What is a waiver of lien?
A waiver of lien (or lien waiver) is a document signed in exchange for payment.
This document works as a “receipt” of payment, assuring claimant (contractor, subcontractor, or supplier) has received a specified payment upon delivering materials or completing service.
By signing, the claimant waives any future rights to file a mechanic’s lien on the property.
What is a lien waiver used for?
Lien waivers are mostly used in the construction industry. They can be initiated by a:
The key purpose of lien waiver is to state that the party signing the waiver has been fully paid, waiving their rights to file a lien.
In the construction business, there are two parties involved: the one making payments (the payor) and the one receiving the payments (the payee).
Lien waivers benefit the payor by:
- Working as proof of payment submitted;
- Preventing a lien from being filed against their company or property.
- Preventing double payment for one service.
Lien waivers benefit the payee by:
- Speeding up the payment to receive it quicker;
- Increasing trustworthiness as a subcontractor or employee on a job site.
Lien waivers and lien releases are often used interchangeably.
A waiver of lien is used to waive a specified amount of lien rights in exchange for payment, while lien release is used to release an already filed claim.
What are the types of lien waivers?
Conditional lien waiver
Сonditional lien waivers are provided by suppliers or subcontractors before they’ve been paid.
They list the amount owed during the period.
These waivers are dependent on a condition specified in the document.
A conditional waiver may be required anytime a payout is made since it ensures the owner or general contractor (GC) that a lien won’t be filed as long as the supplier or subcontractor is paid.
In case the signing party doesn’t get paid, the waiver would be automatically considered invalid, giving the signor all rights to file a lien.
Unconditional lien waiver
Unconditional lien waivers go into effect as soon as being signed. When they are used, whether the payee receives payment for full or partial work provided — for example, should any unexpected events occur or accidents happen, causing work stoppages — filing a mechanic’s lien is now “off the table.”
When signing unconditional lien waivers, the subcontractor gives up their lien rights regardless of whether they, as payee, have been or will be paid.
In contrast to conditional waivers, an unconditional one is far more risky for the signing party.
To avoid risks, unconditional waivers should be signed only after receiving payment in hand.
Progress and final payments
Both conditional and unconditional lien waivers can be specified as progress (partial) and final with respect to payment:
This type of document waives lien rights up to a specific date as long as the payee receives the payment.
Conditional waivers for progress payments are used when the payee is expecting to receive a specified amount (partial payment) for work on the project.
This type of document removes the lien rights when the payee receives the final payment.
Conditional waivers for final payments are used when a payee isn’t expecting any further payments in the future.
Primary vs. lower-tier lien waivers
Primary lien waivers. These documents are completed and submitted to the GC. They are used to waive the right to file a lien for the work the payee performed.
Lower-tier waivers. These documents are completed by the vendors, sub-tier contractors, and materials suppliers. They are used to waive the other parties’ rights to file a lien for the work they performed.
What should a lien waiver include?
- Property name;
- Project location;
- Debtor’s name;
- Purchase or invoice order number;
- The payment amount;
- The disputed claim amount (in case the payee does not get paid).
- Payment period or a through date (in case of a partial payment).
Do lien waivers need to be notarized?
In most cases the answer is no. However, there are two US states, Mississippi and Wyoming, where lien waivers must be notarized.
In these states lien waiver notarization is mandatory to effectively release the owner from the lien claims.
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Lien waivers are used to protect both parties involved in a business transaction.
They also help ensure a project goes as smoothly as possible.
Lien waivers are mostly used in the construction industry, since projects consist of multiple milestones and several subcontractors before a job is done.
With lien waivers used so routinely on construction projects and so closely tied to payment, it is important to use trusted software for the signing and sending process.