Arizona Lien Waivers - Be Careful with What You Sign

In this blog, presented by SunRay Construction Solutions and Kevin M Estevez, Member, Holden Willits PLC find out in in detail about Arizona’ it should still s lien waiver, the various lien waivers forms used in Arizona, and some important dos and don’ts that you should follow while dealing with lien waivers.

What are the Lien Waivers in Arizona generally?

In Arizona, lien waivers are creatures of statute, specifically A.R.S. § 33-1008. This statute identifies the different types and specific forms of lien waivers that must be used in Arizona. As per the statute, there are four types of lien waivers in Arizona:

• Conditional Waiver and Release on Progress Payment
• Unconditional Waiver and Release on Progress Payment
• Conditional Waiver and Release on Final Payment
• Unconditional Waiver and Release on Final Payment

Construction professionals in Arizona must bear in mind that waivers that do not substantially follow the above-mentioned statutory forms are considered unenforceable. However, this does not mean that you cannot modify the statutory forms. Sometimes there may be situations wherein you may need to modify the form, which is acceptable.  

But it should still substantially follow what is in the statute.  

Progress v. Final Waivers

One of the two distinctions in the forms of waiver are progress and final waivers.

Progress Waivers

1. A progress waiver is typically used where a lien claimant is “required to execute a waiver and release in exchange for or in order to induce the payment of a progress payment.”
2. A progress waiver generally only releases lien rights for a specific period.
3. You must ensure that while dealing with a progress waiver, you are using the right type of waiver, i.e., conditional or unconditional.

Final Waivers

1. A final waiver is typically used when where a lien claimant is “required to execute a waiver and release in exchange for or in order to induce the payment of a final payment.”
2. A final waiver indicates that all the lien rights on a project have been released.
3. Again, you need to ensure that you are signing the right type of final waiver, i.e., conditional or unconditional.

Conditional v. Unconditional Waivers

The other type of distinction in waiver forms are conditional and unconditional waivers.

Conditional Waivers

1. A conditional waiver is used where a lien claimant is “required to execute a waiver and release in exchange for or in order to induce payment and the claimant is not in fact paid in exchange for the waiver and release or a single payee check or joint payee check is given in exchange for the waiver and release.”
2. Generally speaking, a conditional waiver is only effective if the payment identified in the waiver has been made.
3. While signing a conditional waiver, you must ensure that you are using the right type of waiver, i.e., progress or final.
4. The general rule of thumb in Arizona is that you have a conditional waiver plus a subsequent payment and the clearing up of this payment equals an unconditional waiver to the extent of the payment.

Unconditional Waivers

1. An unconditional waiver is used where a lien claimant is “required to execute a waiver and release in exchange for or in order to induce payment and the claimant asserts in the waiver that it has been paid the payment.”
2. In general, an unconditional waiver is effective even if the payment identified in the waiver is not made.
3. Like conditional waivers, you must ensure that you are using the right type of unconditional waiver, i.e., progress or final.

One of the most common issues in the construction industry is that you will have parties demanding that you sign unconditional waivers (progress or final) in exchange for delivery of a check. However, this should not be done as per the statute.  

Signing an unconditional waiver means that you are giving up your lien rights even though you have not received the payment, which is why you need to be really careful before you sign an unconditional waiver. Make sure that you sign it only after the payment has been made.

Conditional Waiver and Release on Progress Payment

Typically, a conditional waiver and release on progress payment form will include the below key language:

1. On receipt by the undersigned of a check
2. And when the check has been properly endorsed and has been paid by the bank on which it is drawn
3. This release covers a progress payment for all labor, services, equipment or materials furnished to the jobsite or to _______ (person with whom the undersigned contracted), through _______ (Date) only and does not cover any retention, pending modifications and changes or items furnished after that date.  

You need to be really careful with through date because you don’t want to unintentionally release lien rights for work that may be performed in the future.

Unconditional Waiver and Release on Progress Payment

An unconditional waiver and release on progress payment form will include the below key language:

1. The undersigned has been paid and has received a progress payment in the sum of $__________
2. This release covers a progress payment for all labor, services, equipment or materials furnished to the jobsite or to __________ (person with whom the undersigned contracted), through _______ (Date) only and does not cover any retention, pending modifications and changes or items furnished after that date.

The key distinction between a conditional and unconditional waiver form is the first point – that is in an unconditional waiver form, you are representing that you have been paid and you have received the amount. Also, the unconditional waiver form includes a notice at the end of the form which states that:

This document waives rights unconditionally and states that you have been paid for giving up those rights. This document is enforceable against you if you sign it, even if you have not been paid. If you have not been paid, use a conditional form.

Conditional Waiver and Release on Final Payment

A conditional waiver and release on final payment form will include the below key language:

1. On receipt by the undersigned of a check from ________ (Maker of Check) in the sum of $______ (Amount of Check) payable to _________ (Payee or Payees of Check) and when the check has been properly endorsed and has been paid by the bank on which it is drawn.
2. This release covers the final payment to the undersigned for all labor, services, equipment or materials furnished to the jobsite or to _________ (Person with whom undersigned contracted), except for disputed claims in the amount of $______.

Unlike progress payments where you waive your lien rights over a certain time period, a final payment waiver means that you are waiving all your lien rights except for any disputed claims that are mentioned in the form.

Unconditional Waiver and Release on Final Payment

An unconditional waiver and release on final payment form will include the below key language:

1. The undersigned has been paid in full for all labor, services, equipment or materials furnished to the jobsite or to _______ (Person with whom undersigned contracted)
2. Except for disputed claims for extra work in the amount of $________.

The form will also include the below notice:

This document waives rights unconditionally and states that you have been paid for giving up those rights. This document is enforceable against you if you sign it, even if you have not been paid. If you have not been paid, use a conditional form.

Lien Waiver Do’s and Don’ts

Let’s look at some of the key dos and don’ts that you need to follow while dealing with lien waivers.

Lien Waiver Do’s

1. Do exercise extreme caution when executing any lien waiver. You must ensure that you are very careful with through date, carve out any disputed or pending amounts, etc.
2. Do be sure to sign the right type of, and statutorily compliant, waivers. For example, if you are dealing with a progress payment, then you must check whether the situation warrants a conditional waiver or an unconditional one.

Similarly, when you are dealing with conditional/unconditional final waivers, make sure you are sending in the right one.

3. Do be mindful of the time covered by the progress waivers. Sometimes there may be situations where you submit a progress waiver with your payment application and due to some reason, the payment is not made. You submit your next payment application and if you are not careful, you may provide a conditional waiver that has a thorough date of the work done in the current month and you don’t carve out the fact that you haven’t been paid for the previous month.

Since you have waived off your line rights through that date in the current month, you will have a problem with the unpaid work performed in the last month.

4. Do seek legal assistance before you sign a lien waiver if you are at all uncertain.

Lien Waiver Don’ts

1. Don’t sign unconditional lien waivers until you receive payment, and that payment has been cleared.
2. Don’t unintentionally waive lien rights in connection with progress waivers.
3. Don’t neglect to include disputed amounts in final waivers.  

As mentioned earlier, lien waivers are one of the most important documents in a construction project, which is why you must follow these dos and don’ts diligently to protect your payment rights and ensure that you get paid successfully.

Know More: Dealing with Bonded Liens in Arizona and How to Get Paid on Public Project Bond Claims