Another reason to hold off on paying your contractor: No sworn statement
Why subcontractors should provide a lien waiver to the property owners
You’ve seen more than enough before-and-after images of what a general contractor can do to improve a property. Now it’s your turn! The contract is signed, and the negotiations for the progress payment schedule are complete. However, there are two more tasks that must be handled beforehand: sworn statements and lien waivers.
A commercial property owner should never ever pay for construction or renovation projects until the contractor has provided the sworn statement required by §5 of the Illinois Mechanics Act (the Act). This law explicitly imposes a duty on both the contractor to provide the sworn statement and the business owner to require it before making any payments. Additionally, lien waivers should be collected. Here’s why.
Why sworn statements should matter to commercial property owners
A proper sworn statement protects the commercial property owner from subcontractor lien claims. How does a §5 sworn statement protect the owner? To answer that, we first need to consider what the statement includes.
It should state the names and addresses of all parties furnishing labor, services, material, fixtures, apparatus or machinery, or forms or form work. Additionally, it should include the amounts due or to become due for each.
The property owner uses this document to make sure that subcontractors get paid for their work. And why should the owner care whether any subcontractors get paid? Because the Act allows unpaid subcontractors to claim a lien against the owner’s property!
Here’s how the §5 sworn statement works in the overall scheme of the Mechanics Lien Act’s purpose of protecting the subcontractor’s right to be paid and protecting the owner’s property from lien claims:
The owner and general contractor enter into a contract for the construction work.
When the work is complete, the general contractor submits a §5 sworn affidavit that must list all subcontractors and the amount due, to become due, or advanced.
When the §5 sworn affidavit lists an amount due or to become due to a subcontractor, §24 of the Act requires that the owner retain sufficient funds to pay the subcontractor.
§27 of the Act requires the owner to make subcontractor payments upon receiving notice of a subcontractor claim pursuant to a §5 sworn statement (or a subcontractor’s notice of claim served, in compliance with §24 of the Act, on the owner or the owner’s agent).
Sworn statements from general contractors are not optional
Courts have consistently upheld the property owner's right to withhold payment in the absence of a sworn statement in hand before paying the contractor. Demand that sworn statement!
As a matter of fact, the Act’s plain language at §5 requires that the owner demand a sworn statement: “It shall be the duty of the contractor to give the owner, and the duty of the owner to require of the contractor, before the owner pay[s] … the contractor … a statement in writing, under oath or verified by affidavit, of the names and addresses of all parties furnishing labor, services, material, fixtures, apparatus or machinery, or forms or form work and of the amounts due or to become due to each.”
Got the sworn statement? Good. Now you need a lien waiver for the commercial property.
How a lien waiver works in the commercial property owner’s favor
The owner can require a lien waiver by every subcontractor when paying the main general contractor. If the property owner receives a lien waiver (whether it was asked for or not) from a contractor or a subcontractor and pays money in reliance on that lien waiver, then whoever gave the lien waiver is barred from claiming a lien against the property to the extent of the waiver.
Some waivers are partial waivers (for less than the entire contract amount) and other waivers are "to date" (lien rights are waived up to a certain point in time but not for any work done thereafter). Of course, a final waiver extinguishes all lien rights belonging to whoever issued the final waiver. Again, this is only if the owner paid out in reliance on the waiver (whether partial, to date, or final).
Contractors do the work, contractors get paid
With a sworn statement and lien waivers from each payee, now it’s time for the contractor to update the owner as renovation work is completed. The owner should then make progress payments to the prime contractor and each subcontractor for the amounts identified in the statement. An acceptable practice is to make checks payable to both the contractor and each subcontractor.
If you’re uncomfortable with negotiating payment arrangements or verifying the legitimacy of legal documents collected beforehand, it’s advisable to contact a construction law attorney before the work starts. If you’re going to have a headache, let it be from all the drilling, hammering, sawing and scraping, not subcontractor lien claims that could have been easily avoided.
Any information within this post is not intended to be official legal advice. This is for general informational purposes only and should not be considered a substitute for professional legal guidance tailored to a specific situation.
Are you interested in reading more Foundations of Construction Law posts like this one? Subscribe to my Substack account today! Check out Defense by Davis too. For immediate needs, click here to contact me directly.