WHAT TO LOOK FOR WHEN YOU ARE ASKED TO SIGN A CLAIM OR LIEN WAIVER FORM TO OBTAIN PAYMENT The mechanic’s lien and payment bond claim are a roofing contractor’s most fundamental protections for payment on any given project. Upon making a payment, an owner or general contractor will generally require you to execute a claim or lien waiver form in exchange for payment for the work invoiced. A claim or lien waiver form is a document that waives a claimant’s right to record a mechanic’s lien or make a claim against a payment bond. Often, the language found in such claim or lien waiver forms has a roofing contractor releasing claims that were never intended to be released. Given the importance lien rights and payment bond rights have in creating leverage to obtain payment, it is important to ensure that roofing contractors do not mistakenly waive rights and that any claim or lien waiver form they are asked to execute is not too broad in its scope.

WAIVER AND RELEASE FORMS There are four types of lien or claim waiver forms: conditional waiver and release upon progress payment; unconditional waiver and release upon progress payment; conditional waiver and release upon final payment; and unconditional waiver and release upon final payment. With all these forms, it is important to understand the extent and - more -

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scope of the release to ensure claims for payment for work not yet performed are not released. It is also important to ensure your execution of these forms do not act to release disputed claims. The conditional waiver and release upon progress payment is the safest waiver for roofing contractors. A conditional waiver and release upon progress payment generally specifies that if the roofing contractor has indeed been paid to date, the waiver is effective proof against any lien claim on the property. However, roofing contractors need to be careful, when executing a conditional waiver and release upon progress payment to ensure the release and waiver is limited only to the extent of payments received rather than extending to all work performed through the date of the release and waiver or the date of the payment. For example, consider the roofing contractor who executes a conditional waiver and release upon progress payment, which has the legal effect of the roofing contractor waiving payment bond rights and/or lien rights up through the date of the release or waiver form. Assume the waiver form is dated Dec. 1 and the waiver is conditioned upon payment for labor, materials or equipment provided up through Nov. 15. Upon receipt of the payment contemplated by the waiver form, the roofing contractor who executes the waiver form in the example has just released his payment bond rights and lien rights for the work performed between Nov. 15 and Dec. 1 even if he never gets paid for that work. - more -

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What if the roofing contractor performed work prior to Nov. 15 that he believed was extra work outside the original scope of work, thereby entitling it to additional compensation, but the owner or general contractor disagreed? If this roofing contractor’s lien waiver is limited to the extent of payments actually received and he does not receive payment for the disputed work, he will retain lien rights for the extra work. If, the lien waiver extends to all work performed up to the date of the lien waiver, the lien rights associated with the disputed change order work are forever lost. A better alternative for the roofing contractor would have been to execute a waiver form that extends only to the amount of payment actually received rather than extending to work performed through the date of the waiver. If the roofing contractor executed a conditional waiver or release upon progress payment dated Dec. 1 in exchange for payment for work performed through Nov. 15, he would retain his payment bond rights and lien rights for the work performed but only if the waiver extends only to the amount of payment actually received. If the work performed during the entire month of November had a value of $50,000. with only $25,000. being paid with the contemplated progress payment, the roofing contractor still has lien rights with regard to the $25,000 of work performed for which payment has not been received. An unconditional waiver and release upon progress payment acts to release all a roofing contractor’s claim rights through a specific date upon the contractor’s execution of the form. The legal effect of this type of waiver form is not conditioned upon actual - more -

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receipt of payment like the conditional waiver form. An unconditional waiver form has a roofing contractor releasing his payment bond and lien rights even if the contractor is never paid for the work for which its payment bond and lien rights have been waived. Similar to the conditional waiver and release form, the unconditional waiver and release form needs to be read carefully prior to execution to ensure disputed claims are not waived and lien rights are retained for work not yet performed. Conditional and unconditional waiver and releases upon final payment are similar to their progress payment counterparts though waiver and release forms in exchange for the purported final payment are more likely to contain broad release language, which can act to have the roofing contractor waive disputed and unresolved claims.

PRACTICAL POINTERS The best practice to follow when asked to sign a claim or lien waiver form is to insist on payment at the time the form is signed. Alternatively, roofing contractors can insist on the use of an escrow agent to facilitate payment prior to releasing the lien waiver form to the owner or general contractor. All roofing contractors should insist on the use of a conditional lien waiver form. Care should also be exercised to ensure you do not sign a lien waiver that covers “all claims” if there are additional claims for work already performed or there is future work to be performed. If the form you are being asked to sign purports to cover all - more -

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claims, disputed and unresolved claims should be expressly reserved on the face of the lien waiver form. The key is to look for language that has you releasing claims you “may now or hereafter have” to a lien upon the project. Roofing contractors should also be careful to remember that a release is much broader than a lien waiver. Many roofing contractors are unaware that they can agree to waive their lien rights or the right to pursue a payment bond claim while still preserving breach-of-contract-type claims against the owner or general contractor. In other words, releasing your lien rights or a claim on a payment bond does not necessarily prohibit the roofing contractor from filing a breach-of-contract lawsuit against the owner or general contractor; only the security of the lien or payment bond is lost. Roofing contractors should not execute a lien waiver that also contains language releasing the owner or general contractor from liability for disputed and unresolved claims. As you can see, a close reading of claim and lien waiver forms can go a long way in assisting you retain the leverage sometimes necessary to obtain payment.

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