How do Lien Waivers Work?

By PropertyClub Team
Jul 10th 2024
A lien waiver is a legal document used in the construction industry to relinquish or waive the right to file a lien against a property. These waivers are commonly exchanged between contractors, subcontractors, suppliers, and property owners to ensure that payments have been made and to prevent future liens from being placed on the property. Here's an overview of lien waivers, their types, and their significance:

hash-markTable of Contents

What Is a Lien Waiver?
Lien Waivers Explained
How Lien Waivers Work
Types of Lien Waivers
Lien Waivers vs. Lien Releases
Lien Waiver vs. No Lien Clauses
States With Required Lien Waiver Forms
How To Read a Lien Waiver
Lien Waivers Bottom Line

hash-markWhat Is a Lien Waiver?

A lien waiver is a document that acknowledges payment received for work performed or materials provided and waives the right to file a mechanics' lien against the property for that payment. It is used to protect property owners from the risk of liens and to assure contractors and suppliers that they will be paid.

hash-markLien Waivers Explained

Having a mechanic’s lien on the title of your property can create complications for homeowners and managers of commercial construction projects. It’s tough to sell a building, refinance a loan, or perform any similar action that requires a title search with an unpaid lien. So, if there is a dispute between two parties over unpaid work or labor, many property owners or construction managers will want some form of proof that the problem has been resolved if they make a payment. A lien waiver is a legally binding document, so the owner could easily dispute the claim if the claimant were to file a lien after signing it.  

hash-markHow Lien Waivers Work

1. Lien Waiver is Requested

The first step of getting a lien waiver is requesting it. Typically, property owners or general contractors request lien waivers from subcontractors and suppliers upon making a payment.

2. Execution

The party receiving the payment signs the lien waiver, indicating that they have received the payment and waive their right to file a lien for that amount.

3. Verification

In the event a conditional lien waiver is signed, it will need to be verified once the payment is cleared. Unconditional waivers are effective immediately upon signing.

4. Documentation

When it comes to lien waivers, maintaining proper documentation and record-keeping is essential. Both parties should keep copies of the signed waivers for their records.

hash-markTypes of Lien Waivers

There are four types of lien waivers, but not all are legal in every state.

  1. Partial Conditional Lien Waiver
  2. Partial Unconditional Lien Waiver
  3. Final Conditional Waiver
  4. Final Unconditional Waiver

1. Partial Conditional Lien Waiver

A partial conditional lien waiver is used when the contractor expects to receive payment in stages, not all at once. This type of lien waiver only applies to a specific portion of the work and not the entire project. Conditional means that the payment has not been made yet and will only go into effect once the check clears.  

2. Partial Unconditional Waiver

A partial unconditional waiver means that the contractor or service provider has been paid for a portion of the work and is willing to waive their rights to a lien specifically for that project but not the entire assignment. Unconditional means that the waiver goes into effect immediately because the claimant has received payment. 

3. Final Conditional Waiver

A final conditional waiver means the claimant is willing to waive their right to a lien for the entire project but has not received payment. This waiver will go into effect once the balance is paid and the work is finalized. 

4. Final Unconditional Waiver

A final unconditional waiver means all the work is finished, and the contractor or other party has received payment in full. This confirms the claimant has no right to any future payments and is satisfied with what they’ve received. Claimants are wise to avoid signing a final unconditional waiver until the money is in the bank, in case their check bounces or there’s another problem with the payment. 

hash-markLien Waivers vs. Lien Releases

Keep in mind that a lien waiver is different from a lien release. A lien waiver is signed before a claimant files a lien and is used as a preventative measure to avoid title issues. A lien release is a document signed after a lien has already been filed that is used to remove the lien from the public record. The lien must be paid off for the lien release to take effect. Both essentially accomplish the same goal. But a lien waiver is used to avoid any claims in the first place, whereas a lien release is used to mitigate the damage after the fact. 

hash-markLien Waiver vs. No Lien Clauses 

There is also a concept called a no lien clause that is similar but slightly different to a lien waiver. A no lien clause is a clause contained in a contract between a property owner and a contractor, subcontractor, or service provider that prevents the possibility of filing a lien even before a project begins. A lien waiver, on the other hand, is typically signed after the work has been done but before the contractor files a lien. Most contractors should avoid signing a no lien clause unless they fully trust the person they’re working with because it voids your right to file a claim against the property, even if they never give you a cent. 

hash-markStates With Required Lien Waiver Forms

While lien waivers are used all over the United States, 12 states have laws on the books that dictate what must be included in the formatting of a lien waiver. 

Those states are:

  • Arizona
  • California
  • Florida
  • Georgia
  • Massachusetts
  • Michigan
  • Mississippi
  • Missouri
  • Nevada
  • Texas
  • Utah
  • Wyoming

hash-markHow To Read a Lien Waiver

  • Determine whether or not you’ve been paid and, if not, when you expect to be paid
  • Make sure the waiver type matches the nature of the agreement 
  • Keep an eye out for overly complex language, and consult an attorney if you don’t understand
  • Note the length of the document
  • Don’t be afraid to ask for clarity 

hash-markLien Waivers Bottom Line

A lien waiver is a critical document in the construction industry that helps ensure payments are made and protects property owners from future liens. Understanding the different types of lien waivers, their importance, and how they work can help all parties involved in a construction project manage risks and ensure smooth financial transactions. Always consider consulting with a legal professional to navigate the specifics of lien waivers in your jurisdiction.