Owner and Prime Contractor demands for downstream entities to sign interim and final lien waivers have become commonplace in the construction industry; however, most states treat them differently. South Carolina, for example, does not require statutory lien waiver forms but provides that lien rights cannot be waived prior to receipt of payment for the amount waived. By contrast, Florida has statutory lien waiver forms which state that lien rights are released in consideration of receipt of payment; however, parties are not required to use them. At the other end of the spectrum, California law requires the use of statutory lien release forms and provides conditional and unconditional release forms for both progress and final payments.
Regardless of jurisdiction, most construction professionals today still believe they retain certain legal rights, namely the right to bring a breach of contract claim, even after signing a conditional lien waiver if they ultimately remain unpaid. However, recent developments have highlighted the importance of understanding the applicable law before executing a lien release.
I. Recent Developments: Texas Turns Towards Statutory Forms to Address Scope of Private Lien Waivers
Until 2012, Texas was among the states that did not require the use of statutory lien waiver forms. The change was due in part to litigation between Zachry Construction Corporation (Zachry) and the Port of Houston (the Port) related to the construction of a new wharf (the Project). For each progress payment it received on the Project, Zachry executed a document entitled ‘Affidavit and Partial Release of Lien’ which stated the following:
ZCC hereby acknowledges and certifies that Port of Houston Authority (PHA) has made partial payment to ZCC on all sums owing on Payment Estimate Number [#] and that it has no further claims against PHA for the portion of the Work completed and listed on the Schedule of Costs in Payment Number [#].
Port of Houston Auth. of Harris Cty. v. Zachry Const. Corp., 377 S.W.3d 841, 855 (Tex. App. 2012). Among other things, the parties disagreed on whether certain Affidavit and Partial Release of Lien forms executed by Zachry operated to release Zachry’s lien claims only, or other claims it may have had as well as its lien claims.
At trial, the jury did not find that the language in the ‘Affidavit and Partial Release of Lien’ covered Zachry’s claims for liquidated damages withheld by the Port and the trial court entered final judgment of almost $20 million in favor of Zachry. On appeal, the Appellate Court reversed and held that the release language unambiguously covered such claims. Finally, the Texas Supreme Court reversed again finding that although the release language was unambiguous, it did not cover Zachry’s claim for improperly withheld liquidated damages.
II. Recent Developments: Georgia Lien Waiver Forms Release Breach of Contract Claims
Georgia law requires the use of statutory lien waiver forms which specifically state that the claimant “waives and releases any and all liens or claims of liens it has” upon the receipt of the specified payment. However, the Georgia Court of Appeals’ recent decision in ALA Construction Services, LLC v. Controlled Access, Inc. clarified that executing a lien waiver form in Georgia waives all the claimant’s rights with respect to the amount specified in the waiver instead of its lien rights alone.
In that case, Controlled Access, Inc. (Controlled Access) contracted with ALA Construction Services, LLC (ALA) to provide certain equipment and related services for a construction project in Georgia. Controlled Access executed two statutory interim lien waivers which contained the following language:
When you execute and submit this document, you shall be conclusively deemed to have been paid in full the amount stated above, even if you have not actually received such payment, 60 days after the date stated above unless you file either an affidavit of nonpayment or a claim of lien prior to the expiration of such 60 day period.
After ALA failed to pay for the equipment and services, Controlled Access filed suit alleging breach of contract. Despite its failure to file a claim of lien or affidavit of non-payment within 60 days of signing the interim lien waivers, the trial court granted Controlled Access’ Motion for Summary Judgement and entered an order in its favor.
On appeal the Appellate Court reversed and held that the trial court’s interpretation of Georgia law was erroneous focusing on the plain language of the statute which provides that once “a waiver and release provided for in this Code section is executed by the claimant, it shall be binding against the claimant for all purposes.” The statute further provides that the amount specified in a lien waiver:
[S]hall conclusively be deemed paid in full upon the earliest to occur of: (A) Actual receipt of funds; (B) Execution by the claimant of a separate written acknowledgment of payment in full; or (C) Sixty days after the date of the execution of the waiver and release, unless prior to the expiration of said 60 day period the claimant files a claim of lien or files in the county in which the property is located an affidavit of nonpayment [in the statutorily required format].
Because ALA failed to file a claim of lien or affidavit of non-payment within 60 days of executing the interim lien waivers, it was deemed to have been paid in full the amounts specified in such lien waivers even though it was never paid. Moreover, such interim lien waivers were binding against it for all purposes and operated to waive both its lien rights and ability to bring a breach of contract claim for non-payment.
III. Takeaways & Recommendation
While the decision is ALA Construction is highly debatable, it remains the law in Georgia at the present time. More generally, given the different and evolving approaches to lien waivers applied by the several states, and the potentially severe impacts of same, it is imperative to understand the applicable state law and the wording of each lien waiver form. All parties must carefully consider the effect of lien waivers (a) prior to signing a lien waiver; (b) at the time the referenced payment is due; and (c) after receiving a claim from an entity who may have signed such a waiver.