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Waiving lien rights without waiving your legal rights

Bryan Kroes is an attorney at Wauwatosa-based Hurtado Zimmerman and practices in the areas of commercial and residential real property development and acquisition, construction and real estate litigation, construction contract preparation and related intellectual property law.

Bryan Kroes is an attorney at Wauwatosa-based Hurtado Zimmerman and practices in the areas of commercial and residential real property development and acquisition, construction and real estate litigation, construction contract preparation and related intellectual property law.

In Wisconsin, construction liens are one of the most powerful means that general contractors, subcontractors and material suppliers have of securing payment for work on construction projects.

Often, a payment is exchanged at the same time that a contractor or supplier waives their rights to a lien against a project. Sometimes, however, lien waivers are submitted before payment is received.

The result is that contractors or suppliers give up their rights to a lien against the project, regardless of whether they ultimately receive payment. In January, The Daily Reporter ran an article in part questioning why someone would be willing to sign and submit a lien waiver before receiving payment.

The offered reason was “because they believe they have no other choice” – a statement which, if true, has detrimental legal repercussions for the unwary contractor or supplier. Although contractors and suppliers may hold this belief, the truth is that Wisconsin’s construction lien law offers protections to lien claimants.

Wisconsin lien law provides that anyone “who performs, furnishes, or procures any work, labor, service, materials, plans, or specifications, used or consumed for the improvement of land, and who complies with (the Wisconsin lien statute requirements), shall have a lien therefor on all interests in the land belonging to its owners.”

A lien claimant may waive his or her rights to a lien by signing a written statement waiving that lien, commonly known as a “lien waiver.” When it comes to lien waivers, the law is strict — a waiver of a construction lien is valid and binding, whether or not payment was made, and whether the document was signed before or after the work was performed, furnished, or procured, or contracted for.

A lien waiver is deemed to waive all lien rights of the signer for all work performed at any time on the project, except to the extent that the document specifically and expressly limits the waiver to apply to a particular portion of the work. Practically speaking, if someone submits a lien waiver without accepting any work, that person has effectively given up his or her right to file a lien against the owner’s property — even if the lien claimant has not yet been paid a dime.

Quite often, lien claimants are required to submit a waiver of lien rights along with an application for payment. Why? Perhaps it is because the title company, general contractor or owner require it as a prerequisite to payment. Or, perhaps it is just industry custom.

Problems arise, however, when the lien claimant does not receive the payment requested in its application for payment. Ordinarily, the lien claimant’s legal recourse would be to file a lien on the property to secure whatever is owed.

However, if the lien claimant already submitted a lien waiver along with its payment application, it may have voluntarily given up its rights to that lien, and as a result, the leverage and additional source of payment that a lien provides.

Wisconsin lien law has dealt with some of the difficulties facing contractors and suppliers. Contract provisions that require someone to waive a right to a construction lien before receipt of payment are unenforceable and deemed void.

The law also allows a subcontractor who has signed a contract containing a waiver provision to refuse to furnish the waiver unless paid in full. The Wisconsin Court of Appeals has interpreted Wisconsin lien law statues to give contractors a choice: they can either give a lien waiver before being paid (thereby extinguishing lien rights before payment is received) or refuse to give a lien waiver until paid. In addition, a contractor or supplier from which a waiver is requested is entitled to refuse to furnish a waiver unless paid in full for the labor, services, materials, plans, or specifications to which the waiver relates.

A word of caution is in order: Any ambiguity in a lien waiver is construed against the person signing it. As a result, lien claimants should be careful not to inadvertently waive lien rights for work that has not yet been performed or for which they have not yet been paid.

For example, a lien waiver that waives rights to work performed within a certain period of time could be held to cover retainage or change-order work that has not yet become due or billed.

To ensure that lien rights are properly preserved and to protect against the consequences of lower-tier lien claimants, all parties should be aware of the rules relating to construction liens and the waiver of rights to those liens.

The information in this column has been prepared for general information purposes and is not legal advice, is not to be acted on as such and should not be relied upon for legal advice in any particular circumstance or situation.

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