Lien waivers are everywhere in construction industry. Because of their ubiquitous nature, lien waivers are often overlooked or merely rubber-stamped as a speed bump on the way to payment. While this may be the ordinary course of business (and is likely not going away anytime soon), lien waivers are actually complex legal documents that can have dramatic and significant consequences.
What Is a Lien Waiver?
A lien waiver is a document from a contractor, subcontractor, material supplier, equipment rental company, or other party (a potential lien claimant) to the construction project stating that they waive future lien rights against the property improved to the extent (or the amount of money) set forth in the waiver.
A lien waiver is supposed to work like a receipt: if a party gets paid $100k, that party waives $100k in lien rights. It’s as simple as that. Everybody is protected, and the payment process is fair.
Conditional vs. Unconditional Lien Waivers
There are 4 basic types of lien waivers, grouped by 2 general types, each with 2 sub-types. The two general types are “Conditional” or “Unconditional”, and under each of those categories are waivers for partial/progress payments, and waivers for final payments.
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Conditional Lien Waivers
A conditional waiver works to waive the signor’s lien rights conditioned upon the occurrence of some other event (generally actual receipt of payment). The lien waiver therefore, can be given to the party that will pay prior to payment (which provides the benefit of protecting against double payment), but is ineffective until payment is received (which provides the benefit of not waiving lien rights prior to payment) – this type of waiver is immediately effective when the payment is made.
A conditional waiver for progress/partial payment should be used by parties making and receiving progress payments when future payments on the project may be expected, but the parties may still wish to exchange a waiver for a specific progress or partial payment received. In this case, it is ok if the waiving party has not yet received the payment, since the waiver is “conditional” on receipt of the payment, it is not valid if payment is not ultimately received. Likewise when no further payments are expected, a conditional waiver for final payment can be used even if no payment has been received – just as with the conditional waiver for progress/partial payment, the waiver is not valid if payment is not ultimately received.
Unconditional Lien Waivers
Unconditional waivers have the potential for significant and undesired consequences to lower-chain parties. These waivers are completely and entirely effective and enforceable upon signing – it doesn’t matter if the payment has been received, or is ever received.
An unconditional waiver for partial/progress payment should only be used when a progress payment has been actually made & received. Future payments may be expected on the project, but a specific progress or partial payment has been made & received and the rights to file a lien for that payment may be waived.
An unconditional waiver for final payment should only be used when final payment for the project has been made & received. After exchange of this waiver, no further payments are expected, and actual receipt of all payments should have occurred, if there is any reason the payment might fail (i.e. check hasn’t cleared, etc.) this waiver shouldn’t be used.
In all cases of unconditional waivers, it is important to exercise caution and review the contents of the waiver. Because policy dictates that parties must be able to rely on lien waivers, the amounts stated on the face of the documents are more important than the amounts actually received. It matters more what was said to be paid, rather than what was actually paid.
Which States Require Specific Lien Waiver Forms?
While lien waivers are kind of the “wild wild west” of construction legal documents, 12 states have specific statutory forms that must be used in order for the wavier to be valid. These states are:
*Florida does not require that parties use the statutory lien waiver, but it offers the waiver as a safe option, and seems to prohibit parties from requiring a non-statutory form.
Look Out For Clauses Waiving More Than Just Lien Rights
Because the other 38 states do not have statutory requirements for lien waiver forms – they allow the forms to appear in basically whatever form the parties want. This can create confusion and allow lien waivers to be used as a document to craft a legal position. While this isn’t the intended purpose of lien waivers, it is something that a vigilant party should be on the lookout for.
Some specific potential clauses to consider looking for are attempts to waive claims for retainage, change orders, or other work, attempts to waive other contractual rights (liquidated damages, etc.), or a requirement for a personal attestation.