ConstructionPro Week, Volume: 3 - Issue: 43 - 10/24/2014

Is the Prospective Waiver of Lien Rights Conscionable?

By Bruce Jervis

 

Mechanic’s liens usually provide contractors and subcontractors with their most effective form of payment security on private construction projects. But, contracts sometimes call for constructors to waive or limit their lien rights before they have even performed the work. Are these prospective lien waivers enforceable? Are they conscionable?

 

The mechanic’s lien statutes in some states prohibit prospective waivers. These prohibitions may result from lien rights enshrined in the state constitution. Not all states protect lien rights so zealously, however. And, sometimes only second-tier parties such as subcontractors and suppliers are protected.

 

Prospective mechanic’s lien waivers can come in subtle forms. A prime contractor may be required to subordinate its lien rights to the security interest of the construction lender. It’s not labeled as a lien waiver. But, as illustrated in a recent California case, it has that effect if there is only enough value in the property to satisfy the lender’s interest.

 

What is your opinion? Should prospective lien waivers be barred and rendered unenforceable altogether? Or, do they serve a legitimate purpose, for instance in facilitating project financing? Should they just be considered another term of the bargain? I welcome your comments.

 

COMMENTS

Sign away my lien rights? You've got to be kidding.
Posted by: DK - Friday, October 24, 2014 9:44 AM


Lien waivers typically state that in return for payment, you waive your right to file a lien. If you do not get paid then the contract (for lien waiver) would be voided by the non-payment constituting a breach of contract.
Posted by: James Martin - Friday, October 24, 2014 9:44 AM


Waiving your right to lien should be unenforceable. It is the most cost effective remedy a subcontractor or contractor have when not paid for work performed. All the phone calls in the world regarding payment do not get the attention like an Intention To Hold a Mechanics Lien.
Posted by: RM - Friday, October 24, 2014 10:03 AM


Many states including Connecticut have passed legislation that prohibits prospective lien waivers as a matter of public policy. Such legislation generally conditions enforceability upon receipt of payment for work performed through the date of the lien waiver. A fair approach to the interests of owner and constructor.
Posted by: Dennis Cavanaugh - Friday, October 24, 2014 10:12 AM


I agree with James martin and RM.
Posted by: stan tussing - Friday, October 24, 2014 11:09 AM


I appreciate when a state's legislature acts to protect lien rights but I'm always afraid of the day when one case comes down to slightly alter the protections in place and/or the list of those who have access to them. For this reason, regardless of the applicable law, I always argue to change the lien waiver clauses so that they are conditioned upon payment. (I also always argue to limit these waiver clauses to just lien rights/payment claims; will not release owner/contractor from "any and all claims"). Liens are not to be placed frivolously - not only b/c of potential sanctions but also b/c of client relations. And for us they're not that common because by the time payment is past due and the project managers are exhausted, the lien notice dates have often slipped by. But when we have the rights and have banged our heads just enough, liens are very effective. I definitely fight to not give them up prospectively. Thanks for asking! The more awareness, the better. Getting tired of owners who seem "shocked".
Posted by: jbaiardi - Monday, October 27, 2014 9:47 AM










WPL
PUBLISHING CO, INC.
WPL Publishing - 5750 Bou Avenue #1712 - Rockville, MD 20852

Phone: (301)765-9525  -  Fax: (301)983-4367

All Content and Design Copyright © 2017 WPL Publishing
About Us

Contact Us

Privacy Policy

My Account