What Is a Waiver of Lien Form?
During the mechanics lien process, lien waiver forms are used by contractors, subcontractors, suppliers and others to acknowledge payment and to release lien rights, either immediately or upon actual receipt of payment. Since such waivers are used regularly in the construction industry, it is important to know what they say and how they work.
Take the following steps to make sure you avoid common pitfalls when signing a lien waiver:
1. MAKE SURE IT’S THE RIGHT TYPE OF LIEN WAIVER FORM
There are basically four types of lien waiver forms:
- Partial Conditional
- Partial Unconditional
- Final Conditional
- Final Unconditional
Knowing the differences between the types of lien waiver forms is crucial in making sure you do not waive any lien rights which you do not intend to waive.
- Partial Conditional Lien Waiver Form – This form is used when a contractor has completed a certain portion of the project and is expecting a progress payment, but has not actually received the payment. Therefore, this form says that the contractor’s waiver of lien rights is conditioned upon the receipt of the specified payment.
- Partial Unconditional Lien Waiver Form – This form is used when a contractor has completed a certain part of the project and has received the specified payment. Signing this form results in an immediate waiver of the contractor’s lien rights.
- Final Conditional Lien Waiver Form – This form is used when the contractor has completed all of his or her work and is expecting a final payment, but has not actually received the payment. The contractor’s waiver of lien rights is conditioned upon the receipt of the final payment.
- Final Unconditional Lien Waiver Form – This type of waiver is used when a contractor has fully completed all of his or her work and has received the final payment. Signing this form results in an immediate waiver of the contractor’s lien rights.
Never sign an unconditional waiver form if you have not received payment for the portion of the project you have completed, even in the case of retainage. Retainage is the portion of a contract price withheld until the completion of a project so the owner or bank feels better assured that the project will be completed. If you have not received the retainage, do not sign a final unconditional lien waiver. Do not sign an unconditional waiver form if you have received only a “promise of payment” or only an image of check which has not been cleared by your bank.
Additionally, in the case of “through date” lien waiver forms, it’s critical to pay careful attention to the stated “through date.” Also known as “to-date lien waivers,” these forms define your rights based on the date through which certain work was performed. Do not risk non-payment for work you will perform in the future by failing to note the date which appears on this type of lien waiver form. If necessary, list exceptions for specific work which still needs to be performed or for retainage or for other things you know about. It is probably better to sign a conditional lien waiver form that is defined by the specific amount of the payment you received or expect to receive, than to sign a form that is defined by a particular date.
2. NEGOTIATE TO REQUIRE THE GENERAL CONTRACTOR TO AGREE TO THE USE OF YOUR WAIVER OF LIEN FORM
Some states have statutory lien waiver forms, but many do not. Often times your contract with the general contractor allows the general contractor to dictate the lien waiver form that must be used. Unfortunately, if you signed the general contractor’s contract, you’re stuck with the lien waiver form which it specifies. When you are negotiating the contract make sure that you not only negotiate the price, materials, time-frame and other terms, but also what lien waiver form is going to be used.
3. LIST ALL EXCEPTIONS
Most lien waiver forms use broad language, which means you may be releasing claims for delay, unapproved change orders, costs, expenses and other things. You can preserve claims for such items by using language to exclude specific claims that you do not want to release.
4. BEWARE OF HIDDEN LANGUAGE – READ EVERYTHING
Pay attention to the language in all lien waiver forms. Read the whole thing. Watch out for additional affirmations or certifications that could expand your contractual obligations or obligate you to indemnify a party in the event of a dispute. Unless you understand and agree with the entire form, don’t sign on the dotted line.
WHEN YOU’RE STUMPED
Lien waiver forms can be complicated and confusing. When in doubt, it always makes sense to consult with an expert. The experienced professionals at National Lien & Bond are available to assist you with the complexities and to help you every step of the way. We are here to serve you.