All of us in the construction industry have likely seen both exculpatory clauses and unenforceable clauses in agreements we’ve signed, even if we didn’t recognize them as such or really noticed what they meant. It’s also likely you’ve seen an exculpatory clause that is also an unenforceable clause. To recognize these clauses in the future and what they mean, this post will explain what each clause is, the similarities and differences between the two, and how each relates to mechanics liens.
Unenforceable Clauses
An unenforceable clause is a section of an agreement that the law will not enforce.
An example would be a clause in your employment agreement with your boss stating you will be fired and give up pay you’ve earned for missing work for any medical reason. That clause will not be enforced. The law will, however, still enforce the rest of your employment agreement.
Some of the reasons for a clause being unenforceable include:
• The clause is against the law.
• The clause is unfair or “against public policy”.
• The clause is confusing or is unclear what the meaning is.
Exculpatory Clauses
An exculpatory clause is a portion of a contract which excuses one person in the agreement from responsibility for a loss, harm, or obligation to another person. You’ve likely seen exculpatory clauses when you sign a “Waiver” or “Release” of liability agreement when you rent construction equipment for a job. For example, it will say you are giving up your right to sue the rental company for injuries suffered from using their equipment.
Exculpatory clauses may be unenforceable depending on the circumstances. Some of the reasons a court may refuse to enforce an exculpatory clause include:
• State law forbids agreements excusing someone for harm they intentionally or recklessly cause.
• You were forced to agree because you lacked any bargaining power.
• The clause is confusing and not clear you giving up a right.
The Same but Different
These clauses could be at times the same thing. Your exculpatory clause will also be an unenforceable clause when the law will not enforce it, because it is against the law, unfair, or unclear, as described above. Things to look for to determine whether your exculpatory clause is enforceable include:
• Is it reasonable the rights in the clause?
• Is the meaning of the clause clear and written in a manner that was easy to understand?
• Is the clause specific to your circumstances or broad covering unrelated risks?
• Did you have any ability to negotiate the clause?
• Was the clause easy to recognize or was it hidden within the contract?
You may find many other factors that make your exculpatory clause unenforceable based on your state’s specific laws.
Exculpatory Clauses in Lien Waiver Forms
When you sign a lien waiver to request payment is when you run into exculpatory clauses. The clause requires you give up your right to lien the property in exchange for the payment. Some lien waiver exculpatory clauses require you give up all your lien rights and all other claims related to the construction, even if the payment isn’t the full amount you are owed. This may make the exculpatory clause an unenforceable clause for the reasons discussed above. It’s unreasonable to require you to give up all your lien rights for partial payment. The waiver is not specific to lien rights, because it requires you to give up your rights to all claims. It’s unfair because you likely don’t have the ability to negotiate the terms of the clause and are left having to accept an unfair agreement.
Understanding how exculpatory clauses in lien waivers work and how they relate to the concept of unenforceable clauses will help you identify when a lien waiver is unfair or unreasonable. You should seek to change any lien waiver exculpatory clauses you are required to sign so they are limited to only giving up those rights specific to the payment you are receiving. Also, since the enforceability of lien waiver exculpatory clauses varies from state to state, you should consult an attorney experienced with the lien laws of your state to learn when a lien waiver exculpatory clause is an unenforceable clause. National Lien and Bond network has attorneys specializing in all 50 States and can help you with your specific needs. Reach out to National Lien and Bond today to prevent Unenforceable clauses in your next contract or agreement.
This blog is for educational purposes only.