Don’t let the payout process turn into a wrestling match.
The Waiver of Lien: Definition and Drafting
In my last blog, I explained why it is so crucial to have a Contractor’s Sworn Statement for every construction project. This document, which requires regular updates for every payment cycle, outlines the project’s financial aspects throughout the building process. Each professional who works for the general contractor will be listed, along with a detailed breakdown of the payout status of each subcontractor’s sub contract for labor and material provided at the project.
Now, I will explain the purpose and significance of another crucial construction management document: the Waiver of Lien. This document is typically submitted to the project owner by each sub-contractor and materialman who is seeking to receive a payout for labor and/or materials provided at the project. Under Illinois law, a contractor who adds value to a project by providing labor and/or materials has a statutory right to place a lien on the project property and to foreclose on that lien (forcing the sale of the property) to receive payment for the contractor’s services. The Waiver of Lien serves as a legal release of this statutory mechanic lien right’s when the sub-contractor receives his payout.
The Waiver of Lien form specifically requires the Contractor to identify the amount of his payout request (which must match the exact amount requested on the corresponding Contractor’s Sworn Statement). The purpose of this Waiver of Lien is to protect the property owner from a future mechanic lien claim and/or foreclosure action. Anything, even the tiniest of extras or minor changes, has to be documented on this form. Otherwise, you as the contractor, sub-contractor or sub-sub-contractor waive your right to be paid.
Essentially, this means you can’t come back later to say you forgot to include an item. The Waiver of Lien is final. Once you’ve submitted this form, you’ve waived your ability to bill for any work prior to the date on the Waiver of Lien.
The Waiver of Lien also serves a second crucial purpose: it serves as an absolute bar to any future claim by a sub-contractor for any undisclosed/unbilled sub-contract labor and/or materials that were provided at the project prior to the date on the Waiver of Lien.
It’s important to stress that multiple Waivers of Lien need to be filled out for payment over the span of construction. But the last waiver typically is for the cost of labor and material that had to be done to complete the small finishing touches (“punch list items” of the project. This amount of money is referred to as “retention” and is a percentage of the project’s funds that are held back to cover any final fixes.
One Final Note
The construction paperwork is a critical safeguard and should always be examined carefully. So before you sign any agreements, it’s always in your best interest to have an attorney look over the documents and advise you on the most appropriate route to take.
Next time, I’ll examine the Contractor’s Affidavit.