When a Lien Waiver is Not Enough

By: Aliza Ganz

Tags: Construction Contracts; Payment Disputes; Mechanic’s Liens

One of the key protective documents for Owners during the course of construction is the lien waiver. A lien waiver is a signed document from a contractor, subcontractor, materialman, equipment lessor or other party to the construction project stating they have received payment and waive any future lien rights to the owner’s property (of the owner). Owners typically expect that the lien waiver is iron-clad once signed by a contractor, and may be surprised to find out that despite a signed lien waiver, the contractor may be able to file and foreclose upon a valid lien against a project.

Recently, in Leonard E. Riedl Constr., Inc. v Homeyer, the Appellate Division of the Supreme Court of New York, Fourth Department, revisited a lower court case in which Riedl Construction, the Plaintiff, performed a construction project for the Homeyers, the Defendant. At the conclusion of the project, the Plaintiff signed a document entitled “Contractor’s Final Waiver and Affidavit” (essentially, a final lien waiver), stating in a clear-cut fashion that the project was “fully completed”; “all bills for labor and/or materials furnished in connection with the construction of said buildings and work of improvement have been fully paid”; and plaintiff “waives any and all lien rights which he may have or may have had on account of or arising out of the construction of said buildings and work of improvement.” The Appellate Division, while admitting that a clear and unambiguous written release is typically a complete bar to an action alleging invalidity, maintained that the facts surrounding the execution of the release matter. The Court found compelling that at the time the final lien waiver was signed, the work had not in fact been completed and the defendant-Owner had verbally agreed to make additional payments for the completion of additional work, and in fact made such payments after the final lien waiver was signed. The Court specifically stated that when there is evidence that “the circumstances surrounding the release, as well as the parties’ course of dealings, evinces that the parties’ intentions were not reflected in the general germs of the release, the release does not conclusively establish a defense as a matter of law.” In other words, the parties’ course of conduct trumped an unambiguous executed document.

This type of mistake can be costly to a Developer-Owner and can be avoided with the right representation. Our attorneys are experts on the drafting of lien waivers and are intimately familiar with the challenges of enforcing them. We are available to assist you on both a legal and practical level to facilitate the effective management and winding-up of your Project.