Liens - limiting lien rights
By Michael L. Fortney
Contents
- What is a lien waiver?
- Can a contractor be forced to waive his lien rights?
- Is a no lien contract clause enforceable?
- How should a contractor protect its lien rights in contracts and in waivers?
What is a lien waiver?
A. Partial lien waiver
Upon making progress payments, the owner or general contractor will require the contractor to waive all lien claims that the contractor may have for the work invoiced. Such partial lien waiver requirements must be contained in the contract. Partial lien waivers are often used in conjunction with an Affidavit of Contractor.
B. Final lien waiver
Upon completing the job, the contractor must usually complete a final lien waiver.
Can a contractor be forced to waive his lien rights?
The Fairness in Contracting Act states that the requirement to sign a final waiver of claims in order to obtain final payment is void and against public policy, if the contractor has asserted a claim or request an adjustment to the contract price. R.C. 4113.62(B). No longer will contractors be caught between waiving a previously asserted claim, and getting paid for their work.
Is a no lien contract clause enforceable?
An owner in Ohio may have a contract provision providing that a contractor may not file a lien on a project. The enforceability of such a provision is questionable. However, some Ohio courts have upheld such "no lien" provisions against contractors that sign them. Seveco, Inc. v. C&G Investment Associates, 1977 LEXIS 7341 (Franklin Cty. 1977).
If a contractor agrees to a no lien provision, the contractor must put the same language in any contracts he enters into with lower tiered contractors or material suppliers.
How should a contractor protect its lien rights in contracts and in waivers?
Make sure a lien waiver is contingent on payment, either partial or final. Only waive liens through the date of the invoice, not through the date of the payment.
Look for no lien clauses in your contract, and in the contract with the owner, if that contract is incorporated by reference. A no lien clause in the contract with the owner may be incorporated into a lower tier contract, if there is incorporation language in the lower tier contract. Such incorporation language is usually enforced.
