If you have worked in the construction industry, chances are you’ve seen just how important lien waivers are in the process of contractors and subcontractors receiving payment for work they’ve completed. Maybe you’ve wondered why what is usually a single-page document can have such an outsized impact on owner-contractor relations—if so, you’ve come to the right place. But before we can discuss what a lien waiver is, we need to touch on a closely related subject: Liens.
A lien is a claim that someone has against a property that can be used as collateral in settling a debt. If the underlying debt is not paid, the possessor of the lien may be able to force the sale of the property in order to recover the debt. When a contractor builds a structure for someone else, they automatically possess a lien on that property—a right established by Utah law to ensure that construction workers are paid for their work. This is a powerful right, however, and owners have a personal stake in ensuring that their property isn’t taken from them and sold unjustly without them being able to do anything about it. One can imagine how this might create some significant friction between the two parties when it comes time to pay; fortunately, the lien waiver has developed as a way to resolve some of that friction.
Generally speaking, a lien waiver will contain the following elements:
1. An amount of money to be paid to the contractor (or subcontractor)
2. A specific timeframe for which lien rights are being waived
3. Language which states that the contractor waives their right to lien in exchange for payment
4. The contractor’s signature
For a smaller construction project, the owner might pay the contractor in a single lump sum when the work is complete. In that case, the contractor would usually be asked to provide a signed lien waiver, which they trade for a check. On a larger project, contractors usually make monthly applications for payment, each of which will require a signed lien waiver. In that case, the contractor waives their lien only for the specified period, which cannot extend any later than the date the waiver is signed.
It may seem like a straightforward process, but as always, the devil is in the details. One important thing to know about lien waiver law in Utah is that the courts do not tend to recognize lien waivers as a unique legal document; instead, they function almost the same as any other contract. This means that ambiguous language might render a waiver useless, or that overly strong terms might mean that a contractor is giving up a lot more than they thought they were. Even if the terms are clear, lien waivers are still only valid if they are signed and if it can be proven that payment was made.
Contractors are responsible for ensuring that their rights to recover for unpaid work are protected. Here are a few tips to keep in mind before you sign a lien waiver:
1. If possible, provide your own waiver. This will ensure that you do not give up more than you need to.
2. If you are provided with someone else’s waiver, have a legal professional assess its strengths and weaknesses.
3. If you are ever uncertain about the content or application of a lien waiver, voice your concerns and retain legal counsel as soon as possible. The high-stakes deadlines of the construction industry can make these steps seem impractical or even actively harmful, but consenting to unfavorable conditions may cause you further detriment down the road.
Here at Sumsion Business Law, we bring years of experience in construction law to the table so that we can serve the hardworking men and women of Utah in making sure they get what they’re owed. Schedule a meeting with one of our attorneys today ...
