Tuesday, March 27, 2012

Texas Lien Waivers - A Guide


Texas recently enacted several new statutes that govern waivers and releases of Texas mechanic's and materialmen's liens. Designed to protect suppliers, subcontractors and laborers, mechanics liens are statutorily created and provide a certain degree of protection for those who provide labor or materials to a project. When perfected, a statutory lien attaches to the property and is subject to judicial foreclosure if payment is not made.
Owners have never liked the idea of mechanics liens, and have over the years done everything they can to make sure that the Texas Mechanic's, Contractor's or Materialman's Lien - Lien Law for Construction Projects are interpreted strictly, and in their favor. Throughout the construction process, owners also demand waivers and releases of liens, which are important to ensure that the owner is aware at all times who may or may not file a mechanics lien on the property.
New legislation, codified in Chapter 53, Subchapter L, of the Texas Property Code, identifies what can be included in lien waivers and releases for them to be enforceable.
• Execution of an unconditional waiver and release for progress payments or final payments are not permitted, unless that person received payment. There is also no ability to require the waiver of any statutory lien rights.
A conditional lien waiver or release is enforceable only up to the amount actually paid to the lien claimant, and is only effective when the recipient has properly endorsed the check representing payment, whether a single- or joint-payee check, and the bank on which the check is drawn has paid it. 
• In attempting to standardize waivers, the Legislature, in Texas Property Code §53.284, provided model forms to be used when asking for a Texas lien waiver. Enforceable lien waivers must substantially comply with the statutory form that applies to the situation. Four different forms exist:
1) Conditional Waiver and Release on Progress Payment;
2) Unconditional Waiver and Release on Progress Payment;
3) Conditional Waiver and Release on Final Payment; and 
4) Unconditional Waiver and Release on Final Payment.
When using the forms, please make sure that you pick the right form considering the payment and project status for each lien claimant.
Note that each form require the lien claimant to warrant that it has paid or will use the funds received to promptly pay in full all of its subcontractors. Any lien claimant that does not make that payment or misrepresents that it already paid its subcontractors is vulnerable to suit for fraud: so be careful what you agree to.
• The new statutes apply to all contracts that began on or after January 1, 2012.

For more information on the lien waivers from a Texas Lawyer's point of view, take a look at Daniel R. Smith's blog posting on on the Texas Lawyer.

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