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What is the correct payment waiver and lien release to sign for our customer?

We are an electrical contractor working with a particular builder on a few houses. Up to this point they have not required us to sign lien waivers upon receiving payments on the projects, but we currently have some past due invoices with them and they are refusing to pay until we have turned in signed lien waivers for the most recent payments. The issue I'm having is that these are open projects, with balances left on the contracts. The waivers they've provided do not make it clear that there is still any balance left on the project and states that all bills have been paid on the project and there are no outstanding bills. The only amount specified on the waiver is the payment made at the time it was issued. If we sign this, doesn't that set us up to forgo our rights of lien if they don't make their future payments? They never sent a contract for the projects so our only 'contract' is our proposal for the job that they signed, which lists our billing terms. This is a customer we've been having issues with recently and they have been consistently paying late. After our current projects are finished, our relationship with this builder is ending and both parties know it, so I don't want to set us up for signing away what little leverage we have since they have nothing to lose by not paying us now. I want to ensure that I do not set us up to be unpaid for our work, without legal recourse. They have shown very shady business practices and seem to be up to something with their other subcontractors as well. We have been diligent in getting change orders approved in writing and have emails with them acknowledging to an extent that they owe us payment for the open invoices, but won't pay until their waivers are signed. Is this enough or would it all go out the window if we were to negligently sign a waiver saying there is no open billing left on the project? Thank you so much in advance for your help. We are a small company and this customer owes us tens of thousands of dollars in total, so a misstep could greatly hurt us.

1 reply

Sep 18, 2017

Lien waivers can cause a lot of confusion and apprehension for exactly the reasons you mention: it's a document that could end up waiving your ability to claim a lien to protect the amounts due, sometimes whether or not actually paid - so it pays to be careful.

It doesn't look like a state was chosen in your question, but if the project is not in one of the 12 states with statutory lien waiver forms, Arizona, California, Florida*, Georgia, Massachusetts, Michigan, Mississippi, Missouri, Nevada, Texas, Utah and Wyoming waivers are basically only limited by imagination. So being careful when reading and signing is important.

There are 4 general waiver types: Partial/Progress Conditional; Final Conditional; Partial/Progress Unconditional; Final Unconditional. Pretty much everything you want to know about waivers (and more) can be found here: https://blog.zlien.com/construction-payment/ultimate-guide-to-lien-waivers/

Long story short, though, when payment hasn't actually been received (i.e. cash in hand, or a check that has already cleared the bank) the best practice is to use "Conditional" waivers; and if there is still payment outstanding in addition to that which the waiver covers, the best practice is to use a "Partial/Progress Waiver". A Partial/Progress Conditional Waiver should be conditioned upon actual payment of the amount due, and include language such that it is a partial/progress waiver for work performed through a certain date (or a certain amount less than the total due).

Delivering conditional waivers should be acceptable since once the condition has been met they function as an unconditional waiver (and/or a subsequent unconditional waiver can be delivered after actual payment). It's dangerous to sign waivers that are either explicitly unconditional, final, or arguably unconditional final waivers as sometimes what the waiver says is more important that what actually happened, at least in terms of lien rights.

Finally, if you remain unpaid after work is complete, (and you have delivered any potentially required preliminary notices) it may be worth considering filing a lien to secure the amount due, and then releasing it when payment is received in order to be sure your invoices get paid.

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