If you’re doing business in construction, chances are you’ve encountered lien waivers being sent and requested. It’s a document that’s widely-used and often mandatory in many construction projects.
And yet, there’s a lot of confusion on how to create and use them, how they work, and the reasons why they are needed.
Overlooking lien waivers can have serious consequences on your business — especially on cash flow — since they are tied to payments. They’re not just another document to sign, stamp, and get over with.
It’s fundamental for all contractors, subcontractors, and construction business owners to understand how lien waivers work and know when to use them.
Here’s Handle’s definitive guide to construction lien waivers.
- What is a lien waiver?
- Why are lien waivers requested?
- What are the types of lien waivers used in construction?
- How to fill out a lien waiver
- Lien Waiver FAQs – Frequently Asked Questions
- Tips on Managing Construction Lien Waivers
What is a lien waiver?
A lien waiver is a document from a contractor, subcontractor, supplier, or any party to a construction project stating that they’ve received payment for their work on a particular property. When issued, possible claimants are effectively giving up the right to file a lien against the property worked on.
Sample lien waiver
Simply, a lien waiver functions as a receipt.
For example, a subcontractor has done $50,000 worth of work for a month as part of a bigger project. The general contractor will pay $50,000 as progress payment to the subcontractor in exchange for a partial lien waiver.
The partial lien waiver indicates that the subcontractor releases their right to file a lien on the property for that particular time period of work done.
Why are lien waivers requested?
Payment in the construction industry is different compared to other sectors.
By law, anyone who furnished materials or provided labor and services to a construction project is entitled to file a mechanics lien in case they are not compensated.
In many cases of unpaid invoices, the mechanics lien is the only tool that allows the wronged contractor, sub, or supplier to recoup payments due to them.
The mechanics lien is a legal remedy that preserves the right of the contractor to seek payment. It puts a public record on a property that makes the property owner (client) highly unlikely to sell it until the outstanding lien is dealt with.
It is in the interest of the property owner to settle overdue payments and avoid getting a mechanics lien enforced.
However, it’s not only the owner’s interest to get a lien off a property: A mechanics lien will have a negative impact on all parties involved in a construction project. Once a lien is placed on the structure, the owner may hold payments from the general contractor, who in turn will hold back payments from their subcontractors until the issue is resolved.
From the perspective of the General Contractor and/or Property Owner:
By obtaining a lien waiver for subcontractors, the general contractor gets protection against claims of nonpayment.
From the perspective of Contractors including Subs and Suppliers:
Lien waivers can foster better relationships with the project’s other parties as everybody in the project knows that as much as it’s important to preserve lien rights, it’s never a good thing when a situation escalates to actually having to file and enforce a mechanics lien.
As lien waivers act as receipts, subcontractors may send lien waivers as a form of reassurance that as long as they get paid, they will waive their lien rights.
General contractors must require lien waivers for every payment transaction and subcontractors must understand how lien waivers work so they don’t sign off their rights without full knowledge.
What are the types of lien waivers used in construction?
Lien waivers can be divided into two categories: Conditional and Unconditional.
Both conditional and unconditional lien waivers are further split into two types each, one for progress payments and another for final payments, making for four basic types of lien waivers.
Take note that while a few states have these types of lien waivers specified in their state laws, most states don’t.
Regardless of whether lien waivers are labeled or not, it is important that stakeholders understand what lien waiver type is required for different circumstances.
What is a Conditional Lien Waiver?
A conditional lien waiver waives the signer’s right to file a lien conditioned upon receipt of payment.
This type of lien waiver can be signed before payment is made but is ineffective until payment is received by the signer.
This gives a mutual benefit to both payor and payee. The payor (owner, GC) is protected against double payment while the payee (GC, sub, supplier) maintains the right to file a lien before payment is made.
There are two types of conditional lien waivers:
Conditional Waiver and Release Upon Progress Payment
This is the waiver filed to get paid for materials, labor, or services rendered on a specific time period or partial work specified for an ongoing project. There are still expectations for future payments. As it is a conditional waiver, it is made before receiving payment.
Conditional Waiver and Release Upon Final Payment
This is the waiver filed to receive the final payment for materials, labor, or services rendered on a construction project. There is no expectation for future payment. This construction lien waiver is filed prior to receiving payment.
What is an Unconditional Lien Waiver?
As opposed to conditional lien waivers, unconditional lien waivers are not contingent upon the occurrence of an event. When it is signed and delivered to the recipient, the signer’s right to file a lien is waived immediately even if payment has not been made.
There are two types of unconditional lien waivers:
Unconditional Waiver and Release Upon Progress Payment
This type waives lien rights in exchange for partial compensation on an ongoing construction project. There are still expectations for future payments. The waiver is not conditioned upon payment and thus, the signer will have waived their lien rights even if payment has not been received.
Unconditional Waiver and Release Upon Final Payment
This type waives lien rights in exchange for final payment. There is no expectation of future payment. The signer’s lien rights will have been waived whether or not payment has been made.
How to determine which lien waiver type to use
The preferred waiver to sign is the conditional lien waiver because it’s only valid when the specific condition, that is the clearance of payment, is fulfilled. For this type of waiver, both the owner/GC and the potential lien claimant are mutually protected.
When a subcontractor sends a conditional waiver along with their invoice, they’re showing good faith and also lets the client or GC know that the sub knows that the lien process is a two-way street.
Most importantly, sending a signed conditional lien waiver promotes a faster payment process, allowing clients or GCs to proceed with the payment without making a request for a lien waiver.
As convenient and logical as the conditional lien waiver is, it doesn’t mean that unconditional lien waiver is not useful. Subcontractors can send an unsigned unconditional lien waiver then contractors may sign it when payment has been cleared.
Use Conditional Waivers when
- You are expecting to receive payment
- You haven’t been paid
Use Unconditional waivers when
- You’ve received the payment
- Payment has been cleared and on hand
How to fill out a lien waiver
Most states do not require a particular construction lien waiver format.
These are the states with specific statutory requirements:
If you are providing materials, services, and labor for construction projects within these 12 states, then all you need to do is to fill out the statutory form and send it. The state legislature will render lien waivers invalid if they do not follow the statutory form.
INFORMATION REQUIRED IN LIEN WAIVERS
In general, claimants will need to include the following information in a lien waiver:
Name of Claimant – The party receiving the payment.
- Make sure that the name that is written is the company’s legally recognized name.
- Do not forget to include the business entity designation within your business name (e.g. Google LLC or Apple Inc). Most importantly, use the name that is consistent with other documents or transactions.
Name of Customer – The party who hired the claimant.
- This may not always be the party making the payment as in the case of the property owner paying the subcontractor. In this particular case, the general contractor should be the one listed as the customer.
- Again, make sure the customer is properly identified.
Job Location – The physical address of the place where the work of the claimant has been done.
Owner – The party or parties who own the property.
- Make sure the owners are properly identified.
Through Date – The party signing the waiver agrees to waive their claims for all work done on or before the date provided.
- As this date determines what is waived and what isn’t, make sure to input the right date.
- This is information that is specific for progress payment lien waivers.
Maker of the Check – The party making the payment.
Amount of the Check – The dollar amount to be paid. Ensure that the number entered is the right amount.
Check Payable To – The party receiving the payment.
Exceptions – for progress payment lien waivers, this section refers to specific areas that are not covered by the lien waiver.
- Examples: retention, extras for which the claimant is yet to receive payment, as well as everything else that should not be waived.
Claimant’s Signature – The signature of the claimant or the individual signing on behalf of the claimant.
Claimant’s Title – The signer’s job title
Date of Signature – The date when the document was signed.
Lien Waiver FAQs – Frequently Asked Questions
General Lien Waiver Questions
1. Are lien waivers the same as lien releases/cancellations?
In the construction industry, the terms “lien waiver”, “lien cancellation” and “lien release” are often used haphazardly that it can be quite confusing which refers to what. While lien waivers are sometimes called lien releases, the two actually refers to different documents.
As explained, a lien waiver is a document stating that the signor is giving up their rights to file a lien. It is signed before a lien is actually filed.
In general, the party making the payment requests subcontractors and suppliers to sign a lien waiver before paying. The document acts just like a receipt.
In contrast, a lien release or lien cancellation is a document that cancels a lien that is already filed after the claimant receives their due payment. Most states require that the claimant file a lien release after payment has been received.
2. Are lien waivers the same as No Lien Clauses?
No, a lien waiver is different from a “no lien clause”.
A lien waiver is its own individual document that gives up the lien rights of the signor to a piece of property. On the other hand, a no lien clause is a provision included in a contract that forces a contractor or supplier to give up their lien rights.
By signing a contract with a no-lien clause, the signer agrees to provide supplies, services, or labor without the protection of their lien rights. They are exposed to the huge risk of not being paid.
Because no lien clauses are extremely unfair to contractors and suppliers, they are unenforceable in more than 20 states.
3. Do lien waivers need to be notarized?
In almost all cases, no. You don’t have to notarize a lien waiver for it to be valid and binding. However, some states require lien waivers to be notarized. These states are Mississippi, Texas, and Wyoming.
Texas’ law explicitly states that lien waivers must be notarized to release the owner from lien claims. Mississippi and Wyoming do not have this explicit rule in their lien waiver regulations. However, both states have statutory forms that have an area for notarization.
For construction projects in these states, the best practice is to notarize lien waivers. For other states, notarizing lien waivers may just add an unnecessary step to an already complex process. Avoid it to save time.
4. Do I need to sign a lien waiver to receive payment?
To better understand this question, an examination of the perspectives of both the paying party and the receiving party is needed.
In a typical construction project, the payment process goes this way. Lenders fund the property owner, who in turn hires a general contractor to start the project. The general contractor hires subcontractors to provide labor and services, who in turn hire suppliers to provide materials for the project.
The party making the payment usually requires a lien waiver from the receiving party as part of the payment process. The idea is that they don’t want to pay for the labor, materials, and services and then have a lien filed against the property.
The mechanics lien essentially halts the entire project, putting an encumbrance on the property on the public record, and prevents the property from being sold, refinanced, or transferred.
When the lien is filed, the issue of nonpayment attracts the attention of the property owner and the lender. It is no longer an issue between the contractor and the party they contracted with. Rather, all parties are obligated to the debt.
The paying party does not want to be exposed to this risk. At the same time, the receiving party does not want to waive the right to file a lien until payment is actually received. Thus, a lien waiver is needed to move past this impasse and commence the payment process.
5. Can lien waivers waive more than just lien rights?
Yes. While the purpose of lien waivers is to stop subcontractors from filing a lien against the property in exchange for payment, there may be clauses added to waive the other rights of the subcontractor. These clauses may include waiving the right to claim retainage, pending change orders, and other contractual rights.
6. Are lien waivers sent by email valid?
Yes, lien waivers sent by email are valid. According to United States law, electronic signatures are as valid as “pen and ink” signature.
For the states of Mississippi, Texas, and Wyoming where lien waivers need to be notarized, lien waivers sent by email are still valid. However, the electronic signature must still be notarized through electronic notarization.
Sending lien waivers through electronic means streamlines the entire construction payment process, reducing the payment delays.
California Lien Waiver FAQs
1. Does California require the use of statutory lien waiver forms?
Yes, California state law requires the use of statutory forms for the lien waiver to be considered valid. Any waiver that does not comply will be considered void.
2. Does California require lien waivers to be notarized?
No, California lien waivers do not need to be notarized.
3. Are unconditional lien waivers valid in California?
In the state of California, unconditional lien waivers are valid. However, state law requires that all unconditional waivers are clear that the lien waiver is unconditional.
California’s unconditional waiver and release on progress/final payment forms have this statement at the top of the document:
Florida Lien Waiver FAQs
1. Does Florida require the use of statutory lien waiver forms?
Florida is one of the 12 states that provide statutory lien waiver forms. However, using these forms are NOT required. Even if the lien waiver used is not similar to the lien waiver forms provided by the state of Florida, the lien waiver is still valid and enforceable as long as it doesn’t waive lien rights before doing work. The only requirement is that the party receiving the payment agrees to use a different lien waiver form.
2. Does Florida require lien waivers to be notarized?
No, Florida lien waivers do not need to be notarized.
3. Are unconditional lien waivers valid in Florida?
In the state of Florida, unconditional lien waivers are valid. However, subcontractors cannot sign an unconditional lien waiver prior to the furnishing of labor and/or materials. It is still advised to use Florida conditional lien waivers so payment is secured.
New York Lien Waiver FAQs
1. Does New York require the use of statutory lien waiver forms?
No, New York does not provide or require the use of statutory lien waiver forms.
2. Does New York require lien waivers to be notarized?
No, New York lien waivers do not need to be notarized.
3. Are unconditional lien waivers valid in New York?
In the state of New York, unconditional lien waivers are valid as long as they are made after payment has been received.
Ohio Lien Waiver FAQs
1. Does Ohio require the use of statutory lien waiver forms?
No, Ohio does not provide or require the use of statutory lien waiver forms.
2. Does Ohio require lien waivers to be notarized?
No, New York lien waivers do not need to be notarized.
3. Are unconditional lien waivers valid in Ohio?
In the state of Ohio, unconditional lien waivers are valid.
Texas Lien Waiver FAQs
1. Does Texas require the use of statutory lien waiver forms?
Yes, Texas is one of the 12 states that provide and require the use of statutory lien waiver forms.
2. Does Texas require lien waivers to be notarized?
Yes, Texas is one of the three states that require lien waivers to be notarized.
3. Are unconditional lien waivers valid in Texas?
In the state of Texas, unconditional lien waivers are valid.
Tips on Managing Construction Lien Waivers
The management of lien waivers is a huge pain point for the construction industry, largely because they are unregulated. Yet, a lien waiver that is signed haphazardly could have severe consequences to the business. Here are some ways to manage construction lien waivers.
1. Have a solid lien waiver policy.
For a document that is essential to the construction industry’s payment process, there aren’t a lot of companies that have a policy specific to issuing and processing lien waivers. Managing these important documents start by setting a set of policies and procedures specific to lien waivers.
The company should create a procedure on how to handle lien waivers. The handling process should specify who handles the request for a lien waiver when it is received, who reviews the document’s clauses, and who is authorized to approve them.
Similar to the way the industry manages expenses, receivables, and collections, companies should have a staff member dedicated to managing lien waivers. Training someone specifically for the process will ensure a deeper understanding of the waiver and success when dealing with owners, stakeholders and contractors requesting the document.
For states with no statutory form, it is also important to have a standard form that will be used for all lien waiver transactions. For states with forms prescribed by law, companies should have a place where they can be easily accessed.
2. Watch out for other provisions included in the lien waiver.
Lien waivers can contain clauses that waive more than just lien rights so it is crucial that companies examine these provisions closely before signing the waiver. What is disguised as an ordinary lien waiver may have clauses waiving the right to claim retainage, pending change orders, and other contractual rights.
Another provision to watch out for is the inclusion of personal attestation. Requiring the signer to “personally attest to the contents of the lien waiver” may seem like a harmless clause, but it actually creates a personal liability to the signer. This should be avoided at all cost.
3. Include a conditional lien waiver with every invoice.
The construction industry is notorious for long payment cycles and payment delays. The usual process goes like this: subcontractors send an invoice, wait for the general contractor/owner to receive it, then wait again to receive a request for a lien waiver, and then send the lien waiver in exchange for payment. Fortunately, companies can reduce the time this process takes with the use of conditional waivers.
Since conditional waivers only become valid after payment has been cleared, they can be sent along with the invoice to speed things up. No more waiting for a request. Both subcontractor and payor will save a ton of time that can be used for more productive work.
4. Use automation to speed up your lien waiver process
The lien waiver process involves a lot of paperwork. For larger and more complex projects, doing things manually makes the management of lien waivers prone to mistakes. A missed deadline or overlooked clause may lead to payment delays, nonpayment, or worse, legal consequences.
The construction industry is ripe for disruption and technology is slowly catching up. There are available options that contractors can use to digitize and automate the lien waiver process. Making the lien waiver exchange a digital process provides a lot of benefits over the usual manual procedure.
Going digital improves the speed, efficiency, and accuracy of the payment process — not to mention the reduction in costs for printing a paper copy, signing it, and sending it by mail. Having digital copies also makes tracking and organizing these documents more convenient.