diff --git a/core/src/main/java/org/bitcoinj/protocols/channels/PaymentChannelV1ClientState.java b/core/src/main/java/org/bitcoinj/protocols/channels/PaymentChannelV1ClientState.java
index b8b97d19..0cb665d9 100644
--- a/core/src/main/java/org/bitcoinj/protocols/channels/PaymentChannelV1ClientState.java
+++ b/core/src/main/java/org/bitcoinj/protocols/channels/PaymentChannelV1ClientState.java
@@ -151,7 +151,9 @@ public class PaymentChannelV1ClientState extends PaymentChannelClientState {
         // in future as it breaks the intended design of timelocking/tx replacement, but for now it simplifies this
         // specific protocol somewhat.
         refundTx = new Transaction(params);
-        refundTx.addInput(multisigOutput).setSequenceNumber(0);   // Allow replacement when it's eventually reactivated.
+        // don't disable lock time. the sequence will be included in the server's signature and thus won't be changeable.
+        // by using this sequence value, we avoid extra full replace-by-fee and relative lock time processing.
+        refundTx.addInput(multisigOutput).setSequenceNumber(TransactionInput.NO_SEQUENCE - 1L);
         refundTx.setLockTime(expiryTime);
         if (totalValue.compareTo(Coin.CENT) < 0 && Context.get().isEnsureMinRequiredFee()) {
             // Must pay min fee.
diff --git a/core/src/main/java/org/bitcoinj/protocols/channels/PaymentChannelV1ServerState.java b/core/src/main/java/org/bitcoinj/protocols/channels/PaymentChannelV1ServerState.java
index 3a5492aa..80b683f6 100644
--- a/core/src/main/java/org/bitcoinj/protocols/channels/PaymentChannelV1ServerState.java
+++ b/core/src/main/java/org/bitcoinj/protocols/channels/PaymentChannelV1ServerState.java
@@ -125,9 +125,9 @@ public class PaymentChannelV1ServerState extends PaymentChannelServerState {
         // Verify that the refund transaction has a single input (that we can fill to sign the multisig output).
         if (refundTx.getInputs().size() != 1)
             throw new VerificationException("Refund transaction does not have exactly one input");
-        // Verify that the refund transaction has a time lock on it and a sequence number of zero.
-        if (refundTx.getInput(0).getSequenceNumber() != 0)
-            throw new VerificationException("Refund transaction's input's sequence number is non-0");
+        // Verify that the refund transaction has a time lock on it and a sequence number that does not disable lock time.
+        if (refundTx.getInput(0).getSequenceNumber() == TransactionInput.NO_SEQUENCE)
+            throw new VerificationException("Refund transaction's input's sequence number disables lock time");
         if (refundTx.getLockTime() < minExpireTime)
             throw new VerificationException("Refund transaction has a lock time too soon");
         // Verify the transaction has one output (we don't care about its contents, its up to the client)
diff --git a/core/src/main/java/org/bitcoinj/protocols/channels/PaymentChannelV2ClientState.java b/core/src/main/java/org/bitcoinj/protocols/channels/PaymentChannelV2ClientState.java
index 94300d68..3e3cbb1a 100644
--- a/core/src/main/java/org/bitcoinj/protocols/channels/PaymentChannelV2ClientState.java
+++ b/core/src/main/java/org/bitcoinj/protocols/channels/PaymentChannelV2ClientState.java
@@ -119,13 +119,12 @@ public class PaymentChannelV2ClientState extends PaymentChannelClientState {
         contract = req.tx;
 
         // Build a refund transaction that protects us in the case of a bad server that's just trying to cause havoc
-        // by locking up peoples money (perhaps as a precursor to a ransom attempt). We time lock it so the server
-        // has an assurance that we cannot take back our money by claiming a refund before the channel closes - this
-        // relies on the fact that since Bitcoin 0.8 time locked transactions are non-final. This will need to change
-        // in future as it breaks the intended design of timelocking/tx replacement, but for now it simplifies this
-        // specific protocol somewhat.
+        // by locking up peoples money (perhaps as a precursor to a ransom attempt). We time lock it because the
+        // CheckLockTimeVerify opcode requires a lock time to be specified and the input to have a non-final sequence
+        // number (so that the lock time is not disabled).
         refundTx = new Transaction(params);
-        refundTx.addInput(contract.getOutput(0)).setSequenceNumber(0);   // Allow replacement when it's eventually reactivated.
+        // by using this sequence value, we avoid extra full replace-by-fee and relative lock time processing.
+        refundTx.addInput(contract.getOutput(0)).setSequenceNumber(TransactionInput.NO_SEQUENCE - 1L);
         refundTx.setLockTime(expiryTime);
         if (totalValue.compareTo(Coin.CENT) < 0 && Context.get().isEnsureMinRequiredFee()) {
             // Must pay min fee.