When Is a Release Not a Release? Courts provide conflicting rulings on the interpretation of contractor lien waiver forms09/06/2012 | Fall 2012 Newsletter
In New York, one may not require a contractor, in advance, to waive its right to file a mechanic’s lien for construction work it will be performing in the future. However, once the work is done, and in consideration for making payment, one may obtain a waiver of lien as to the work performed.
Owners routinely require their contractors to sign a waiver of lien before receiving each monthly progress payment. The forms vary, but they generally provide that the contractor waives and releases any right it might otherwise have had to file a lien to the extent of the payment it is receiving.
Over time, however, these lien waiver forms have begun to morph into much more robust waivers of not only lien rights, but all claims which the contractor might possess. It is no longer unusual to see documents entitled “Waiver of Lien and Release” which require the contractor to “waive, release, and discharge any and all liens, claims, or rights of lien on account of all work, labor and materials supplied to the date of this release.” A contractor signing this, believing it is simply foregoing its right to file a lien for the sums it is receiving, might be in for a rude awakening if it has other claims (say, for delay, or extra work) which it intends to pursue.
Two recent cases reveal the difficulty the courts are having in ascertaining the true meaning of these documents. In one, the language of the “Conditional Interim Waiver of Lien and Claim” seemed open to interpretation. It provided that the contractor “waived, released and relinquished any and all claims, demands and rights of lien to the extent of the amount shown hereon and previously paid...for all work...performed or furnished for the construction at the project.” (Italics added). Even the title of the document seemed equivocal. However, the appellate court held that the language was unambiguous and that the document, on its face, constituted a complete bar to any action by the contractor. The court added: “the fact that [contractor] may have intended something else is irrelevant.”
In another case, only a month earlier, a different appellate court held that a “Waiver of Lien” which provided that the contractor “waives, releases and discharges any and all liens, claims or rights of liens for and on account work of work performed at and in connection with the property” [almost identical language to the other case], was ambiguous enough to withstand a motion by the owner to dismiss the contractor’s claims. There, the court held that it needed to evaluate the circumstances surrounding the purported release, as well as the parties’ course of dealings, to evince the parties’ intentions. To the court, the Waiver of Lien appeared to operate merely as a “partial release for monies referenced therein.”
Some might argue that a waiver of lien which does no more than relinquish the right to file a lien for the amount reflected in an owner’s cancelled check is a fairly pointless document. Others might argue that it is unfair to require a contractor to waive valid and timely claims as a condition of getting paid each month.
Even parties who spend a great deal of time preparing and negotiating their construction contracts typically give very little thought to the language in their lien waivers. To the extent you want this document to serve as a release of all claims incurred up to the date of the waiver, it is necessary to carefully draft the waiver in such a way as to navigate the holdings of these conflicting cases. Contractors, on the other hand, need to review the lien waiver forms foisted upon them very carefully. What they perceive to be a harmless waiver of their right to file a lien for money received might turn out to be a release of any and all claims arising from the project.