Lien Waivers: Why should you treat them like contract documents? Because they are.

Lien waivers at their core are testament documents used primarily by title companies, banks, property owners and general contractors to assure funds have moved through the ladder of supply. Although each state is different, there are 4 basic types of waivers: unconditional partial, unconditional final, conditional partial and conditional final.

For material suppliers selling to subcontractors, a waiver can be a standoff document, leaving both sides stuck until an agreement is reached. The subcontractor wants a waiver before they make payment and the material supplier wants payment before they execute a waiver. The good news is, waivers can be modified by material suppliers to tell the true story of the transaction.

If a subcontractor presents an unconditional final lien waiver to a material supplier and the material supplier either has not been paid in full and/or has additional product to ship, the material supplier can modify the document to make it a conditional partial waiver of lien. Or better yet, the material supplier, with help of counsel, can draft its own conditional partial waiver of lien and present that document back to the subcontractor. One of the "conditions" all conditional waivers of lien should have, especially if being paid by check, is that the check be received and the funds clear the bank.

One of the hardest parts of the waiver process is when the material supplier is presented with a waiver that is multiple pages with the text printed in a small font size and full of legalese—and the sub will only accept that waiver. When this happens, the material supplier should have at the ready a standard lien waiver form to offer as a substitute for the subcontractor's lengthy waiver. If the sub is unwilling to budge, the material supplier should have that document reviewed by legal counsel. The legalese could contain very harmful language, like a flow down indemnity clause, change of venue clause and more. Even if the waiver seems benign because they are only asking for a waiver for $500, the harmful language can haunt the material supplier for years.

Long story short, some waivers have made their way through the attorney's office. If the waiver you are being asked to sign is not your own and is lengthy, full of legalese and your offer to edit or replace the document with a standard waiver is refused, that waiver must be reviewed by a savvy construction law counsel, with a deep knowledge of the laws of the state.

-Chris Ring, NACM's Secured Transaction Services

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Sunday, 04 June 2023

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