Service Area: Notice and Mechanic’s Lien Services

Are Mechanic’s Lien Rights Available on Wind Turbines

Posted on February 6, 2017 by - Mechanic's Liens & Bond Claims

Wind Turbines: Are Mechanic’s Lien Rights Available?

A recent court of appeals decision left one Illinois subcontractor with over $3 million in unpaid claims, and the construction and alternative energy industries with immeasurable concern and doubt.

It takes multiple contractors, subcontractors & material suppliers to successfully build one energy farm: unfortunately, this also means there are multiple opportunities for payment issues. Special fabrication, change orders, construction defects, and the simple low liquidity of a company, are common factors contributing to non-payment on projects of this size.

Fortunately, in cases of energy farms, or even single standalone wind turbines, unpaid parties can reduce their risk when they take steps to secure mechanic’s lien rights. Right?

Unfortunately, No

In AUI CONSTRUCTION GROUP, LLC v. VAESSEN, 2016 IL App (2d) 160009 – Ill: Appellate Court, 2nd Dist. 2016, AUI Construction Group, LLC (“AUI”) was hired to assist with the construction of a turbine tower foundation. AUI received partial payment and when they remained unpaid for the rest of the materials and labor provided, they filed a mechanic’s lien and proceeded to foreclose.

AUI believed their lien to be valid based on the argument that the “materials, fixtures, services, and labor it furnished constituted a valuable and permanent improvement to the property,” but the circuit court invalidated AUI’s lien, stating the wind turbine is a non-lienable trade fixture and provided the following explanation:

“If AUI’s mechanic’s lien were allowed to attach to the real estate and GSG [7] (the wind energy developer) chose to terminate the easement and removed all of its property brought onto the premises as allowed by the easement agreement, the lien would remain upon the real estate after removal of the benefit upon which the lien was based. Therefore, to allow AUI’s filing of a mechanic’s lien to attach to the real estate where removal of the fixture is allowed would produce an absurd result not intended by the lien act.”

Is the Wind Turbine a Fixture?

OK, if AUI isn’t entitled to mechanic’s lien rights, because the court indicates the wind turbine is removeable, then could AUI have pursued security via Article 9 of the Uniform Commercial Code (UCC) and treat the wind turbine as though it is a fixture? After all, the court identified the wind turbine as a trade fixture!

I wasn’t the only one with the fixture thought. Unfortunately the court nixed the fixture thought, because “UCC security interests simply do not exist ‘in ordinary building materials incorporated into an improvement on land.’ As AUI built the wind structure with concrete, rebar, electrical conduit, and other ‘ordinary building materials,’ the UCC does not apply.”

So, what can a subcontractor do if they can’t secure their right to payment via mechanic’s lien statute or via the UCC?

Comments from an Expert

As this is a recent case and a landmark decision, it’s become a hotly discussed topic so we sought insight from expert Illinois construction attorney, James T. Rohlfing.

Rohlfing discussed three issues that bother him most about this case:

“First, it holds that an item can be a trade fixture in Illinois even though it is obviously not intended to be removed from the real estate. A trade fixture is not lienable, though a fixture is. The court held that the contractual provision that defines it as a trade fixture is controlling despite obvious evidence to the contrary (removal requires dynamite).”

In his second point, Rohlfing agreed with the court’s opinion that the turbine is not lienable under traditional mechanic’s lien statute.

“The court held that the work done on the wind turbine tower is not lienable because it did not enhance the value of the owner’s property.  I agree with that holding and it is consistent with existing law.  It would be unfair to make a land owner who is getting a modest yearly income from the easement rights pay for an expensive improvement which is far more expensive than the owner’s stream of income.”

Lien on Easement vs. Lien on Leasehold

Last on Rohlfing’s list? The frustrating difference between a lien on an easement and a lien on a leasehold.

“Thirdly, the court holds that a mechanics lien can never be imposed on an easement right, even if it the right is more akin to a leasehold interest.  I am troubled by the distinction between liens on easements and liens on leasehold interests.  The authority relied on by the court to reach that conclusion is distinguishable from this case.  The court could have treated the easement rights similar to a lease and permitted a mechanics lien on the leasehold interest but not the fee simple owner.  This would have protected the lien claimant and it would have been a fair result consistent with case law.  There was a traditional easement to allow access to and from the wind turbine, but the land on which the turbine is situated has more lease-like characteristics.  For its authority, the court cites to a case which considers a more typical easement.

The problem is that typical leaseholds might now be converted to easements to avoid mechanics liens.

Further, fixtures that are clearly not intended to be removed from the property might be adjudicated to be trade fixtures and, thus, not lienable. These two developments might weaken mechanics lien rights in Illinois.”

What’s a Subcontractor to Do & What’s Next in Legal Action?

Rohlfing commented that this case could head to the Supreme Court, who may in turn handle some of these issues. There is also the possibility that some construction associations may collaborate and propose a bill. For now, the most pressing question is how to protect claimants whose mechanic’s lien rights may be undercut by this decision.

While this is uncharted territory, Rohlfing has two suggestions for potential claimants.

“1) determine whether a UCC article 9 security interest might be available in the trade fixtures under these circumstances; and 2) have the turbine supplier require the easement holder to execute a collateral assignment of easement rights to be triggered in the event of non-payment.”

It’s Certainly Not Over

This case will undoubtedly spur continued debate, and could even result in new legislation. Stay tuned to the NCS blog, as we follow this and other relevant cases.

If you are furnishing to a project and are unsure whether mechanic’s lien rights or UCC rights would apply, contact NCS or seek a legal opinion.

A special thank you to James T. Rohlfing, Attorney at Law with ARNSTEIN & LEHR LLP for his insight on this case and his continued dedication to the construction community!

How to Ask Customers About Their Past Due Invoices

Posted on February 3, 2017 by - In Other Commercial Credit News

What to Ask Your Customers

Past due invoices — it’s a simple fact (Although, what a world it would be if everyone paid on time every time!). Perhaps there is a dispute, so your customer is holding off on paying the invoice. Maybe your customer is in fiscal distress and just can’t pay the invoice. But, what should you do if your customer tells you they didn’t get the invoice?

In an article from International Association of Commercial Collectors there are 8 easy questions to ask your customer. A couple of the questions are standard such as confirming your customer’s current address as well as the contact information for the person who should be receiving the invoice.

However, as the author points out, it’s a best practice to also confirm:

“According to our records, the invoice corresponds to your purchase order number ___. Is this P.O. number valid in your system?

Do you have receiving documents for this open item?

Am I correct that the only reason this item remains unpaid is that you do not have an invoice copy on file?

Once you have received the invoice copy, is there any reason this invoice cannot be processed and paid this week?”

Why ask your customer so many questions?

Per the author, for clarification purposes and to discourage future use of the tired excuse.

“There are two main reasons for turning a customer’s simple request for an invoice copy into a question-and-answer session:

You have to make certain that excuses for delaying payment once the invoice copy is received by the customer have been addressed and resolved, and

You have to discourage customers from using the “lost invoice” excuse as a regular reason for delaying payment. Customers are less likely to use this excuse in the future if they have to answer these kinds of questions every time they request an invoice copy.”

What questions would you add to this list? Do you have best practices to share?

Send us an email or give us a call to share your successes!

Standby Letter of Credit Shows Willingness & Ability to Pay

Posted on January 30, 2017 by - Credit Risk Management

What is a Standby Letter of Credit?

A Standby Letter of Credit is a written guarantee issued by a bank to pay on behalf of their customer in the event their customer does not pay. If the bank’s customer fails to do something (pay on time, complete a project on time, or satisfy terms of a contract), the bank (not the customer who failed to deliver) pays you–the beneficiary.

How do I implement a Standby Letter of Credit?

Here are some basic steps you can take to implement a Standby Letter of Credit for your company:

Step 1

Work with your Sales and Credit Departments to establish guidelines for what kind of job or order will require a Standby Letter of Credit. These guidelines are usually set by very high dollar amounts. From there, you can set the terms of the Standby Letter of Credit for the customer.

Step 2

Communicate the terms of the Standby Letter of Credit to your customer. Make sure one of the terms in the Standby Letter of Credit is “irrevocable.”  Your customer, also known as the applicant, will apply to their bank for the Standby Letter of Credit and will have to provide collateral or meet certain credit standards to compel the bank to issue the Standby Letter of Credit.

Step 3

Once the Standby Letter of Credit has been issued and the issuing bank is viable, orders can be fulfilled/work can be performed for the customer.

*Make sure the total value of the goods/work is not more than the dollar amount of the protection described in the Standby Letter of Credit. It is critical to pay attention to this, especially when multiple orders are being fulfilled.

Why should I use it and what are the benefits?

  • Ultimately, the Standby Letter of Credit is never meant to be “used.”
  • The goal of the Standby Letter of Credit is to show a customer’s ability to repay credit. It prevents large dollar contracts from going unfulfilled if a customer does not pay or cannot pay.
  • If used correctly, a standby notice of credit will be payable upon demand–typically without any objection as long as the collection procedure is followed according to the Standby Letter of Credit.
  • The terms of the Standby Letter of Credit will detail the procedure for collection–it is important that you comply with the terms, as you are required to follow them in order to be paid from the letter of credit.

Standby for Summary

  • A Standby Letter of Credit is a guarantee from a bank to pay the debts of a customer in the event of non-payment.
  • It is a good business practice on both sides; shows willingness and ability to pay.
  • Make sure you keep track of the total value of the project or order, so the dollar amount does not exceed the amount protected by the Standby Letter of Credit.
  • In the event of non-payment, collection can be pursued, but you must comply with the terms of the Standby Letter of Credit and follow the collection procedure detailed in the terms in order to get paid.

You Can’t File a Mechanic’s Lien Against a Bridge

Posted on January 24, 2017 by - Mechanic's Liens & Bond Claims

Burn ‘Em, Cry a River & Build a Bridge to Get Over It, Sing Songs About Bridges Falling – Just Don’t Lien ‘Em!

You can burn bridges, you can cry a river and build a bridge to get over it, you can even sing songs about bridges falling. But, as one misinformed subcontractor discovered, you can’t place a construction lien on a bridge when that bridge is owned by a public agency.

In Certification Coating Specialists Inc. v. Halifax-Dartmouth Bridge Commission, 2016 NSSC 250, the bankrupt subcontractor, Certification Coating Specialists (“CSS”), had its construction lien invalidated because the bridge is public land and per the Builders’ Lien Act, liens on public property are a no-go.

Backstory: The Big Lift

The MacDonald Bridge is a suspension toll bridge spanning the Halifax Harbour in Nova Scotia, and is currently undergoing significant repair known as “The Big Lift.”

According to the Halifax Harbour Bridges website, “The Big Lift” includes “replacing the road deck, floor beams, stiffening trusses and suspender ropes on the suspended spans of the Macdonald Bridge.”

The owner/operator of the MacDonald Bridge, Halifax-Dartmouth Bridge Commission (“Commission”), hired American Bridge as prime contractor. American Bridge hired Cherubini Metal Works Limited (“Cherubini”) to furnish road deck panels and Cherubini, in turn, hired CSS to paint the panels.

With only a third of the panels painted, CSS filed for bankruptcy protection, and the bankruptcy trustee, Bowra Group Inc. (“Bowra”) filed the lien on several parcels owned by Commission.

Conflict: None Shall Pass

Cherubini contested the construction lien based on the argument that MacDonald Bridge is public property.

“The applicant Cherubini says the MacDonald bridge is a public street or highway and as a result the Builders’ Lien Act has no application. They rely on s. 3(1) of the Act which provides: Nothing in this Act extends to any public street or highway or to any work or improvement done or caused to be done thereon.” Source: Certification Coating Specialists Inc. v. Halifax-Dartmouth, 2016 NSSC 250 (CanLII), par. 10, <http://canlii.ca/t/gtvcs#par10>, retrieved on 2016-12-12.

Per the court opinion, both the Commission and Attorney General of Nova Scotia agreed with Cherubini’s complaint. However, Bowra argued the Commission was not a public agency, which would make the bridge private property and liens would be applicable.

See, the Builder’s Lien Act doesn’t actually define “any public street or highway,” although the definition seems obvious. So Bowra argued that “public” simply means anyone can use the bridge, not that the bridge is owned by a public agency.

If you follow our blog, I hope you see the flaw in this argument. The ability to file a mechanic’s lien/construction lien stems from the property ownership, not from who can use the bridge.

Consider the Bridge Crossed

Ultimately the court needed to determine whether the bridge is publicly or privately owned property. First, the court reviewed the use of the bridge, noting that, despite applicable tolls, anyone can use the bridge. Next, the court looked to the formation of the Commission.

In theory, if the Commission is deemed to be a private entity, it could be further argued that the bridge is private. Unfortunately for Bowra, the Commission has its own Act, which states that it is a public agency.

  • “It is a public utility within the meaning of the Public Utilities Act (s. 19).
  • All members of the commission are appointed by either the Province of Nova Scotia or Halifax Regional Municipality (s. 3).
  • It has the power to expropriate land for purposes of the bridges (s. 12).
  • It has the authority to construct, maintain, and operate transportation projects across Halifax harbour which includes a bridge, tunnel, fixed crossing or similar structure (s. 27(1)).”

With that said, the court comfortably granted Cherubini’s request to vacate the CSS/Bowra construction liens.

What Could CSS/Bowra Have Done Differently?

Although there is no payment bond requirement in Nova Scotia, had a bond been issued for the project, CSS/Bowra could have pursued a bond claim.

Three yellow icons are shown: an envelope, a municipal building, and a judge's gavel. Beneath the envelope are the words: Obtain copy of payment bond. Notice - non-statutory recommended. Beneath the municipal building are the words: Bond claim - see bond for terms; frequently, within 120 days from last furnishing. Release - satisfied bond claim promptly. Beneath the judge's gavel are the words: Suit - wee bond for termsl frequently, within 1 year from last furnishing. Release - satisfied bond claim promptly.

There is a public improvement lien available for projects owned by the Crown, and based on the formation of the Commission, it’s possible Bowra could have argued the bridge is owned by the Crown and therefor subject to the public improvement lien. But, that may be a bit of a stretch.

Three yellow icons are shown: an envelope, a municipal building, and a judge's gavel. Beneath the envelope are the words: Notice - non-statutory recommended OR serve request for information (optional). Beneath the municipal building are the words: Lien - as soon as possible to trap funds. Release - satisfied lien promptly. Beneath the judge's gavel are the words: Suit - serve notice of suit at least 30 days prior to filing suit. Release - satisfied lien promptly.

Lastly, CSS/Bowra could have pursued their debtor directly, which is likely to happen now that CSS/Bowra’s liens have been invalidated.

Securing your right to be paid can be a tricky business and I strongly recommend you seek a legal opinion!

3 in 3 Mechanic’s Lien Rights on Leasehold Interest

Posted on January 17, 2017 by - Mechanic's Liens & Bond Claims

Today’s 3-in-3 Topic is Mechanic’s Lien Rights on Leasehold Interest

Today’s 3-in-3 features Notice & Lien Specialist, Keely Bindas. Read on to learn more about mechanic’s lien rights on leaseholds.

“What is a lien on leasehold interest and how does it differ from a mechanic’s lien on real property?”

Keely: When a lessee/tenant contracts for an improvement on real property, the mechanic’s lien may be available against the property, the leasehold interest of the lessee/tenant, or both.  When contracting with the fee simple owner of the real property, the mechanic’s lien attaches to the property itself.

“How would I know if my project is a leasehold situation? And, what if I’m in a situation where I file my mechanics lien and I don’t necessarily know that it is a leasehold situation. How would that impact my lien?”

Keely: For example, a big box retail store may sometimes own the property that the store sits on. In other cases, they may have a lease with the actual property owner.  So, if you can obtain a copy of the lease or the general contract, it would help in moving forward to protect your rights.

In some states, you can simply file your lien against the property and it will filter down to any leasehold interest that may exist if the fee owner isn’t responsible for the improvements.

However, there may be other factors that come into play, so it is important to know up front if there’s a lease situation.  For example, a separate lien filing may be required when there is a leasehold interest.

So, it may be necessary to pull a copy of that lease to obtain the tenant information as well as to obtain a copy of the agreement between the fee owner and the tenant to know who’s responsible for the improvements.

Generally speaking, it is best to have a lien against the real property, but a lien on an active lease can also prompt payment.

“What if I’m told on a project that the owner is a private entity but I think it is a public entity. Does this leasehold impact that?”

Keely: It can. We’ve seen many projects where the city, county or state owns the land, but they’ve provided a lease to a third party who happens to be a private entity. So, although a lien against the property isn’t available on public land, a lien against leasehold interest may be something that we can look at when the private entity contracts for the improvement.

3-in-3 Takeaway

  • Lease information may not be in public record. At the start of every project, complete a project information sheet so you know the key players and request a copy of the lease.
  • Know the state, as there may be varying requirements on what you must do to protect your rights in a leasehold situation.
  • Be prepared for the possibility that multiple liens may be required or that the tenant may need to be served with the preliminary notice.

Owner Failed to Pay the Contractor

Posted on January 11, 2017 by - Mechanic's Liens & Bond Claims

Fireworks Flew When the Owner Failed to Pay the Contractor: Explosive Mechanic’s Lien Claim

It’s an explosive case of an unpaid contractor! No, it really is explosive.

In Tennessee, a project owner appealed a trial court’s decision, which awarded claims, interest and attorney fees to the general contractor.

There are several issues addressed in the case of Beacon4, LLC v. I & L Investments, LLC, but the two issues we review are counts V. and VII.: “Willful and Gross Exaggeration of Lien Claim” and “Prompt Pay Act of 1991.”

Backstory

Beacon4, LLC (“Beacon4”) was one of several parties hired by I & L Investments, LLC (“I & L”) for the construction of a retail store, Fireworks Over America, located in Tennessee.

This project was divided into two separate contracts: site contract & building contract; Beacon4 was the general contractor for both. The site contract was executed February 7, 2011 and on May 17, 2011, the certificate of occupancy was granted.

Per the court of appeals opinion, Beacon4 was unpaid for a portion of work supplied under the site contract and subsequently filed a mechanic’s lien for $212,856.02, which leads us to count five of the opinion, where I & L argued that Beacon4 exaggerated its claim amount.

Count V: Willful and Gross Exaggeration of Lien Claim

I & L argued that Beacon4’s lien should be invalidated based on an inaccurate claim amount. Apparently, Beacon4 had added $45,000 to their unpaid claim because Beacon4 believed this $45k would compensate them for “the amount of time and effort that [he] had put into this project, over and above execution of the project.” (There were a lot of changes to the project’s scope, some were in the form of approved change orders & some were not.)

Per Tennessee Code Annotated § 66-11-120, the claim amount in the lien should not exceed the amount of the contract.

“The claims secured by lien for work, labor, materials, equipment, services, machinery, overhead and profit, shall not exceed the contract price and extras in the contract between the owner and the prime contractor.” – Tenn. Code Ann. § 66-11-120

And, per Tennessee Code Annotated § 66-11-139, it’s up to the court to determine whether a claimant, who has exaggerated its claim, is permitted to recover monies.

“If, in any action to enforce the lien provided by this chapter, the court finds that any lienor has willfully and grossly exaggerated the amount for which that person claims a lien, as stated in that person’s notice of lien or pleading filed, in the discretion of the court, no recovery may be allowed thereon, and the lienor may be liable for any actual expenses incurred by the injured party, including attorneys’ fees, as a result of the lienor’s exaggeration.” – Tenn. Code Ann. § 66-11-13

During trial, Beacon4 voluntarily amended their lien claim down to $167,026.15, which was the amount supported by evidence. It was up to I & L to prove that Beacon4, in bad faith, inflated their claim and that the inflated amount brought harm to I & L. I & L did not meet the burden of proof.

“As to I & L’s asserted defense that Beacon4 had willfully and grossly exaggerated its lien claim, the court found that Beacon4, through Mr. Russell, had “reasonably believed” that certain consequential damages could be included in the lien claim and that Beacon4 subsequently had appropriately moved to amend its complaint to reduce the lien claim by $45,000.00 to conform to the evidence. The court therefore determined that Beacon4 had not willfully and grossly exaggerated its lien claim.”

Therefore, the appeals court upheld the trial court’s decision to permit Beacon4’s lien and deny I & L’s motion to dismiss the lien.

Count VII: Prompt Pay Act of 1991

During the initial trial, the court found that I & L, in bad faith, had violated the Prompt Pay Act. I & L was withholding retainage, in the amount of $46,942.75, and claimed it held the retainage in compliance with statute. Unfortunately, I & L didn’t closely review statute:

66-34-204.  Payment of retainage by owner.

When an owner:

(1) Has received a use and/or occupancy permit for an improvement from a governmental agency lawfully issuing such permit;

(2) Has received a certificate of substantial completion from an architect charged with supervision of the construction of an improvement; or

(3) Begins to use or could have begun to use an improvement; – Tenn. Code Ann. § 66-34-204

the owner shall, after any such event and pursuant to the terms of the written contract, pay to the contractor all retainage the owner may have withheld pursuant to the written contract, except any sum which the owner may reasonably withhold in accordance with the written contract between the owner and the contractor; provided, however, that the retainage must be paid within ninety (90) days after the date of the occurrence of an event included in subdivision (1), (2) or (3).

Based on the date the certificate of occupancy was issued, May 17, 2011, I & L was required to pay the retainage by August 17, 2011 and they did not.

Prompt Pay Talk Snowballed

The issue of Prompt Pay then snowballed into a lengthy discussion regarding what constitutes completion; based on various work performed under the two contracts, I & L argued that it complied accordingly. Ultimately, the appeals court sided with Beacon4, and agreed with the trial court: I & L did violate the prompt pay act.

“The trial court further found that through Mr. Butler’s actions, I & L had acted in bad faith and with ’reckless disregard of Beacon4’s contractual rights.’ Upon this finding of bad faith, the court awarded reasonable attorney’s fees to Beacon4 pursuant to the PPA. See Tenn. Code Ann. § 66-34-602(b) (providing that ‘[r]easonable attorney’s fees may be awarded against the nonprevailing party; provided, that such nonprevailing party has acted in bad faith.’).”

Warning: Explosive

This post is just a glimpse at the issues raised in this case. Among the addressed issues, make sure you have documentation to support your claim amount and follow prompt pay guidelines with the strictest of interpretations.

Proofs of Delivery and Bills of Lading

Posted on January 3, 2017 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

The Importance of Proofs of Delivery and Bills of Lading

You take great strides to secure your mechanic’s lien rights, then, when you go to enforce the lien, the validity of the lien is questioned. What?! I did everything right! Except you failed to obtain and/or save copies of bills of lading and proofs of delivery. I recently read an article where the author described a bill of lading as “one of the most important documents in the shipping industry.”  Distributors and suppliers should also realize its importance.

What Is the Difference Between a Bill of Lading and Proof of Delivery?

First, both documents are of equal importance. A Bill of Lading is a written receipt from a carrier for the transportation of materials, whereas the proof of delivery is a receipt signed by the party receiving the materials.

Why Are They So Important?

Bills of lading and proofs of delivery can be critical in supporting your mechanic’s lien claim. If you can’t support your claim through proof that your materials made it to your customer and to the jobsite, a judge could invalidate your claim or your debtor could use the lack of proof as leverage in settlement negotiations.

It’s Just a Piece of Paper, Right? Wrong!

It is critical that material suppliers properly draft, execute & countersign Proofs of Delivery and/or Bills of Lading for every shipment or delivery to support potential claims.

Every Bill of Lading or Proof of delivery should include:

  • your company’s information,
  • your customer’s information,
  • the contents of the order/delivery,
  • the project/jobsite location information and
  • the proper dates & signatures (signed and countersigned).

And don’t forget to include acknowledgement language: “I acknowledge and swear that these materials are to be used at (project name) located at (project address).”

When Should I Use a Bill of Lading vs. Proof of Delivery?

Here are some examples of when a proof of delivery or bill of lading should be used. If your customer:

  • has your materials shipped to their own place of business, ensure a proof of delivery is signed by your customer.,
  • has your materials shipped directly to the jobsite/project location, ensure a proof of delivery is signed by someone at the jobsite or
  • picks up the materials (or sends a carrier to pick it up) from your location, ensure a bill of lading is signed.

Once you can prove that your materials were either delivered to the jobsite or released to your customer for a specific project, it can generally be assumed that your materials were incorporated into the project. Based on that assumption, your customer (or any other disputing party) is now saddled with the burden of proof…they must prove that your materials weren’t incorporated into a project and a judge is more likely to rule for a settlement in your favor.

Best Practice

Execute a Bill of Lading or Proof of Delivery for every shipment–even for seemingly minor change orders.

3-in-3 on Lien Waivers

Posted on December 13, 2016 by - Preliminary Notices & Construction Credit

Lien Waivers: What to Look for and What’s the Difference between a Waiver and Release?

Today’s 3-in-3 features Notice & Lien Specialist, Amy Hunger.

While on a project you might be asked to supply a lien waiver. Often, an owner relies on that waiver before paying a general contractor to make sure that the subcontractors and material suppliers are being paid.

Waivers today are more formal and more complex and it’s very important to know exactly what you’re signing before you sign it.  Which leads us to our first question.

What should I be looking for when I’m being asked to sign a waiver?

Amy:  You always want to know what type of waiver you’re signing and whether it’s a partial or final waiver.  If it’s a partial waiver, confirm that the dollar amount is correct.  If the waiver includes the paid through date, be sure the dollar amount stated is right for that time period.

If it’s a final waiver, confirm that the pay amount stated is for all open invoices for that project.

You should also check the waiver to see if it is conditioned upon receipt and clearance of the payment made. The preferred waiver is a conditional waiver because if payment is not received or does not clear, the waiver will not be enforceable.

On the other hand, an unconditional waiver does not require receipt or clearance of the payment.  When an unconditional waiver is signed, your rights may be waived regardless of whether you received payment or whether payment clears the bank.

We’ve had quite a few projects where customers did not realize they were waiving their rights even if the check bounced.

Not every waiver contains the same type of wording so how do I know if it’s okay to sign it?

Amy:  When signing waivers, you must be very careful.  You want to read the entire waiver including the fine print.

If you’re unsure of what you’re signing, a legal opinion may be warranted to ensure that you’re not relinquishing your rights.

What is the difference between a lien waiver and a release of lien?

Amy:  That’s a very good question. Many use these terms interchangeably, but typically a waiver acknowledges payment, where a release of lien releases a previously recorded document.

A release will usually have specific wording listing the date the original document was recorded and the book and page number of where it was recorded.

A waiver is never a substitute for a release. If you had previously filed a lien, when you receive payment you need to release that lien and not just provide a lien waiver.

3-in-3 Takeaway

Carefully review every lien waiver before signing. Ensure the waiver follows statute and be cautious when signing unconditional lien waivers.

Did You Know? NCS clients have free 24/7 access to statutorily written lien waivers; you can generate, print and track lien waivers for every project!