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Lien waiver for subcontractors

I am getting ready to start a project for a new homeowner. They asked me to produce a lien waiver for all my subcontractors before we begin work on the project. I guess I have two questions- 1) Can I have my subs sign a lien waiver before money has exchanged hands yet? Or should I just provide lien waivers for each progress payment? 2) Would it be easier to do an indemnification instead to protect the homeowner from any subcontractor mechanic liens?

1 reply

Jan 29, 2018

Colorado is one of the minority of states that allows the right to lien to be waived unconditionally through contract, prior to work being commenced (let alone payment being made or promised). This is not a popular position, however. As I am sure you are aware, subcontractors and suppliers are not necessarily keen on waiving the protections provided by lien rights before they even start work.

While it would probably go over better with your subs and suppliers to obtain and provide waivers to the owner pursuant to each progress payment, it doesn't appear that's what the owner is requesting. It' important to note, however, that (depending on the size and complexity of the project) it may be impossible to obtain lien waivers from all project participants prior to the beginning of the project. As you may know, but the homeowner may not, obtaining lien waivers from all your subs doesn't necessarily insulate the project from liens - there could be suppliers to subs, sub-subs, etc. that would still have lien rights if you provided waivers from all your subs prior to work.

It's also important to note that lien rights cannot be waived by third-parties (i.e. a waiver agreement by you cannot bind your subs or suppliers who are not parties to that agreement). This is also important in terms of indemnification. Since a third party cannot waive other parties' lien rights, an indemnification agreement executed between the GC and the Owner may control ultimate liability for claims made, but will not control the ability of parties to file a lien against the property. This may be enough for the property owner, but it won't, by itself, control the ability of other parties to file liens.

The best solution, if the homeowner is amenable, is to collect lien waivers all the way down the chain, pursuant to each progress payment. That way subs can provide their own waiver (and waivers from any sub-sub or supplier) and you can provide the subs' waivers (and your own) all "rolled-up" pursuant to progress payments. Everybody stays protected, everybody is communicating and working together, and everybody is working to avoid liens at the same time.

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