Last month, the Minnesota Court of Appeals issued a pretty routine decision regarding mechanic’s lien waivers, but one worth writing about because companies sometimes overlook the routine elements of their day. The case regarded the effectiveness of a signed lien waiver.
Lien waivers are a fact of life in construction. Whenever your company is expecting a payment, you’re typically required to submit a signed lien waiver along with the application for payment. The result here is that there are a lot of lien waivers floating around on every construction project. Sometimes, the right lien waiver is signed at the right time. Unfortunately, however, this isn’t always the case, as there is a lack of understanding on projects about lien waiver language. Plus, since the lien waiver is so routine, disorganization and sometimes even bad intentions result in the wrong type of lien waiver getting signed at the wrong time.
Whatever the underlying reason, in JH Larson Electrical Company v. C&S Electric LLC, the Minnesota Court of Appeals was confronted with a company claiming payment on a state construction payment bond who had already signed a lien waiver. The general contractor and bonding company was refusing to make payment to the claimant, arguing that they were entitled to rely on the signed lien waiver when issuing payments to the subs. The appeals court agreed:
[L]ien waivers are “customarily used on both public and private construction projects to keep the general contractor . . . informed of the payment status of subcontractors and suppliers and to protect the projects from . . . bond claims.” … the lien waivers provided not only an election between a partial and full payment but also contained a space for the supplier to list any outstanding amounts owed; and these documents permit the court’s finding that [the claimant] never indicated amounts owing in the lien waivers it furnished …The evidence in the record, although not overwhelming, is sufficient to support the district court’s findings on the customs of the industry and reasonable reliance.
While lien waivers are an omni-present component of every construction project, they are also a legal document. Know what you are signing, because once the ink dries, you’ll likely be stuck with it.