New Law Limits Broad Form Lien Waivers In Construction Projects

• Published date: 13 June 2022
• Law Firm: Ward and Smith, P.A.
• Author: Mr Evan M. Musselwhite

Lien rights can be one of a contractor's most important means of securing payment on any private construction project in North Carolina.

Under Chapter 44A of the North Carolina Statutes, contractors that contract directly with a project owner have a right to assert a lien on the subject real property to secure payment for amounts owed for work performed. First-, second-, and third-tier subcontractors can enforce the claim of lien on real property of the contractor through subrogation. The lien on real property is a form of security for the debt. If a contractor prevails on its lien claim, the property can be sold to pay that debt.

An important aspect of North Carolina's lien statutes is that the effective date of a lien on real property relates back to the contractor's date of first furnishing of labor or materials to the project. This relation-back can often lead to a contractor's lien on real property having priority over the owner's lender's deed of trust. Establishing this priority can mean the difference between being paid and not.

For these reasons, lien waivers have long been used in construction projects as a means of reducing the risk of lien claims. Typically, an owner (or in the case of a subcontractor, a general contractor) wants to get lien rights waived. General contractors and subcontractors, on the other hand, want their lien rights preserved.

It has long been the law in North Carolina that a contractor or subcontractor could not be required to waive lien rights in advance (or prospectively) as part of entering into a contract for the improvement of real property. In other words, any provisions in a construction contract, which required the...