When it comes to lien waivers, timing is everything.
Most construction contracts require subcontractors to submit lien waivers in order to receive payment. Typically, a sub will submit a waiver after performing work, but before receiving payment from the project owner or general contractor. Owners prefer this procedure because they think their property will be protected from mechanic’s liens if they have a waiver in hand before they make payment. But under certain circumstances, such waivers may be ineffective due to an often-overlooked Connecticut statute.
The statute in question, Conn. Gen. Stat. §42-158l, is entitled “Clauses waiving right to claim mechanic’s lien or claim against a payment bond void” and was enacted in 1999. The statute applies to private projects in Connecticut where the contract between the property owner and contractor exceeds $25,000.00, and excludes residential properties of four units or less. The statute provides in relevant part (emphasis added):
Any provision in a construction contract or periodic lien waiver issued pursuant to a construction contract that purports to waive or release the right of a contractor, subcontractor or supplier engaged to perform services, perform labor or furnish materials under the construction contract to (1) claim a mechanic’s lien, or (2) make a claim against a payment bond, for services, labor or materials which have not yet been performed and paid for shall be void and of no effect.
Prior to the enactment of this statute, property owners would sometimes insist that all subcontractors relinquish their lien rights before ever setting foot on the property. The purpose of §42-158l was to prohibit private property owners from demanding such blanket lien waivers. However, a number of Connecticut Superior Court judges have recently interpreted the statute even more broadly.
Per these court decisions, a lien waiver is void pursuant to Conn. Gen. Stat. §42-158l if, at the time the subcontractor signed the waiver, the sub had not been paid in full for work that had already been performed. Thus, unless both conditions are met- performance and payment– a mechanic’s lien waiver is void. These decisions call into question the customary method of exchanging lien waivers for payment on most private projects.
Nonetheless, a subcontractor should be very careful not to waive his or her lien rights for work performed through a date certain (i.e., the end of the current requisition period) if there are pending change orders or claims that the sub has not yet billed. In that event, the subcontractor should always indicate on the lien waiver itself that there are exceptions to the broad scope of the release.
The lesson for subcontractors: you cannot prospectively surrender your lien rights. Any provision in a construction contract that requires you to waive your lien rights before you start performing work, or any provision in a contract that requires you to submit a lien waiver before you receive payment, is void and unenforceable. Keep in mind, however, that most waivers already explicitly state that they are not effective unless the payment described therein is actually received. Also note that as a general rule, once an owner releases payment to the general contractor for your work, you do not have the right to file a mechanic’s lien, regardless whether or not you signed a lien waiver. Owners are entitled to a credit for good faith payments made to the general contractor for your work (what constitutes a “good faith” payment is a question for another day, but generally speaking, an owner acts in good faith when he or she makes payment to the general contractor without knowledge of any subcontractor claims).
The lesson for owners: don’t assume that a subcontractor cannot file a mechanic’s lien because the sub submitted a lien waiver before you released payment to the general contractor for the sub’s work. Such waivers are unenforceable pursuant to Conn. Gen. Stat. §42-158l. While you will likely be entitled to credit for payments made to the general contractor for the subs’ work, even if the payments were made after you received lien waivers from the subs, it may be cumbersome and costly for you to prove that these payments were made in good faith. You may not be able to rely on a signed lien waiver as proof that a subcontractor’s lien is invalid.
If you have questions about lien waivers or mechanic’s liens, we would be happy to speak with you. Our attorneys routinely draft, review, and revise lien waivers in order to protect our clients’ interests. We can be reached at 860-522-1243.
Michelson, Kane, P.C.
