New legislation going into effect on March 1 will change some key rules for construction liens in North Carolina.
The significant change: “Broad (lien) wavers exchanged for progress payments will be limited to the amount of payment that is actually received,” Levelset.com reports.
“Lien waivers are an incredibly important aspect of the construction payment process. Nearly every project will require a contractor, sub, or supplier to execute a waiver in exchange for payment. And, although waivers are frequently exchanged, close attention should still be paid to the language contained therein. This is often overlooked and results in a potential claimant waiving more than intended,” the website says in outlining the implications of Senate Bill 219.
Only 12 states regulate the form and content of lien wavers in the U.S. North Carolina (before the impending rule change) is one of the majority of states where parties can use their own lien waiver language.
“The issue with these ‘unregulated’ lien waivers is that many times there is language included that can waive more lien rights than intended — or even other rights.”
NC rules prelude pre-construction contractural lien rights waivers (that is use of “no-lien clauses”) under NC Gen. Stat. §44A-12(f). which says:
“…an agreement to waive the right to file a claim of lien on real property… or an agreement to waive the right to serve a notice of claim of lien on funds… which agreement is made in anticipation of and in consideration for the awarding of any contract… for the making of an improvement upon real property… is against public policy and is unenforceable.”
However, the previous law only applied for future contacts, and (once the project begins), nothing prevents a contractor from waiving all lien rights going forward. This dangerous situation will be remedied by the new law.
Levelset.com says in its posting two exceptions have been carved out of the lien waiver protection provisions:
- “First, this does not apply to waivers made in exchange for final payment. This makes sense, as project stakeholders need some sort of reassurance that no claims will be filed later on after final payment has been made.
- “The other exception is in regards to settlement agreements. Most payment issues don’t reach the courts; many of them are hashed out between the parties before it reaches that point. This second exception takes such agreements into account. However, this could also be used improperly as a defense. Those looking to enforce these broad waivers may argue that it was merely a product of a settlement agreement or compromise of an existing dispute.”
Other provisions in SB 219 include changes to the licensing requirements for land surveyors, additional requirements for public design-build contracts, determining prevailing parties for the purposes of attorney fees.
“In any case, although this is good news for the NC construction industry, it doesn’t mean contractors can let their guard down. The full extent of these protections, and how the courts will deal with contractual and/or waiver language aiming to circumvent this new legislation is still up in the air,” the published report says.
“For now, it’s still important to review the terms of your lien waivers carefully. And, whenever possible, use a conditional waiver to ensure you preserve your lien rights.”