What is a Lien?
A lien is a legal claim of another person’s property until a debt is repaid or an obligation is met. If a lien is filed on a property, it can cause issues with collecting further financing for projects or prevent the sale or refinancing of the property. Once the debt is repaid or an agreement between parties is reached, the lien can be lifted on the property.
What is a Lien Waiver?
A lien waiver is a written agreement between a payer and the subcontractor where the subcontractor gives up their right to place a lien on the payer’s property.
Why are Lien Waivers Important in Construction?
Lien waivers are an important part of the construction payment process and can have an impact on project financing. These legal agreements protect the property owner and the financing entity, decreasing the risk of a construction lien being placed on the property. Most banks require these documents to provide evidence of payment for completed work, both between the general contractor and owner, as well as between the subcontractor and general contractor. These documents can be used for progress payments as the development is ongoing, as well as for total final payment on the entirety of the project/contract.
Types of Lien Waivers
A conditional waiver on a progress payment matches the invoiced amount of materials purchased and labor performed in a given period. These documents state that rights to a lien are waived under the condition that they are paid for the invoiced amount due.
An unconditional lien waiver on a progress payment matches the amount of the check or payment received. This document waives the right of the subcontractor to file a lien on the property up to the amount of the invoices paid.
Similar to a progress payment, a conditional waiver on final payment is returned at the time of invoicing, except the amount should reflect the total invoiced amount on the entirety of the project. This amount should match the final contract amount including any change orders.
The unconditional waiver on final payment is ultimately the most important of these documents. This waiver is exchanged at the time of final payments on the project, and the subcontractor certifies they have been paid for all work performed on the project, waiving any rights to file a lien on the property.
Lien Waiver Process
Conditional waivers on progress payments should be received at the time of invoicing, prior to payment. When payment is exchanged, the unconditional waiver is returned.
At the end of the project, final lien waivers are issued for the total contract amount paid on the entirety of the project. The conditional and unconditional are a similar process, in which the unconditional will be exchanged at the time of payment.