By Sara M. Bour, Esq., Manager and Counsel, AIA Contract Documents
June 7, 2022
A contractor’s waiver and release of lien or payment bond rights are usually an integral part of getting paid in construction. Contractors are often contractually required to submit lien or payment bond waiver and release documents (“Waivers”) as a condition for payment. Many states have laws establishing a contractor’s right to assert a mechanic’s lien or payment bond claim after performing work on a project. Similarly, many state laws recognize that contractors may waive their right to file or enforce lien claims, typically by express written agreement or acknowledgment. In this article, we discuss the basics of Waivers, so owners and contractors of all tiers may have a better understanding of these simple, yet powerful, documents.
Who Requires Waiver?
Generally, project owners require contractors and their subcontractors and suppliers to submit Waivers as a condition for payment. The owner, through the prime contract, may require the prime contractor to submit Waivers in exchange for payment. The prime contract’s flow down provisions may incorporate this requirement into each subcontract. In turn, downstream subcontractors and suppliers may be required to submit Waivers to the prime contractor as part of their payment applications.
An owner’s requirement for Waivers may be interconnected with the project’s funding. This precondition may stem from the construction lender. With each draw on a loan, lenders may require confirmation that no liens have been claimed against the project before funding is disbursed. Waivers can constitute confirmation that payment was made or received through a given date, and that lien rights for the performed work have been waived.
What is a Waiver?
In construction, a Waiver is an express agreement by a claimant to waive its rights to assert a lien against the project in exchange for payment for performed work. On bonded projects, Waivers may serve as a waiver of rights to assert a claim for nonpayment against the payment bond. Several states, such as California, Florida, and Texas, require Waivers to substantially follow a form that is specifically prescribed by statute. This means that the terms of the express agreement to waive and release rights are dictated by law, and substantial deviation from the statutory form may render the Waiver unenforceable.
Typically, Waivers take the form of a written instrument. Waivers generally fall into four categories: (i) conditional Waivers on progress payment; (ii) unconditional Waivers on progress payment; (iii) conditional Waivers on final payment; and (iv) unconditional Waivers on final payment. For conditional Waivers, a claimant’s relinquishment of rights usually does not occur until payment is received. For unconditional Waivers, a claimant’s rights are generally relinquished upon execution, pursuant to the terms of the Waiver, regardless of the timing of payment.
Where and When are Waivers Exchanged?
Commonly, contractors, and their subcontractors and suppliers, submit Waivers as part of the payment application process. Under the A201- 2017 General Conditions of the Contract for Construction, where it is required by the owner or architect, subcontractors’ Waivers may be submitted to the architect as part of the prime contractor’s application for payment. Similarly, Waivers may be required as part of final payment on a project. After submission, the Waivers, along with other documentation, may be forwarded to the owner, who can then review the documents and provide confirmation to the lender that conditions for payment have been met.
Why are Waivers Required?
Depending on the terms, Waivers generally aim to protect the rights of the owner and the lender. The owner receives assurance that payment has been properly applied to the work performed on the project. Moreover, the lender is assured that its collateral for the loan is free and clear of liens or encumbrances.
Caution should be taken when a party is asked to sign a Waiver relating to work performed on a project. Many Waivers may contain language that release not only lien rights, but unresolved claims. Others may include critical affirmative statements, such as broad indemnification obligations and confirmation that proper payment has been made to downstream contractors. It is important for all parties to know and understand each representation within the Waiver prior to its execution. Further, it is important to be aware of whether the Waiver is subject to statutory requirements or a prescribed form, to ensure enforceability.
In all, Waivers are a simple and incredibly important document often used on construction projects as part of the payment process. Though state law may affect the form and terms, all Waivers may not be identical. Owners and contractors alike should be aware of the representations contained within the Waiver, to ensure a complete understanding of whether a claim has been waived during the construction process.
Related AIA Contract Documents Forms
The AIA Contract Documents program has developed a limited number of Sworn Construction Statements, and Lien Waiver and Release forms that might be used in specific states. In addition, we have also developed generic versions of those documents that might be used in the remaining states. To learn more, visit Important Considerations for Sworn Construction Statements and Lien Waiver and Release Forms or watch a short video AIA Contract Documents New Sworn Construction Statement and Lien Waiver and Release Forms.
State-Specific Lien Waiver and Release Forms.
Several states regulate Lien Waiver and Release forms and require that a specific form be used on projects in that state. Depending on the jurisdiction of your project, governing law may require specific content and formatting within these documents. If your project is located in the states listed below, consider using an AIA Contract Documents state-specific form. It is important to consult with an attorney to determine which form is suitable for your needs.
This article is provided for general informational purposes only. The information provided is not legal opinion or legal advice, and does not create an attorney-client relationship of any kind. This article is also not intended to provide guidance as to how project parties should interpret their specific contractors or resolve contract disputes, as those decisions should be made in consultation with legal counsel and other professionals.