What is a Lien Waiver?
A Lien Waiver is a document signed by a contractor, subcontractor, or supplier, stating that they have received payment for work performed or materials supplied and thereby waive their right to file a mechanics lien against the property. Lien waivers are commonly used in construction projects to ensure that all parties are paid and that no liens are filed that could cloud the title of the property.
About Lien Waivers
Lien waivers play a crucial role in the financial and legal aspects of construction projects. They provide assurance to property owners and lenders that contractors and suppliers have been paid, thereby preventing future lien claims. There are different types of lien waivers, including conditional and unconditional waivers, which offer varying levels of protection depending on whether payment has been made or is pending.
Best Practices for Using Lien Waivers
- Understand the Types: Familiarize yourself with the different types of lien waivers—conditional and unconditional, for progress and final payments—to ensure you use the appropriate one.
- Accurate Documentation: Ensure that lien waivers are accurately completed and signed by the appropriate parties. Verify that the details match the payment records and project documentation.
- Conditional Waivers: Use conditional waivers when payment has not yet been made but is forthcoming. This type of waiver is effective upon receipt of payment.
- Unconditional Waivers: Use unconditional waivers once payment has been made and verified. This type of waiver cannot be revoked.
- Timely Processing: Process lien waivers promptly in line with payment schedules to avoid delays in project progress and ensure continuous protection against liens.
- Legal Compliance: Ensure that lien waivers comply with local laws and regulations, which can vary by jurisdiction.
Types of Lien Waivers
- Conditional Lien Waiver: This waiver is contingent upon the receipt of payment. It becomes effective only once the payment is actually received and clears.
- Unconditional Lien Waiver: This waiver is effective immediately upon signing, regardless of whether payment has been received. It provides immediate assurance that no lien will be filed but should be used with caution.
- Progress Payment Lien Waiver: Used when a partial payment is made, this waiver covers the portion of work or materials for which payment has been received.
- Final Payment Lien Waiver: Used when the final payment is made, this waiver covers all work performed or materials supplied through the completion of the project.
Conditional vs. Unconditional Lien Waiver
- Conditional Lien Waiver:
- Purpose: Provides a waiver of lien rights contingent upon the receipt of payment.
- Usage: Ideal when the payment has been promised but not yet received. The waiver becomes effective only once the payment is received and clears.
- Risk Level: Lower risk for contractors and suppliers since the lien rights are not waived until payment is confirmed.
- Common Scenario: Often used in progress payments where periodic payments are made throughout the project.
- Unconditional Lien Waiver:
- Purpose: Provides an immediate waiver of lien rights, regardless of whether payment has been received.
- Usage: Suitable when the payment has already been received and verified. It provides immediate assurance to property owners that no lien will be filed.
- Risk Level: Higher risk for contractors and suppliers since the lien rights are waived immediately upon signing, even if the payment is not received.
- Common Scenario: Often used for final payments or when the contractor or supplier has verified that the payment has been fully processed and received.
Lien Waivers vs. Lien Releases
- Lien Waivers: Prevent the filing of a lien in the first place. They are signed before or upon payment and serve as a preemptive measure.
- Lien Releases: Remove an existing lien that has already been filed. They are used after payment has been made and the lien needs to be formally released from the property records.
When to Use Lien Waivers
- Payment Processing: Use lien waivers whenever a payment is made to contractors, subcontractors, or suppliers. This ensures that all parties acknowledge receipt of payment and waive their right to file a lien.
- Project Milestones: Utilize lien waivers at key project milestones, such as after progress payments or upon project completion, to maintain a clear title to the property.
- Legal Protection: Implement lien waivers as part of the project's legal and financial protocols to protect the property owner and other stakeholders from future lien claims.
By using lien waivers, project managers and property owners can ensure that all payments are documented, and the risk of future lien claims is minimized.
Lien Waiver Template
This Lien Waiver Template is designed to streamline the process of waiving lien rights upon payment. Here’s how to effectively use the template:
- Identify the Parties: Include the names and details of the claimant (the party waiving the lien) and the customer.
- Specify the Job Details: Provide the job location and the owner of the property.
- Detail the Payment Information: For conditional waivers, specify the check amount and the payer details. For unconditional waivers, confirm that the payment has been received.
- Include Exceptions: List any exceptions, such as disputed claims or retentions.
- Sign and Notarize: Ensure the waiver is signed by the claimant and notarized if required by state law.
Payment Reporting in Mastt
By leveraging Mastt, Project Owners and Project Managers can enhance payment decision making, leading to more efficient project execution, increased quality and more successful outcomes.
Review payments through real-time Program Dashboards.
