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The Importance of Lien Waivers in Construction

Construction is a business of relationships. The contractor establishes a relationship with the client and with subcontractors and suppliers. Relationships are built on trust, but in construction, they are also built on contracts and other documentation. One document that is beneficial in the construction industry is a lien waiver.

What Is a Lien Waiver?

A lien waiver is commonly exchanged between contractors, subcontractors, and suppliers in the construction industry as part of their payment process. The person who received payment signs a lien waiver in exchange for the compensation they are receiving. When someone signs a lien waiver, they waive their right to file a mechanics lien against a property.
Lien waivers differ from other documents associated with construction payments because parties can create them on both sides of the supply chain. The person making a payment can request a lien waiver signature from the person receiving payment, or the person waiting on payment can create a lien waiver and send it further up the chain to make the payment process faster.
Sometimes a contractor can send lien waivers and receive them.

Why Use Lien Waivers?

Lien waivers are mutually beneficial, so exchanging them can build better relationships between the parties on a construction site and help build trust among companies. How do they benefit both parties? Let's take a closer look.
Lien waivers help to ensure that the person making the payment doesn't pay the bill twice. Without a lien waiver, the party could have to pay the other person and still face a mechanics lien. When a lien waiver is executed correctly, it exchanges lien rights for payment and serves as a form of receipt of funds.
Waivers speed up the payment process for the person receiving payment. Many times, parties making payments don't want to write a check until a lien waiver has been put into place. The party receiving payment can expedite the process by sending a signed lien waiver when they send their invoice. Additionally, when the party awaiting payment creates a waiver, they ensure that they only sign away lien rights and nothing else.

Kinds of Lien Waivers

Two categories of lien waivers exist. Those are conditional waivers and unconditional waivers. A conditional waiver is usually conditioned on the receipt of payment, and unconditional waivers are effective when they are signed, whether payment has been received or not.
The two categories of lien waivers also contain two subcategories. Those subcategories are waivers on final payment and waivers on progress payment. A waiver on final payment is for when the entire contract is being paid at once or when the amount being received is the last one for the project. Progress payment waivers are used when the contractor or subcontractor expects additional payments at a later date.
For everyone involved, it's best if only conditional waivers are used. Conditional waivers only go into effect when payment has been made, so both parties are protected. Unconditional waivers can be dangerous because they can leave people with no money and no right to file a lien if they are signed before the check clears the bank.

Final Thoughts

Lien waivers are used in construction to build relationships and trust among parties. When a conditional lien waiver is used, it can ensure that the contractor gets paid. If you have questions about lien waivers and if they can benefit you, perhaps the people at Nationwide Notice, Inc. can help you. We'll help ensure all your paperwork is filed correctly and on time based on your local laws so you can be protected by your right to file a lien if the need presents itself.
Nationwide Notice, Inc. focuses on assisting construction companies to get their construction payments. Our goal is always to protect receivables, no matter the size or kind of construction company. As a self-service and full-service lien service and preliminary notice company, that's just what we do. To learn more about Nationwide Notice, Inc, check out our main website here, or click this link to learn about our process.