Construction payments are notoriously complicated and slow. It is a constant exchange of documents and approvals that can eat up a lot of time on a construction project, which is why contractors and subs need to get each transaction right the first time. Most importantly, the lien waiver exchange process. Some states leave the specifics up to the parties to decide in their contracts. Utah however, has specific statutory provisions that regulate the form and validity of lien waivers.
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The lien waiver exchange process
Lien waivers are a vital step to the construction payment process. And yet, their importance is often underestimated. This is particularly true if they are executed improperly. The problem is, that problems with one lien waiver can have a ripple effect on nearly every tier of the construction payment chain:
- Project lenders will usually request that lien waivers be submitted before releasing loan funds
- Developers or owners frequently require lien waivers to be submitted in order to protect both the property from liens and themselves from potentially double paying.
- General contractors are in charge of collecting lien waivers on behalf of owners and lenders for the release of payments.
- Subcontractors & suppliers are required to provide lien waivers in exchange for payment.
Because of the impact that lien waivers can have on the project as a whole, it’s important to ensure that they are executed properly. In some states, even the slightest error could potentially invalidate the entire lien waiver.
This guide is here to help provide the resources, information, and forms you will need to get the lien waiver exchange process right on your next Utah construction project.
Utah lien waiver rules
Depending on what state your construction project is located, will determine how lien waivers are regulated. However, waivers in their most basic form perform the same function. Lien waivers act as receipts for payment. A contractor signs this document either in exchange or to induce payment. Once this waiver is exchanged, the contractor is acknowledging payment and giving up a certain amount of rights to file a lien. That’s lien waiver fundamentals, let’s dive a little deeper into the specific Utah requirements.
For a quick reference of Utah lien waivers:
Utah regulates the form of lien waivers
Utah statutes provide the form and language that should be included to make a lien waiver valid and enforceable. In fact, they are one of the 12 states that provide statutory lien waiver forms.
The Utah lien waiver statute states that the waiver must be in “substantially the same form” as the ones provided. However, unlike most of the other 11 states that require waivers in substantially the same form, Utah courts have established the basic elements required to make a valid lien waiver. These elements are:
- A statement that the document intends to be a waiver in accordance with Utah law;
- Specific lien rights information, such as:
- Property name,
- Property location,
- Identity of the contractor’s customer,
- Invoice/pay application number, &
- Payment amount.
- Explicit notice to the contractor as to the effect the waiver will have on their lien rights and the conditions in which it will become effective; &
- A statement that the contractor has paid all subordinate claims subject to the waiver, or a promise that the funds received in exchange for the waiver will be used to make such payments.
This means that although the statute provides lien waiver forms, parties may still elect to create their own forms. But caution should be taken. If the form fails to include these four elements, the lien waiver will be invalid and unenforceable.
Lien rights can’t be waived before payment
These “no-lien clauses” that many owners and GCs like to include in their contracts are not enforceable. The Utah lien waiver statute specifically states that a waiver of lien rights is only enforceable if the claimant receives payment of the amount identified in the waiver.
Utah also adds an extra layer of protection against non-payment. Many times a subcontractor will receive a check in exchange for a payment that never clears. Bounced checks can cause a lot of problems for both parties. Utah statute eliminates this issue by providing that if the payment given in exchange for a lien waiver is a check and it fails to clear, for whatever reason, the waiver will be considered void.
Utah statutory lien waivers don’t need to be notarized
If using one of the statutory lien waiver forms, they do not require notarization. However, since the state of Utah allows for the use of alternative lien waiver forms, they may be required in certain circumstances. As long as the lien waiver form includes the 4 elements stated above, they will be valid.
Some contractors and owners may elect to require their lien waivers to be notarized. If the lien waiver provisions in the construction contract do not interfere with any of the statutory regulations, then the terms will be enforceable. If within the construction contract, it states that notarization is required, then it’s a good idea to go ahead and get it notarized.
How to choose the right lien waiver form
In the state of Utah, there are only two lien waiver forms provided by the statute. This is helpful, as it completely avoids the tug-and-pull battle typically associated with conditional and unconditional lien waivers. The two statutorily provided forms are (1) conditional progress lien waivers and (2) final payment waivers.
For guides on how to fill out Utah’s lien waiver forms:
The conditional progress waiver should be used throughout the project when receiving a partial payment, and not expecting any more on the project. These are conditional waivers, meaning that they do not become fully valid and effective until the condition (payment) is actually received. Not a check in hand, but actual transfer by the bank or financial institution into the claimant’s bank account.
The Utah final payment lien waiver should be provided in exchange for the last payment on the project. This is not labeled by the statute as conditional or unconditional. But, reading through the language and the statute itself, this also operates as a conditional waiver.
The form specifically states that the document will become effective once, “the check is paid by the depository institution on which it is drawn.” The waiver is final, however, meaning that if there are any unapproved change orders, disputed payment claims or modifications to the scope of work that hasn’t been covered by the payment amount, the corresponding lien rights will be waived.
The heavy regulation of lien waivers is meant to provide clarity and protections to both the sides of the exchange process. By limiting the choice of forms, and providing specific elements that constitute substantial compliance go a long way in informing contractors of their rights and remedies. The statute further protects subs and other lower-tiered project participants by making the validity of both lien waivers dependent upon payment.
However, since the statute allows for the use of alternate forms, caution should still be taken. Additional modifications and terms can still be added, setting potential traps for unsuspecting subs and suppliers. Best practice, always insist on using the statutory forms. If not, be sure to analyze the form thoroughly and negotiate the best terms possible to protect your rights.