Construction Lien Waivers: An Ultimate Guide
In the construction industry, it's important for contractors to be assured that they will be compensated for their services. In order to help incentivize their customers to make sure their invoices are paid in a timely manner, most states afford contractors the right to place a construction lien on a property, if they have not been paid for their work. After that point, if payment is not received, the property could be foreclosed upon.
The lien functions to protect contractors' rights to be paid, and also ensures property owners are not paying more than what is owed for contractor services.
What is a Lien Waiver?
According to Investopedia.com, a lien waiver is a “ written agreement between a payer
and a counterparty where said counterparty gives up their right to place a lien on the
payer's property or goods.”
In other words, a lien waiver is a document that verifies that a contractor has been paid for services rendered or to be rendered and releases their right to enact a lien for lack of payment. In practice, it is similar to a receipt for payment.
There are four types of lien waivers:
Unconditional Waiver Upon Progress Payment
Unconditional progress waivers are used when partial payments have been received for a project. The contractor may still be expecting future payments, but the waiver accounts for a specific amount of payment completed for the account.
Conditional Waiver and Release Upon Progress Payment
This type of waiver is used when a contractor is expecting periodic payments on a construction contract and is conditional based on the continued receipt and processing of periodic payments until the account is paid in full. If the account is not paid, the lien waiver will be void.
Unconditional Waiver and Release Upon Final Payment
An unconditional final payment waiver is only used when a service account has been paid in full, all payments have been processed, and all of the money paid is “in hand ” of the contractor. This waiver should not be granted if the payment transaction has not been fully completed, for example, if the check has not yet cleared the bank.
Conditional Waiver and Release Upon Final Payment
This type of waiver is only to be enacted when a contractor is expecting to be paid in full for a particular job. It is “conditional” in that the contractor may not have received the actual payment, and conditional on the receipt of said payment.
Lien Waiver is Not to Be Confused with a “Lien Release”
There is a difference in the terminology of a “lien waiver” and a “lien release,” and
contractors should be careful not to intermingle the two. While a lien waiver forfeits a
contractor's right to place a lien, a lien release is a verification that a lien has been
Ultimately, lien waivers are vital communications in construction projects, that keep property owners and contractors on the same page and ensure that contractors are paid promptly for their hard work and services rendered. The rules and regulations regarding lien waivers vary from state to state, so a responsible contractor should be aware of what the conditions of lien waivers are for their jurisdiction.
At Nationwide Notice, we specialize in assisting construction companies to get their construction payments. No matter what kind or size of the construction company, the goal of Nationwide Notice is to protect receivables. That is what we do‐ we are a full‐service and self‐service preliminary notice and lien service company. Check out our website here, learn more about what makes us different here, or give us a call to learn more about how Nationwide Notice can help your construction business.