The Standard Procedure for Obtaining Lien Waivers May Be Ineffective

A recent Superior Court decision should cause general contractors and owners to reevaluate their procedures for obtaining lien waivers.  Typically, signed lien waivers are submitted after the work is performed but before payment is received.  On a basic level, the procedure makes sense because the owner does not want to issue payment to its general contractor unless it is sure that it’s protected from potential mechanic’s liens.  While the general contractor and its subcontractors may argue that they should not have to provide lien waivers until they receive payment, they are generally protected if the owner does not actually issue the payment described in the lien waiver because standard lien waiver language makes it clear that the waiver is not effective unless the payment described therein is actually received.

In Milone & MacBroom, Inc. v. Winchester Estates, 2011 Conn. Super. LEXIS 2688, the Superior Court considered whether a lien waiver is valid when:

1. The lien waiver is issued after the work is performed:
2. The lien waiver is executed before payment is received; and
3. The payment described in the lien waiver is received three weeks after the lien waiver was signed.

The court decided that the lien waiver was not valid because it was signed before payment was received despite the payment being issued three weeks later.  That decision would seem counterintuitive insofar as no one would expect the lien waiver to be upheld if the payment was never received but no one has ever contemplated that a lien waiver would be ineffective after the payment was made regardless of when the lien waiver was signed.

In Milone & MacBroom, Inc. v. Winchester Estates, Milone & MacBroom, Inc. “furnished materials and performed services in the construction, repairing or improvement of the land and/or buildings, and provided surveying and engineering design services for proposed development of the property, pursuant to agreements with Anthony Silano, Silano Investment and Winchester Estates.”  Id.  “[T]o secure the unpaid balance due to it, [Milone & MacBroom, Inc.] filed a certificate of a mechanic’s lien.”  Id. After Milone & MacBroom, Inc. foreclosed said lien, the defendant claimed that Milone & MacBroom, Inc. “waived its lien rights” because of “a document entitled “Waiver of Mechanics’ Liens” that it had executed.  Id.  Milone & MacBroom, Inc. claimed that the lien waiver was void because of Conn. Gen. Stat. §42-158l.  Id.

As the defendant argued, §42-158l was passed to prevent subcontractors from being forced to give up their mechanic’s lien rights before the work was performed but that was not the situation here.  In this case, the work was performed and Milone & MacBroom, Inc. was ultimately paid.  The court, however, interpreted the statute literally.  §42-158l states that any waiver of a claim against payment bond and/or claim of lien is void if the work covered by the lien waiver has “not yet been performed and paid for.” (Emphasis added).  While the original intent of the statute was to prevent subcontractors from giving up their lien rights at the beginning of the job, the statute clearly states that – for a lien waiver to be valid – the lien cannot be executed before: 1.) the work is performed; and 2.) the work is paid for.

The implications of this decision upon owners are clear.  An owner that requires it general contractor to submit lien waivers from its subcontractors before issuing a progress payment will be subject to mechanic’s liens after it issues payment for such work.  Of course, the owner will still be able to defend against the subcontractor liens by pointing out that payment was made to the general contractor in good faith before receiving notice of the subcontractors claim.  Such payments are a defense but will require a more substantial defense than merely presenting the signed lien waiver form.

The decision is not binding authority but, because it is based upon the plain language of the statute, it is likely to be upheld if challenged on appeal.  Thus, a new procedure for obtaining lien waivers would seem to be in order.  If you would like to discuss the best way to handle lien waivers given this decision, please give me a call (203) 640-8825.