Do I Need to Get Lien Waivers From Subcontractors or Only the Contractor?

Full Question:

In order to have protection from liens on a remodeling job, does the property owner need both the sworn Contractor's Final Affidavit from the general contractor AND lien waivers from the subs or will the Contractor's Affidavit suffice?
08/17/2011   |   Category: Contractors ยป Construction...   |   State: Georgia   |   #25345

Answer:

During the entire work of construction, the owner may obtain lien releases or waivers of lien from each subcontractor and material supplier. Without these waivers or releases the real estate is subject to liens of all the subcontractors, even if the general contractor, though paid in full, fails to pay the subcontractors. Lien claimants who are contractors or subcontractors are protected under this legal doctrine because all their materials and labor are "buried" in the real estate, having become part of it. Unlike mortgage liens, however, the liens of these claimants cannot force a foreclosure. People having a home built can require contractors and subcontractors to provide lien releases or waivers as part of a written project contract. The contract can mandate a lien release be issued before the contractor receives payment for services, in which case it is called a lien waiver. If payments are made to a general contractor in stages for work performed by subcontractors, the homeowner can obtain lien releases from the various subcontractors as their part of the project is completed. Sometimes, construction loan documents drafted by a bank may indicate that the bank will obtain lien releases, but the bank may do this solely for its own benefit. Therefore, the property owner's requiring lien releases should be clearly stated and independent of any agreement made by or with the bank.

Although the terms lien waiver and lien release seem to be interchangeable, a release demonstrates completion and payment, so as to prove any claim has been satisfied, while a waiver demonstrates a relinquishment of a known right. Waivers are typically obtained prior to commencement of any work, whereas releases are subsequently obtained. Waivers of lien must be in writing, give a sufficient description of the real estate, and be signed by the one with authority to file or claim a lien. No payment needs to be made in advance if the subcontractor agrees to release the land from the lien and rely only on the credit of the owner or general contractor for payment of the debt.

A lien waiver is not a general release of claims; it only waives lien rights. A person signing a lien waiver may still have a claim (or multiple claims) against the person with whom it contracted. Therefore, owners may want their contractor to execute a waiver and release of all claims through the date of each pay application in addition to executing a lien waiver.

You are giving up the right to later file a lien only for the amount of the payment. The lien waiver will not necessarily prevent claims for contested change orders, retention, or breach of contract damages (for example — delay damages, impeded productivity, and other consequential damages).

-Interim Lien Waiver. This is used for progress draws or a partial payment. It waives lien rights through a certain date (and not future unpaid bills) and only to the extent of the payment. Many general contractors and owners require these forms to be signed by the person receiving payment before a check is issued.

-An Unconditional Lien Waiver is used after final payment and means just that: fully and finally releases all future lien rights with no later recourse to file a mechanic's lien. It should be signed only if you are assured you have been paid and are satisfied with the amount received.

-A conditional lien waiver is one that you use when submitting a progress invoice on a project, whether it's the first progress payment or the last. It is conditioned upon receipt of payment, and therefore will typically use the words "upon receipt". An unconditional lien waiver is used when payment has been received and cleared the account. Such a lien waiver will typically state that payment has been received.

When a lien waiver takes effect, the right to file a mechanic lien is given up. However, the lien waiver doesn't prevent a contractor from other remedies, such as a claim for breach of contract, etc.