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© 2014 Dysart Taylor Cotter McMonigle & Montemore, P.C. 4420 Madison Avenue, Suite 200 Kansas City, MO 64111

tel 816.931.2700 fax 816.931.7377 | | DysartTaylor.com

Presented by Lee Brumitt of Dysart Taylor Cotter McMonigle & Montemore, P.C. The Builder’s Association Estimating Academy | February 7, 2014

The Good, The Bad & The Ugly

© 2014 Dysart Taylor Cotter McMonigle & Montemore, P.C.

• Lien - a legal right to have property held, applied, or sold for payment of a debt

• Mechanic’s lien - the right contractors have to assert an interest in property for payment of a debt

• A mechanic’s lien is the most powerful and effective tool for obtaining payment because it is inexpensive, involves the owner, and prevents refinancing or sale of the property until lien is resolved.

What is a Lien?

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• Payment bonds replace mechanic’s liens on public property

• Payment bonds can also be used on projects on private property

• A payment bond is a guarantee by a surety of a contractor’s obligation to pay its subs and suppliers

• For purposes of lien waivers, bonds are the equivalent of liens

Payment Bonds and Liens

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• A waiver is an intentional relinquishment of a legal right

• A lien waiver is an intentional relinquishment of a right to file a lien or a bond claim – Partial: intended to be in exchange for a

progress payment – Final: intended to be in exchange for final

payment due under a contract

What is a Waiver?

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Partial Waiver of Lien The undersigned waives all rights to file a bond claim or claim a mechanic’s lien against the property or any improvements thereon, for any labor and/or materials supplied

a. conditioned upon receipt of $______ or b. as of a specific date (date of invoice, date of payment, etc.)

Typical Lien Waiver Language

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• Progress payment is due from owner to General Contractor

• GC requires subs and suppliers to sign a partial lien waiver

• GC furnishes its partial lien waiver along with partial lien waivers signed by subs/suppliers

• Upon receipt, owner or its agent (title company) makes a progress payment

• Subs and suppliers are paid by GC

Typical Lien Waiver/Payment Process

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• Contractual Lien Waiver • Unconditional Lien Waiver • Time-Based Lien Waiver • Lien Plus Waiver

Problem Lien Waivers

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• Included as a term in one of the contract documents

• Provides that GC or sub waives all lien rights before any work has actually been performed

• Such provisions are void in MO (§429.005, R.S.Mo.) and KS (K.S.A. §16-1803) but acceptable in some other states

• In states where not invalid, acceptable even if not in subcontract but in prime contract which flow down into subcontract

Contractual Lien Waiver

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• Not conditioned upon contractor’s actual receipt of funds – Look for language such as “Conditioned upon

receipt of,” – Beware of language such as “receipt of which is

hereby acknowledged” if payment has not been made at time lien waiver is signed.

• Releases lien rights for past work that is the subject of pending payment application

• Can release lien rights for future work not even performed

Unconditional Lien Waiver

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• Forfeits lien rights for work performed on or before specific date in lien waiver

• Problems can arise when: – Date is associated with date beyond last

date actually paid, such as the date of a check

– Does not include unpaid extra work performed before specified date, unknown or outstanding claims, or retainage held from prior payments

Time-Based Lien Waiver

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• Releases not only right to file a lien but also right to receive payment for work already performed

• Beware of waivers that indicate that you are releasing or waiving “any and all claims through the date hereof” rather than “any and all lien or bond claims through the date hereof”

Lien-Plus Waiver

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• Pressure on the owners to pay GCs and the GCs to pay subs and the simultaneous need for payment. – Getting paid is a good thing from contractor’s

perspective! – But it can translate to pressure on GCs and subs

to waive liens in order to obtain payment. • General contracts require GCs to remove

liens by bonding off or satisfying liens when filed

What Causes Problem Lien Waivers

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• Associated Owners and Developers Form 2022GC 6.8.2 “Contractor shall bond-off or otherwise cause the dissolution, transfer, or satisfaction of any lien…within 5 days of Owner’s written demand…”

• ConsensusDOCS No. 200 (2007) 9.2.3.2 “If Owner has made payments…,the Contractor shall, within 30 days after filing cause the removal of any liens filed. If the Contractor fails to take such action…, the Owner may cause the lien to be removed at the Contractor’s expense, including bond costs and reasonable attorney’s fees…”

• AIA A201-2007 Provides that GC warrants that the owner will have good title, free of liens, to all work covered by an application for payment, at the time the payment is actually made.

Contract Language

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• AIA and ConsensusDOCS do not require a contractor to remove liens where there are issues of disputed work while the AOD form does.

• Broad lien waivers/releases can be an Owner’s or a GC’s way of avoiding disputed work issues and gain the upper hand on change order issues.

• Not unfair for an owner to ask a GC to remove the lien where it has ordered extra work from the sub without first getting owner’s approval but might be easier for GC to get broad lien release from the subcontractor.

• SOLUTION: DON’T DO EXTRA WORK UNLESS WRITTEN CHANGE ORDERS OR, AT LEAST, WRITTEN CHANGE DIRECTIVES ARE EXECUTED!!!

Disputed Work

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• General conditions of general contract by Construction Management Assoc. of America:

“Final payment to the Contractor may be withheld until…the site…is free and clear of all liens or rights thereto…”

• AIA A201-2007 Retainage is released before final payment, but the form is often modified by owners to condition receipt of final payment on receipt of [unconditional] lien releases from subs.

• ConsensusDOCS 200 (2007) conditions release of liens on receipt of final payment

Final Payment

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Ways to Preserve Lien and Bond Rights

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ASA’s Addendum to Subcontract (2007) 14. Subcontractor Waivers. Any form or contract

language wherein the Subcontractor purports to release the Contractor, Owner or Design Professional is hereby qualified by the following language whether or not the Subcontractor specifically adds the language: “This release shall apply only to work for which payment has been received in full by Subcontractor; shall not apply to retention; shall not apply to unbilled changes, to claims which have been asserted in writing or which have not yet become known to Subcontractor; and shall be conditional upon receipt of funds to Subcontractor’s account.



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• Review all lien waivers at commencement and before signing and, if necessary, revise them to make sure consistent with your intent.

• Use following language in partial lien waivers:

“This release shall apply only to work for which payment has been received in full; shall not apply to retention; shall not apply to unbilled changes or to claims which have been asserted in writing or which have not yet become known; and shall be conditional upon receipt of funds.”



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• Where owner or GC objects: Might be willing to say payment has been received through a certain date but with certain exceptions - retainage, numbered list of change orders/written claims, and payment in the amount of last pay app.

• Filing a lien or making a bond claim may be the only method to preserve rights if pay is held because of form of lien waiver.


Joint Check Rule: if a sub or supplier

receives and endorses a joint check without collecting the full amount from the maker (or co-payee), the sub or supplier is not entitled to assert a mechanic’s lien or payment bond claim.

Joint Checks As Lien Waivers

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• Bertolino v. Vince Kelly Construction Co., Inc., 963 S.W.2d 331 (Mo. App. 1997)(where GC made check payable to sub and supplier and supplier endorsed the check without receiving full payment owed by sub, supplier waived lien claims against the owner and could only maintain an action against the sub for breach of contract).

• Applies in MO private and public projects but not in federal Miller Act projects. KS (?)

Joint Checks as Lien Waivers

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Estoppel requires three things: 1. A statement or act inconsistent with a

subsequent claim, example, a lien or bond claim

2. Action on the part of the other party in reliance on the statement or act

3. Injury to other party resulting from party contradicting or repudiating statement or act

Estoppel

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Examples: • Sub advises owner directly that its bill

has been paid and owner is safe paying the GC

• Where sub gives the GC correspondence which he knows will be given to owner showing receipt of payment

• Where supplier gives the GC a receipt showing payment in full

Estoppel

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Peerless Supply Co. v. Industrial Plumb. & Heat. Co., 460 S.W.2d 651 (Mo. 1970)

– where concrete supplier told owner that his account with GC was “relatively current” and in reliance on the statement, owner paid GC, concrete supplier was not estopped from liening the property.

Estoppel

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Local Private Project – Lien waiver – Lien waiver check

Case Examples

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Lien Waiver

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Lien Waiver Check

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• Restrictive Endorsement on Check read as follows:

By endorsement hereon, the undersigned hereby acknowledges payment in full and does release and waive any and all right and claim against maker hereof and the real property described by address on the voucher attached to this check…on account of equipment or material furnished and/or labor performed to date in relation to the said real property…

Case Examples

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Benner-Williams, Inc. v. Romine, 427 P.2d 312 (KS 1968)

– a waiver must be clear and unequivocal to be effective

– where sub entered into “conditional sales contract” with GC in which sub retained title to the materials installed until payment received, no clear intent to waive lien rights

Case Examples

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Landvatter Ready Mix, Inc. v. Buckey, 963 S.W.2d 298 (Mo App 1997)

– where sub signed a lien waiver stating that upon receipt of $____ amount, sub waived “any and all lien and claim or right to lien…the premises,” sub which received $____ amount did not waive right to lien for unpaid future deliveries where signed lien waiver did not expressly waive future lien rights)

Case Examples

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Polack Plumb. & Heating v. A.S.A. Builders, Inc., 534 S.W.2d 505 (Mo App 1976)

– GC rounded up 7 lien waivers from subs – 5 of the subs added language to the lien

waivers stating they were “issued pending clearance of [GC’s] check.”

– 2 of the subs simply signed the lien waivers without attaching any condition.

– GC absconded with all subs’ money – And the court held…?

Case Examples

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Contact Dysart Taylor

Lee B. Brumitt Shareholder/Director 4420 Madison Ave., Suite 200 Kansas City, MO 64111 816.931.2700 main 816.714.3027 direct [email protected] www.DysartTaylor.com

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© 2014 Dysart Taylor Cotter McMonigle & Montemore, P.C. tel 816.931.2700 fax 816.931.7377

4420 Madison Avenue, Suite 200 Kansas City, MO 64111

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