One topic we frequently write about here is whether a party such as a subcontractor or supplier can waive any mechanics lien rights they might have on a property, and, if so, how that waiver will stand up to judicial scrutiny. For example, Wisconsin permits enforceable lien waivers at any point “whether or not consideration has been paid” to the subcontractor. Utah, however, will not to enforce a waiver of lien rights unless strict conditions are met. How does New York address the issue of a waiver of lien rights? Is a document titled New York “final waiver” enough to enforce that waiver in a court of law?
Waiver of Mechanics Lien Rights in New York
Besides the form, it’s helpful to discuss what New York law has to say about waivers. Unlike other states, New York does have a statute on the books dealing with whether a waiver of lien rights is enforceable:
Notwithstanding the provisions of any other law, any contract, agreement or understanding whereby the right to file or enforce any lien created under article two is waived, shall be void as against public policy and wholly unenforceable. This section shall not preclude a requirement for a written waiver of the right to file a mechanic’s lien executed and delivered by a contractor, subcontractor, material supplier or laborer simultaneously with or after payment for the labor performed or the materials furnished has been made to such contractor, subcontractor, material man or laborer nor shall this section be applicable to a written agreement to subordinate, release or satisfy all or part of such alien made after a notice of lien has been filed.
Translation: Waivers of lien rights are presumed invalid and against public policy unless the subcontractor or supplier agrees to waive its lien rights at the same time or after it has been paid.
“Given the strong presumption against the validity of a lien waiver, property owners are always trying to comply as fully as possible with the statute.”
Given the strong presumption against the validity of a lien waiver, property owners are always trying to comply as fully as possible with the statute and make the New York waiver language as crystal clear as possible in the hopes of enforcing a waiver. Even with such efforts, as we will see, courts and subcontractors have still found ways to argue that a seemingly enforceable waiver of lien rights is actually unenforceable.
A Recent Case Applying New York’s Waiver Law
New York’s Supreme Court, Appellate Division, Fourth Department recently issued an opinion in a waiver of lien rights case, Leonard E. Riedl Construction, Inc. v. Homeyer.
In that case, Riedl, the plaintiff, was hired by the defendant to perform some sort of work on Homeyer’s property. (Unfortunately, the opinion is extremely sparse on the facts of the case, so we don’t know what kind of property Homeyer owned or what kind of work Riedl performed). After winning at the trial court level, the court awarded Riedl approximately $70,000 in damages, including approximately $54,000 in breach of contract damages and $16,000 in interest on those damages.
On appeal, the defendant alleged that the trial court erred in granting the plaintiff damages because Riedl had signed a “document entitled ‘Contractor’s Final Waiver and Affidavit.'” Homeyer alleged that since the plaintiff had signed an affidavit stating that the construction was “fully completed” and the bills Riedl sent were “fully paid,” Riedl thereby waived “any and all lien rights which he may have or may have had” as a result of performing work on the project.
One of the classic issues in contract interpretation is whether to permit “parol evidence” into that interpretation. The issue essentially boils down to whether a court will only at the words contained within the four corners of the contract or whether a court will look at other evidence surrounding the contract, such as subsequent verbal agreements that were never reduced to writing but altered the terms of the written contract.
Here, the trial court adopted a “liberal” view of the parol evidence rule and looked at subsequent verbal agreements between Riedl and Homeyer. In doing so, the court found that “at the time the document was signed, the work had not been completed and the defendants had verbally agreed to make additional payments for the completion of additional work” (emphasis added). In fact, the court further found, the defendant did make further payments to the plaintiff for additional work he performed.
“In this case, the court’s holding boiled down to what the parties intended when Homeyer offered and Riedl signed the Contractor’s Final Waiver and Affidavit.”
In this case, the court’s holding boiled down to what the parties intended when Homeyer offered and Riedl signed the Contractor’s Final Waiver and Affidavit. Had the parties really intended for the waiver to be final, then they would not have agreed on further work and payments for that work. Instead, the parties essentially voided their own “final” agreement by permitting Riedl to perform extra work for which it was paid. Indeed, as the trial court ruled, Riedl was entitled to damages, interest on those damages, and attorney fees.
Although the statute doesn’t say so expressly, the court reasoned that in order for a New York final Lien Waiver to be enforceable, it must be signed only after the subcontractor or supplier has furnished all the labor materials it ever will on the contract and its last payment for such furnishing really was its last. If further work is performed after a New York “final” lien waiver is signed, then the waiver isn’t final after all and in fact, the entire waiver is unenforceable.
Lessons from Riedl v. Homeyer
There are a few key lessons that both subcontractors and property owners can take away from this recent case.
First, despite the presumption against the enforceability of a waiver of lien rights in New York, the court implied that had the “final” waiver really been final, the waiver would have been enforceable. Therefore, enforceability may be difficult to achieve, but it is still possible.
“Property owners should be very careful in both the wording of their lien waivers and how they treat those waivers.”
Second, property owners should be very careful in both the wording of their lien waivers and how they treat those waivers. It’s not clear whether or not a valid lien waiver must include the word “final” in its title (our form doesn’t include such wording); rather, what’s important is that whatever the terms of the lien waiver are, both parties must respect those terms. In this case, even if Riedl was the perfect firm to complete the extra work Homeyer needed, Homeyer could have considered finding another firm to complete the work if it wanted the lien waiver to be enforced in court. Of course, Homeyer could also have had Riedl sign another waiver of lien rights after that subsequent work was performed.
Finally, and as always, the parties in a given contract dispute get what they contracted for! If a party breaches the terms of a contract it wrote itself, then a court will not hold that the provision at issue is enforceable.