The Basics of Waivers and Releases of Lien or Payment Bond Rights

{"version":"0.3.0","atoms":[],"cards":[],"markups":[["b"],["a",["href","https:\/\/www.aiacontracts.org\/contract-documents\/25131-general-conditions-of-the-contract-for-construction"]],["a",["href","https:\/\/acdoperations.zendesk.com\/hc\/en-us\/articles\/1500009278362-Important-Considerations-for-Sworn-Construction-Statements-and-Lien-Waiver-and-Release-Forms"]],["a",["href","https:\/\/www.youtube.com\/watch?v=wbKju8nsSxw"]],["i"],["strong"]],"sections":[[1,"p",[[0,[],0,"June 7, 2022"]]],[1,"p",[[0,[],0,"A contractor\u2019s waiver and release of lien or payment\nbond rights are usually an integral part of getting paid in construction. Contractors\nare often contractually required to submit lien or payment bond waiver and\nrelease documents (\u201cWaivers\u201d) as a condition for payment. Many states have laws\nestablishing a contractor\u2019s right to assert a mechanic\u2019s lien or payment bond\nclaim after performing work on a project. Similarly, many state laws recognize that\ncontractors may waive their right to file or enforce lien claims, typically by\nexpress written agreement or acknowledgment. In this article, we discuss the\nbasics of Waivers, so owners and contractors of all tiers may have a better\nunderstanding of these simple, yet powerful, documents."]]],[1,"p",[[0,[0],1,"Who Requires Waiver?"]]],[1,"p",[[0,[],0,"Generally, project owners require contractors and\ntheir subcontractors and suppliers to submit Waivers as a condition for payment.\nThe owner, through the prime contract, may require the prime contractor to\nsubmit Waivers in exchange for payment. The prime contract\u2019s flow down\nprovisions may incorporate this requirement into each subcontract. In turn, downstream\nsubcontractors and suppliers may be required to submit Waivers to the prime\ncontractor as part of their payment applications."]]],[1,"p",[[0,[],0,"An owner\u2019s requirement for Waivers may be\ninterconnected with the project\u2019s funding. This precondition may stem from the\nconstruction lender. With each draw on a loan, lenders may require confirmation\nthat no liens have been claimed against the project before funding is disbursed.\nWaivers can constitute confirmation that payment was made or received through a\ngiven date, and that lien rights for the performed work have been waived. "]]],[1,"p",[[0,[0],1,"What is a Waiver?"]]],[1,"p",[[0,[],0,"In construction, a Waiver is an express agreement by a\nclaimant to waive its rights to assert a lien against the project in exchange\nfor payment for performed work. On bonded projects, Waivers may serve as a waiver\nof rights to assert a claim for nonpayment against the payment bond. Several\nstates, such as California, Florida, and Texas, require Waivers to\nsubstantially follow a form that is specifically prescribed by statute. This\nmeans that the terms of the express agreement to waive and release rights are\ndictated by law, and substantial deviation from the statutory form may render\nthe Waiver unenforceable. "]]],[1,"p",[[0,[],0,"Typically, Waivers take the form of a written\ninstrument. Waivers generally fall into four categories: (i) conditional Waivers\non progress payment; (ii) unconditional Waivers on progress payment; (iii)\nconditional Waivers on final payment; and (iv) unconditional Waivers on final\npayment. For conditional Waivers, a claimant\u2019s relinquishment of rights usually\ndoes not occur until payment is received. For unconditional Waivers, a claimant\u2019s\nrights are generally relinquished upon execution, pursuant to the terms of the Waiver,\nregardless of the timing of payment."]]],[1,"p",[[0,[0],1,"Where and When are Waivers Exchanged?"]]],[1,"p",[[0,[],0,"Commonly, contractors, and their subcontractors and\nsuppliers, submit Waivers as part of the payment application process. Under the\n"],[0,[1],1,"A201-\n2017 General Conditions of the Contract for Construction"],[0,[],0,", where it is required by the owner or architect, subcontractors\u2019 Waivers\nmay be submitted to the architect as part of the prime contractor\u2019s application\nfor payment. Similarly, Waivers may be required as part of final payment on a\nproject. After submission, the Waivers, along with other documentation, may be\nforwarded to the owner, who can then review the documents and provide\nconfirmation to the lender that conditions for payment have been met."]]],[1,"p",[[0,[0],1,"Why are Waivers Required?"]]],[1,"p",[[0,[],0,"Depending on the terms, Waivers generally aim to protect\nthe rights of the owner and the lender. The owner receives assurance that\npayment has been properly applied to the work performed on the project. Moreover,\nthe lender is assured that its collateral for the loan is free and clear of\nliens or encumbrances. "]]],[1,"p",[[0,[],0,"Caution should be taken when a party is asked to sign\na Waiver relating to work performed on a project. Many Waivers may contain\nlanguage that release not only lien rights, but unresolved claims. Others may\ninclude critical affirmative statements, such as broad indemnification\nobligations and confirmation that proper payment has been made to downstream\ncontractors. It is important for all parties to know and understand each\nrepresentation within the Waiver prior to its execution. Further, it is\nimportant to be aware of whether the Waiver is subject to statutory\nrequirements or a prescribed form, to ensure enforceability."]]],[1,"p",[[0,[],0,"In all, Waivers are a simple and incredibly important\ndocument often used on construction projects as part of the payment process. Though\nstate law may affect the form and terms, all Waivers may not be identical. Owners\nand contractors alike should be aware of the representations contained within\nthe Waiver, to ensure a complete understanding of whether a claim has been\nwaived during the construction process."]]],[1,"p",[[0,[],0,"The AIA Contract Documents program has developed a limited\nnumber of Sworn Construction Statements, and Lien Waiver and Release forms that\nmight be used in specific states. In addition, they have also developed generic\nversions of those documents that might be used in the remaining states. To learn more, visit "],[0,[2],1,"Important\nConsiderations for Sworn Construction Statements and Lien Waiver and Release\nForms "],[0,[],0,"or watch a short video "],[0,[3],1,"AIA\nContract Documents New Sworn Construction Statement and Lien Waiver and Release\nForms. "]]],[1,"p",[[0,[4,5],2,"This article is provided for general\ninformational purposes only. The information provided is not legal opinion or\nlegal advice, and does not create an attorney-client relationship of any kind.\nThis article is also not intended to provide guidance as to how project parties\nshould interpret their specific contractors or resolve contract disputes, as\nthose decisions should be made in consultation with legal counsel and other\nprofessionals."]]]]}