Mechanics’ lien waivers are intended to prevent construction contractors or material suppliers from filing a lien in connection with work for which an owner has already made payment. An effective waiver should protect the owner by requiring the contractor to: (i) acknowledge receipt of payment for work completed; and (ii) release the owner from claims, waiving any future right to file a mechanic’s lien against the property.
There is a risk, however, that even the most watertight lien waiver may not provide the owner with the designed protection. In fact, if not drafted with care, there is a chance that a court will treat the waiver not as a release of a right to file a lien, but rather as a mere “receipt for payment” only. Therefore, knowing what makes for an effective lien waiver, as opposed to just a receipt, is a critical component of crafting a waiver for any construction contract.
WAIVER VERSUS RECEIPT
New York Lien Law Section 34 will void on public policy grounds any contract that requires a potential lienor to waive its right to file a mechanic’s lien. However, where a waiver is given in exchange for payments received at or after the contractor’s receipt of payment, a waiver can be enforceable.
However, in order for a lien waiver to serve as a release as opposed to a mere receipt for payment, the waiver must contain specific language waiving and/or releasing claims and providing the lienor with the chance to preserve pending claims which fall outside the scope of an application for payment. The intent to waive a right, such as the right to file a mechanic’s lien, must also be “unmistakably manifested on the face of the lien waiver before the waiver can be enforced against the potential lienor.” See Orange Steel Erectors Inc. v. Newburgh Steel Prods. Inc., 225 A.D.2d 1010 (3d Dept. 1996).
On the other hand, where non-specific language appears in the release, the courts may treat the waiver as a receipt for payments made, rather than the intended release of lien for claims or money earned or not yet due. The rationale behind this outcome is that a contractor’s right to seek or foreclose on a lien for unpaid work should not be limited with respect to items that are outside of the strict bounds of the lien waiver.
In addition to the above, where a waiver is given prior to receipt of payment, the courts have also treated the waiver as a mere “receipt” for payment instead of a release as intended. For instance, in Penava Mechanical Corporation v. Aglo Mechanical Services, Inc., 71 A.D.3d 493 (1st Dept. 2010), lien waivers executed by a subcontractor did not bar it from later filing a lien for unpaid overtime since the general contractor required receipt of the lien waiver prior to making any payment to the subcontractor. As a result, the lien waiver was determined to be a “mere receipt of the amounts stated in the waiver.” Likewise, in Peter Scalamandre v. FC 80 Dekalb Associates, 129 A.D.3d 642 (2015), the court also found that the contractor’s lien waiver was merely a “receipt” that did not serve to waive or release a claim since it was the owner’s practice to make payments to the contractor for work performed only after obtaining the lien waiver.
Of course, a lien waiver that is treated as a mere receipt is not completely useless. Such a waiver will still serve to limit the amount of any mechanic’s lien the contractor may file.
AVOID TURNING YOUR WAIVER INTO A RECEIPT
There are many things an owner can do to avoid the potential problem of turning a waiver into a mere receipt. For instance, as a general practice, an owner (or contractor, as the case may be) should avoid using broad or sweeping boilerplate language that covers “all claims, obligations, costs, expenses, causes of action and liens” on the premises. This language might signal to the court that the waiver is actually just a receipt. Instead, the waiver should contain unequivocal statements that establish relinquishment of specific claims with provisions for pending claims not actually covered by the waiver.
Language providing for an exclusion from the waiver for materials, labor and expenses for which written authorization has not been provided, together with a schedule listing specific items for which payment has not been made, is a good start toward an enforceable waiver that serves as a release against claims not listed on the schedule.
A mechanic’s lien waiver must be drafted carefully in order to effectively release a payor from a contractor’s claims. There must not be any ambiguity in the waiver form, which must recite payments made and list the work and materials for which payment is yet to be made. This will be effective in releasing all claims for work and materials not listed on the schedule, and will help to establish the intention of releasing claims rather than serving as a mere receipt for payment.