Lien Waivers in Construction - The Best Guide
General contractors in the construction industry have most likely encountered lien waiver documents, however more often than not, these complex yet important forms are overlooked. No matter how large or small your construction business is, having an understanding of how to manage construction lien waiver requests is essential.
This article will give you a general overview of what lien waivers are as well as the best practices of how to handle them. By understanding the lien waiver process, you will be less likely to make an expensive mistake that could cost your construction business money.
What is a Lien Waiver?
A lien waiver is a document that is signed in exchange for a payment that waives the signer’s
right to file a lien for the amount listed in the waiver. Lien waivers are many times
considered to be the construction industry’s version of a payment receipt.
In most cases, general contractors will collect, request, and track lien waivers for every individual on the job when they are paid. This includes contractors, subcontractors, material suppliers, and equipment rental companies. Signing a waiver waives lien rights up to the amount that is listed in the waiver.
Lien Waiver Example
A basic example of a lien waiver could be a general contractor paying a subcontractor
$100,000 along with a waiver for the subcontractor to sign. Once the subcontractor signs the
lien waiver, they will waive $100,000 worth of lien rights. This is the basic process of how a
lien waiver works.
With that in mind, it is important to understand that these lien waivers protect all the parties involved. In the example listed above, the general contractor is protected from the threat of a mechanics lien, and the waiver protects the subcontractor from not being paid. When exchanged properly, both parties to the lien waiver get what they earned making ensuring a fair and transparent payment process.
Why are Lien Waivers Necessary?
Lien waivers are necessary to protect against any vendor, laborer, or service provider to a
construction project from filing a mechanics lien or bond claim if they aren’t paid.
Additionally, those funding the project, like the property owner, lender, construction
manager, or general contractor, are motivated to finish the project successfully without any
With that in mind, waivers become particularly important, seeing as they serve as proof of payment. Because of the way lien waivers are structured, they protect contractors from receiving any wrongful mechanics liens because they established that the work has been complete and explicitly waived the right of repayment for the specified amount outlined in the lien waiver.
In conclusion, lien waivers are an important part of the construction industry. When the
system works, everyone is happy. The contractor gets the money they’re entitled to, and the
person paying the contractor gets the peace of mind that there won’t be any future
mechanics liens filed on the construction project.
If you’re a contractor with further questions about liens and payment collecting services, consider contacting Nationwide Notice. They are the industry leader in construction payment and lien notice services. Their team of experts can help you collect any missed or late payments that are owed to you. We specialize in helping general contractors get paid, lien releases, construction payment in general, change order forms, and more. Click here to learn more about how you can take care of your receivables.