Home>Levelset Community>Legal Help>I am reviewing back up to pay apps and the sub conditional lien waivers from the GC have a clause at the end that state "contractor/Supplier further affirms that it has received payments to date that may be considered a trust fund for the purpose of paying for labor and/or materials and will apply all trust fund payments received as required".....I've never seen this and I'm not sure what it means. Is it even allowed?
I am reviewing back up to pay apps and the sub conditional lien waivers from the GC have a clause at the end that state "contractor/Supplier further affirms that it has received payments to date that may be considered a trust fund for the purpose of paying for labor and/or materials and will apply all trust fund payments received as required".....I've never seen this and I'm not sure what it means. Is it even allowed?
Reviewing contract documents for a HOA condo project.
1 reply
Feb 1, 2019
The terminology that can appear on lien waivers (and other construction contract or payment documents) can be confusing. Since, in most cases, these documents are not strictly regulated by state requirements, the wording can change from job to job and from contractor to contractor.
New Jersey is one of the 38 states that do not require lien waivers to be in a particular specific form. In these states, lien waivers are just like any other contract document between parties and can include nearly any language desired. The lack of standardized language means that there can be any number of lien waivers, all with different language, and all sufficient to waive lien rights (and other rights). Generally, in New Jersey, any phrase that could be included on a general agreement/contract between two parties is allowed to be included on a lien waiver.
As for what the phrase means, it's likely with respect to New Jersey's construction trust fund statutes. Many states have enacted trust fund statutes as an additional way to attempt to ensure the payment of lower-tiered parties on construction projects. These statutes generally say something to the effect of: Any money paid by an owner to a contractor, or by the contractor to a subcontractor, for work done or materials furnished to any work of improvement by any subcontractor, shall be held in trust by the contractor or subcontractor, as trustee, for those subcontractors who did work or furnished materials, to the work of improvement, for purposes of paying those subcontractors.
Thus, the money paid on the project is to be held in trust for the payment of the parties below - which is to ensure that funds are not misallocated, used on other projects, etc.
New Jersey has a construction trust fund provision for both public projects, and with respect to money paid as a deposit or advance pursuant to the purchase and construction of a new residential dwelling.
The inclusion of such language on a lien waiver, while not necessary, provides information that, to the extent any money paid is subject to the trust fund statutes, such money will be treated as required.