David M. Henry
dhenry@kmksc.com
(414) 962-5110
Lien Waivers. You can’t live with them, and you can’t live without them. If you don’t provide one, you won’t get paid. If you do provide one, you still may not get paid if you’re not careful. Or you may eventually get paid, but only after a lengthy court battle that ends up costing you a lot of time and money.
Here is a case in point: One of our clients recently asked us to help recover a balance of about $211,000 they were owed for materials they sold to a contractor for a construction job. Client had filed a lien against the job, but the owner refused to pay our client in return for a lien release. The reason: Our client acquired this particular construction contract from another business whose assets our client had purchased. And that other business had previously furnished the owner of the property with a lien waiver that incorrectly indicated only about $37,000 remained due on the contract for the job. The owner offered to pay client the $37,000 in return for client’s release of its entire lien claim of $211,000. After several months of litigation, we successfully settled our client’s claim for close to the full amount of their lien, but only after our client incurred substantial time and expense to demonstrate to the owner that they were not bound by the lien waiver furnished by the client’s predecessor business.
In Wisconsin, there is a statute that requires subcontractors and material suppliers to be extremely careful when they provide lien waivers in advance of receiving payment. It provides that any purported lien waiver signed by a lien claimant or a potential lien claimant “is valid and binding as a waiver” even if the lien claimant has not been paid and regardless of whether it was signed before or after the labor, services or materials were furnished, procured or contracted for.
The statute also provides that any ambiguity in the purported lien waiver shall be construed against the lien claimant or potential lien claimant who signed it, and the waiver waives all lien rights of the signer for all labor, services or materials furnished or to be to furnished by the lien claimant at any time for the construction project, “except to the extent that the document specifically and expressly limits the waiver to apply to a particular portion of such labor, services [and] materials …”
However, the statute provides some protection to lien claimants and potential lien claimants and savvy subcontractors and material suppliers should heed its implicit advice. “A lien claimant or potential lien claimant of whom a waiver is requested is entitled to refuse to furnish a waiver unless paid in full” for the labor, services and materials to which the waiver relates. A second Wisconsin statute voids a provision in a construction contract that requires a subcontractor or material supplier to waive its right to a construction lien before it has been paid for the labor, services and materials if furnished for the project.
Keeping in mind these key Wisconsin lien waiver statutes, here is an important lien waiver checklist for subcontractors and suppliers to utilize to ensure they do not violate the above Wisconsin statutory provisions governing lien waivers:
Types of Lien Waivers: There are four types of lien waivers that may be utilized for each project:
Conditional Lien Waiver and Release on Progress Payment: To be used in anticipation of receiving an initial payment or any progress payment, but not when receiving a final payment for the job.
Unconditional Waiver and Release on Progress Payment: To be used upon actually receiving in good funds an initial payment or any progress payment but not upon actually receiving a final payment for the project.
Conditional Waiver and Release on Final Payment: To be used in anticipation of receiving a final payment for the project.
Unconditional Waiver and Release on Final Payment: To be used only when actually receiving in good funds a final payment for the job.
Conditional Versus Unconditional Waivers: A conditional waiver is effective and enforceable only after payment has actually been received, while an unconditional waiver will be effective and enforceable even if payment has not actually been received.
The Wisconsin Statutes make it clear that subcontractors and suppliers should furnish only conditional waivers when they have been promised payment at some time in the future. Do not furnish an unconditional waiver unless and until you actually receive the promised payment in good funds. Even if the promised payment has been made by check, make sure the check has cleared the issuer’s bank before providing the signed unconditional waiver. If you provide it upon receipt of the check and the check “bounces” due to insufficient funds in the issuer’s account or the issuer stops payment on the check, you very well may have waived your lien rights even though you weren’t paid because the check was not honored.
An important final point on conditional partial lien waivers: they need to carefully identify what billings, invoices or pay applications the promised payment will be applied to. Don’t just state that the promised payment will pay for all labor, services and/or materials furnished through some specified date. Specify the billings, invoices and/or pay application to be paid by the promised progress payment. This avoids any confusion or ambiguity that might generate issues, disputes or litigation in the future over what is covered by the conditional partial lien waiver. This can be done by simply attaching as an exhibit to the conditional partial lien waiver a simple account statement listing the billings, invoices or pay applications covered by the waiver.
If you have any questions about lien waivers or mechanic’s liens in general, contact KMK Attorneys David M. Henry at 414-961-4813 or dhenry@kmksc.com or Lance E. Duroni at 414-961-4857 or lduroni@kmksc.com.