I have lost count of the number of times I have warned construction industry clients to be careful with lien waivers.  They may seem to be just routine—until they are not.  A recent case from the Wisconsin Court of Appeals; Great Lakes Excavating, Inc. v Dollar Tree et al (March 30, 2021) underlines the importance of paying attention to what you sign.  Great Lakes’ lesson cost $188,000 when the waiver it intended as partial, actually turned out to be a full waiver.

Wisconsin’s lien waiver statute is different than Minnesota’s but this same problem could arise in either state or elsewhere.  Soil conditions caused the Great Lakes’ charges to balloon.  In this case, the general contractor disbursed only the original contract amount.  Great Lakes then altered the heading of the general contractor’s lien waiver from “Waiver of Lien to Date” to “Waiver of Lien Partial”.  The general contractor failed to pay the rest of the amount due.  Great Lakes foreclosed but the Circuit Court granted a summary judgment invalidating the lien.  Great Lakes had failed to modify the printed language of the waiver form which still expressly stated that the signer waived and released “any and all lien . . .on account of labor, services [or] materials. . .furnished to this date.”   Simply crossing off “to Date” in the heading and writing in “Partial” did not make a full waiver partial.

Waiver forms need to be read with particular care.  Some final waiver forms contain additional language such as an affidavit affirming that all labor and materials have been paid, or releasing all claims which could waive pending change orders or claims for delays or extra work.  In most places, lien waiver forms are not statutory and not “standard.”  Each one can raise a new challenge quite apart from the ongoing battle to get a waiver before releasing payment.

Lien waivers serve as a paid receipt.  In most, but not all, cases lien waivers require consideration to be enforceable.  That should mean that the party giving a waiver has actually been paid.  Wisconsin is one of the exceptions to that rule and a signed waiver can be “live” and valid even without any payment.

There are two main types of lien waivers; full final payment and partial payment.  Each has two subtypes; unconditional and conditional.  About 12 states now actually dictate their lien waiver forms. California, for instance, mandates the required forms.   In most states, the lien waiver form is a choice, even where the form of a conditional waiver is not formally recognized in the statutes

A full final unconditional lien waiver is appropriate where the contractor or supplier is actually paid in full.  A conditional final lien waiver addresses the situation where the owner, lender or contractor is insisting that it collect all the final lien waivers before it will release the final funds.  A conditional waiver normally reflects that the signer is not paid yet.  Often the signer holds a check in exchange for the conditional waiver, but the waiver itself states it is only effective when the check clears the bank on which it has been written.  If the check does not clear, then the lien wavier is not effective.  The language of the waiver is a clear indication to the party receiving it that final payment has not been made and some follow-up will be required.

Partial lien waivers, both unconditional and conditional, work the same way, but in the world of partial lien waivers, there are additional cautions.  First, a partial unconditional lien waiver is not appropriate where the signer does not have a check-in hand.  Unconditional waivers should not be released for any amount that is not presently paid.   If the money is not presently paid, the appropriate form is a conditional waiver.   There is also an important distinction between waiving lien rights through a date versus waiving only through an amount.  It is all too easy to waive rights through a date only to discover that there was more work or material which had not been billed yet and is now without lien protections.   Lien waivers only to the extent of payment actually received is safest.

Sound lien waiver practice is good for both the owner and the lien claimant.  To avoid unnecessary surprises and expensive lessons all industry participants should use the right type of lien waiver form and read it with care before signing it.