If you are a specialty trade contractor, material supplier or other potential lien or bond claimant, you’ve undoubtedly faced this dilemma: “The customer will only release payment if we give them an unconditional waiver and release. Everyone does it!”
From a purely legal perspective and without taking into account business considerations, giving an unconditional waiver until you verify clearance of the payment is a very bad idea. There is a reason that most states (including California) offer an alternative: the conditional waiver.
The conditional waiver and release upon final payment is the most underutilized of the 4 statutory release forms in California. It exists, however, to protect contractors, suppliers and other claimants from precisely this situation. Try to educate the owner, lender, construction manager or other party requesting the release that a conditional waiver, coupled with a copy of a check that has successfully cleared, is the equivalent of an unconditional waiver and release. Blame it on your lawyer. Blame it on the dozens of claimants (including some in high profile appellate cases) that have gotten burned. Blame it on this post!
Of course, you will undoubtedly make exceptions from time to time as a business decision. Here is the take of Director of Finance, Thea Dudley, who considers the business aspect of the decision of whether to give an unconditional waiver before clearance of a payment: http://www.prosalesmagazine.com/business/money-management/theas-mailbag-the-lowdown-on-lien-waivers_o
For more information contact:
Christopher E. Ng
Gibbs Giden Locher Turner Senet & Wittbrodt LLP
1880 Century Park East, 12th Floor
Los Angeles, California 90067
Phone: (310) 552-3400
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