Note: This article was originally published in June 2012 and was updated with all-new information in October 2017.


Lien waivers are a favorite topic for us here at the eponymous zlien blog. And their importance to the payment process in the construction industry is indisputable as waivers are exchanged with almost every payment on almost every project.

As we’ve said in the past, lien waivers “are often the last document standing in the way of payment” on a construction project. Not only that, a lien waiver is also a bona fide legal document which, when signed, means that a significant legal right – the right to file a mechanics lien – has been given up by the signing party.

Since lien waivers are so important, and since a signed lien waiver carries with it such significant legal ramifications, the question must be asked: should a contractor, subcontractor or supplier sign a lien waiver?

The short answer to that question is YES, but only when they’re signing the correct lien waiver at the correct time. And when it comes to whether or not you should sign a lien waiver, those two details make all the difference in the world.

When Are You Supposed to Sign A Lien Waiver?

In addressing this question, let’s begin by listing a few times when you definitely should not sign a lien waiver:

  • DO NOT sign a lien waiver before or at the start of a project.
  • DO NOT sign a lien waiver at the same time that you sign a construction project contract, or as a part of (or attachment to) a contract.

The reason for these two explicit warnings is that, sometimes, general contractors, property owners and other parties will try to bury a “waiver of all lien rights” clause within the construction contract, or ask you to sign a separate lien waiver document right at the start of construction, before you have done any work. As we’ve addressed in the past on this blog, this is sometimes against a state’s public policy and therefore invalid. However, the act is valid and enforceable in other states (so be careful).

Waivers Are Like Receipts

One helpful way to look at lien waivers is to think of them as a receipt. And it really is this simple – a contractor pays you $100k, and you waive $100k of lien rights. It’s as simple as that.

Remember, however, the form you sign must be an accurate receipt, and that brings me to the next point.

Lien Waiver Must Accurately Reflect Payments Received

You wouldn’t pay $2,500 for car repairs that only cost $1,500. If the dealership gave you a receipt to this effect, you’d notice the problem, point it out and fix it. The only difference between this and the situation with lien waivers is that lien waivers are typically more wordy than a receipt, and therefore, you’ll probably have to spend some time reading the waiver document to make sure you’re understanding it.

Some states make it easier to deal with lien waivers by requiring that statutory lien waiver forms must be used. You can read more about this in the links below (see “The 12 States With Statutory Forms”).


All About Lien Waivers – zlien‘s Top Articles

The Ultimate Guide to Lien Waivers

What Is a Lien Waiver?

Lien Waivers: The 12 States With Statutory Forms

The Office Manager’s Guide to Lien Waivers

The 5 Trickiest States for Lien Waivers

Can You Use Electronic Signatures on Lien Waivers?


The Four Types

Generally speaking, there are 4 different types of lien waivers. Two of the four are conditional waivers, and the other two are – you guessed it! – unconditional waivers. The other main waiver characteristic has to do with if the waiver goes with a partial or progress payment, or with the final payment. (And by definition, over the entire course of a project, there can be several progress payments, but there can be only one final payment, since the “final payment” is literally the last payment received).

Here is a quick description of the 4 lien waiver types:

  1. Conditional Waiver for Partial Payment:
    A partial conditional waiver should be used when you are expecting to receive a progress payment on the project. You may be expecting future payments on the project, but are looking to sign a waiver for a specific progress or partial payment that you are receiving.  Because this is a “conditional” waiver, you may not have received the payment. That is okay. A conditional lien waiver is “conditional” on your receipt of the payment and will be invalid if payment is not ultimately received. If you have already received this payment in full, then you will likely want to consider signing an “unconditional” waiver.
  2. Conditional Waiver for Final Payment:
    A final conditional waiver should be used when you are expecting to receive a final payment on the project. After signing this waiver, in other words, you will not be expecting any future payments. Because this is a “conditional” waiver, you may not have received the payment. That is okay. A Conditional lien waiver is “conditional” on your receipt of the payment and will be invalid if payment is not ultimately received. If you have already received payment in full, then you will likely want to consider signing an “unconditional” waiver.
  3. Unconditional Waiver for Partial Payment:
    This waiver should be used when you have received a progress payment on the project. You may be expecting future payments on the project, but are looking to sign a waiver for a specific progress or partial payment that you are receiving. Because this is a “unconditional” waiver, you must have actually received the payment. If you have not received the payment, if the check hasn’t yet cleared the bank, or if there is some other reason why payment might ultimately fail, this waiver should not be furnished. If this is the case, you will likely want to consider signing a “conditional” waiver.
  4. Unconditional Waiver for Final Payment:
    This waiver should be used when you have received a final payment on the project. After signing this unconditional lien waiver, you will not be expecting any further payments in the future, and are confirming that you have received —  in hand  — all payments owed to you on the project. Because this is a “unconditional” waiver, you must have actually received the payment. If you have not received the payment, if the check hasn’t yet cleared the bank, or if there is some other reason why payment might ultimately fail, this waiver should not be furnished. If this is the case, you will likely want to consider signing a “conditional” waiver.

Wrapping It Up

When you’re reviewing a lien waiver, keep the 4 different waiver types in mind, and figure out which one you’re working with. Then, compare the waiver language it to the facts of your situation. For good measure, you may even want to ask yourself these questions:

  • Is the dollar amount identified right?  
  • Is the date of services correct?  
  • Is the scope of work correct?  
  • Are you waiving rights on any amounts not yet paid?

Most of the time, doing the right thing with lien waivers isn’t rocket science — it just requires paying attention. Spend a few moments with your lien waiver, and you’ll be fine. And of course, you can always get in touch with us.


Download the Ultimate Guide to Lien Waivers

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Construction Payment: Should You Sign That Lien Waiver?
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Construction Payment: Should You Sign That Lien Waiver?
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Exchanging lien waivers is an important part of the construction payment process on almost ever project | Info and tips on when to sign a lien waiver
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zlien
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