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Signing a lien release

12 months ago

We have a contract with a General Contractor to do projects for them which includes warranty work. The warranty is for 1yr, meaning if a repair needs to be done within one year of any of the work we’ve done for a project we are obligated, by contract, to do the warranty work. I should note that some warranty work can be billable.

The GC has sent us Lien Waiver’s stating that the projects we’ve done work for them on has been paid in full. However, we still have warranty work that could be done on these projects that we would be responsible to repair for the next year.

My question is, in order to protect ourselves and ensure that we will be paid for any billable warranty work, should we hold off on signing the lien waiver until the warranty expires? Should we make the GC wait a full year before we sign the lien waiver?

Senior Legal Associate Levelset

That’s a really good question. First, as you may already know based on the question above, lien rights could exist in billable warranty work, but if payment won’t be due based on the work, no lien rights would arise. As for the question at hand – whether exchanging a waiver now or holding off until later is proper – will ultimately boil down to a business decision by the lien claimant. Still, there’s some relevant information here that could help inform that decision. First, let’s look at some options for exchanging a lien waiver now. Michigan is one of relatively few states that has mandatory statutory lien waiver forms. If one of these forms isn’t utilized, then the waiver will be invalid.

The statute (§ 570.1115 of the MI lien statute) provides forms for (a) Partial Unconditional Waiver; (b) Partial Conditional Waiver; (c) Full Unconditional Waiver; and (d) Full Conditional Waiver. When a waiver is “partial”, of course, the lien waiver indicates that the payment exchanged is not final payment. When a waiver is “final”, that indicates no payments remain due. When a waiver is “conditional”, it means that the waiver is conditioned on the receipt of payment. When a waiver is “unconditional”, that means payment has been made and the waiver is not contingent on the receipt of payment – because that receipt has already occurred. So, considering there are so many options for lien waivers, there’s a fair chance that one of these forms will be appropriate. If a Partial Unconditional waiver is exchanged, that waiver will indicate that lien rights for the full amount on the waiver have been waived, but also that future payment might become due. If a Final Conditional waiver is used – that waiver becomes effective upon the receipt of final payment – if additional payment later becomes due and is not paid, that would mean the “condition” to the waiver has not been met, and lien rights aren’t waived for amounts unpaid. Even a Final Unconditional Lien Waiver – the lien waiver with the least flexibility in Michigan – has some wiggle room. While that waiver states that final payment has been made and that lien rights are waived in exchange for full payment, § 570.1115(1) provides some protection to potential claimants.

First, it reads “A person shall not require, as part of any contract for an improvement, that the right to a construction lien be waived in advance of work performed. A waiver obtained as part of a contract for an improvement is contrary to public policy, and shall be invalid, except to the extent that payment for labor and material furnished was actually made to the person giving the waiver.” Thus, when lien rights are waived prior to work being performed – the waiver of those rights, at least for the portion that has not been paid, will be invalid. This is true regardless of what form has been used. Lastly, it’s worth looking at § 570.1115(2-4) to see how they affect what waiver is required. Under § 570.1115(2) “A lien claimant who receives full payment for his or her contract shall provide to the owner, lessee, or designee a full unconditional waiver of lien.” Thus, if full payment has been made under the contract and a Full Unconditional Waiver is requested – a claimant will need to provide that waiver. Under § 570.1115(3), “A lien claimant who receives partial payment for his or her contract shall provide to the owner, lessee, or designee a partial unconditional waiver of the lien for the amount which the lien claimant has received, if the owner, lessee, or designee requests the partial unconditional waiver.” Thus, if a partial unconditional waiver has been requested and some payment has been made, a lien claimant must provide a partial lien waiver to the extent that payment has been received.

Finally, under § 570.1115(4), “A partial conditional waiver of lien or a full conditional waiver of lien shall be effective upon payment of the amount indicated in the waiver.” So, when a conditional waiver has been issued and when the payment set out by that waiver has been made, that conditional waiver automatically waives lien rights – and no further waiver is necessary. With those three sections in mind, it’s clear that a discussion with the general contractor about waivers and which waiver might be most appropriate could be helpful. Making sure you’re both on the same page could go a long way toward clearing up the confusion and keeping (or even strengething) the relationship between the parties. While some other solution might be most appropriate (potentially one of the ones discussed above) refusing to provide a contractor a lien waiver after full payment has been made could damage relationships at best, and could be in violation of statute at worst. For more on the Michigan lien waiver basics, this resource should be helpful: Michigan Lien Waiver FAQs.

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