In latest edition of The Wright Toolbox:
- The AIA Has Now Created Lien Waiver Forms
The AIA Has Now Created Lien Waiver Forms
Most project owners and their construction lenders require general contractors, subcontractors and even project suppliers to provide lien releases in order to receive both progress payments and final payment. Government owners even require such documentation even though no mechanic’s liens can lie against public land, usually as a way to monitor that contract funds are properly flowing downstream. In the absence of an owner requirement, sophisticated contractors usually still require some form of lien release or waiver from their subcontractors and suppliers as the general contractor typically has a contractual obligation to the owner to both keep the property lien-free and to indemnify the owner for any costs that it incurs to discharge a lien.
Over time, owners and general contractors have increasingly drafted their own lien release forms and mandated their use on their projects. These forms can be detailed and onerous, including content that purports to waive any outstanding claims by the signee and representations that all lower-tier vendors have been paid in full. Many owners and contractors also demand that the lien waiver forms be signed and returned before the payment reflected in the lien waiver form is actually made.
The huge variety of lien release forms has resulted in a good deal of litigation over whether particular components of a lien release form are valid or enforceable, particularly given the perceived uneven bargaining power between the respective parties. As a result, a number of state legislatures stepped in and now regulate, to differing degrees, the content of such lien release forms, often requiring language that the release is conditioned upon receipt of payment. In such states, the use of a lien release form that does not comply with the statutory terms may be found by a court to be invalid if challenged.
Despite having contract terms, such as those found in the A201 General Conditions, referencing a requirement to provide lien releases as a condition of payment, the AIA has never created its own proposed lien waiver forms to be used in conjunction with its widely-used contract documents – until now. Starting this past summer, the AIA is now offering state-specific forms for those states with regulations in place (currently Arizona, California, Florida, Georgia, Massachusetts, Michigan, Missouri, Nevada, Texas, Utah and Wyoming). Those state-specific forms can only be modified to change the names of the parties and the project. The AIA has also introduced a generic lien form that can be used in those states without regulation that can be more freely modified by the parties.
The use of another AIA complimentary contract document in the industry, the G702 payment application and G703 continuation sheet, is ubiquitous. How widely the new lien release forms will be used within the industry and whether such widespread use will reduce the amount of litigation over the enforcement of lien releases remains to be seen.
If you have questions regarding the issues discussed in this post, please do not hesitate to contact Cynthia E. Rodgers-Waire (firstname.lastname@example.org) or any member of the Construction Law Group.