Broad Form Lien Waivers No Longer Part of the Game in North Carolina

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North Carolina Avenue is one of the hottest properties in Monopoly, says most of my kids. And if you are a contractor or subcontractor in North Carolina, the law makers recently afforded you some additional protections to your lien rights.

While many states prohibit prospective lien waivers—that is, an advanced waiver of lien rights usually included in a construction contract before the work is performed or the lien right arises—the General Assembly in North Carolina recently passed a new law that has some additional protections.

The law, effective March 1, 2022, states that a similar advanced or broad lien waiver as part of a progress payment is also not enforceable. In other words, under the new law, broad waivers exchanged for progress payments will be limited to the amount of payment that is actually received. The statute provides:

(a) Provisions in lien waivers, releases, construction agreements as defined in G.S. 22B-1(f)(1), or design professional agreements as defined in G.S. 22B-1(f)(5) purporting to require a promisor to submit a waiver or release of liens or claims as a condition of receiving interim or progress payments due from a promisee under a construction agreement or design professional agreement are void and unenforceable unless limited to the specific interim or progress payment actually received by the promisor in exchange for the lien waiver.
(b) This section does not apply to the following:
(1) Lien waivers or releases for final payments.
(2) Agreements to settle and compromise disputed claims after the claim has been identified by the claimant in writing regardless of whether the promisor has initiated a civil action or arbitration proceeding.

N.C. Gen. Stat. § 22B-5

While “no lien right” contract provisions are unlawful in North Carolina, the new statute seeks to expand the protection to contractors and subcontractors being asked to waive lien rights unconditional through a specific date as part of the progress payment process. Now, in North Carolina, it is more clear that a lien waiver is valid only for the payment actually received from the contractor or subcontractor.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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