By: Lindsey E. Powell, Attorney at Law
North Carolina statutes have long prohibited pre-construction waivers of lien rights. “[A]n agreement to waive the right to file a claim of lien on real property . . . or . . . serve a notice of claim of lien on funds . . . in anticipation of and in consideration for the awarding of any contract . . . is against public policy and is unenforceable.” N.C. Gen. Stat. § 44A-12(f). However, that prohibition does not apply once the contract is signed or otherwise prevent a contractor from waiving lien rights once work has begun.
North Carolina is also in the majority of states that do not regulate the content of lien waivers or provide a statutory form, leaving the parties free to craft their own waivers. Oftentimes, this results in broad waivers which may require unsuspecting contractors and subcontractors to waive and release all lien rights moving forward or other rights or remedies to which the contractor or subcontractor may be entitled, even though performance is not complete and full payment has not been received.
The North Carolina General Assembly recently addressed this issue by passing Senate Bill 219, which Governor Cooper signed into law on January 26, 2022. Now Session Law 2022-1, which will eventually be codified as N.C. Gen. Stat. § 22B-5, provides “[p]rovisions in lien waivers [and] releases purporting to require a [contractor or subcontractor] to submit a waiver or release of liens or claims as a condition of receiving interim or progress payments . . . are void and unenforceable unless limited to the specific interim or progress payment actually received . . . in exchange for the lien waiver.” Simply put, this law now limits a waiver or release of liens or claims to the amount of the interim or progress payment actually received in exchange for the waiver. For example, if you have a contract for $100,000 and submit a lien wavier in exchange for, and actually receive, a progress payment of $10,000, that lien waiver does not waive or release your lien rights against the project for the $90,000 balance remaining on the contract.
It is important to note that this language does not apply to lien waivers given in exchange for final payment or to settle or compromise disputed claims. The new law becomes effective today, March 1, 2022.
To view Session Law 2022-1, click here.
If you or your company have questions about Senate Bill 219, or a legal matter related to construction, please contact Anderson Jones Attorneys by email or phone at (919) 277-2541.