevada
No. Absolutely not. Only 3 states in the country require that lien waivers be notarized; Mississippi, Texas, and Wyoming. There are some in the construction business that believe notarizing every lien wavier form is “industry best practices.” But the truth of the matter is, if not working in one of the three aforementioned states, this is just a waste of time; or even worse.
If operating in Nevada, or any of the other states that provide statutory waiver forms, this could actually work to your disadvantage. Since the statutes in nearly all these states require that the waiver, “be in substantially the same form set forth” notarizing the waiver could actually invalidate it. Anytime you consider making any adjustments or modifications on a statutory lien waiver form, don’t. That includes adding a notary block and stamp.
Lien rights can’t be waived by contract
We like to refer to these as “no lien clauses.” This is an attempt to have a subcontractor or supplier to agree to perform construction work without the safety net of lien rights in case they don’t get paid. Each state regulates these clauses in their own way. Some allow the parties to do so, under the principle of freedom of contract.
Others, such as Nevada, prohibit this practice. In fact, Nevada statutes are explicitly clear about this. The relevant provision states that “any term of a contract that attempts to waive or impair the lien rights of a contractor, subcontractor or supplier is void.” The only way to validly waive mechanics lien rights is to follow the specific statutory forms in exchange for payment.
Lien waivers don’t have to be complicated, but proper attention should be given to them. Fortunately, Nevada mechanics lien waiver statutes are pretty straightforward. Not to mention that protecting mechanics lien rights is preferred as a matter of public policy. But mistakes can still happen, be sure to give lien waivers the attention they deserve, don’t lose out on money that you’ve already earned!