What Is a Waiver of Lien Form?
When a contractor, subcontractor, supplier or someone else associated with a construction project is unpaid for work performed, they have legal rights to file a lien to protect their interests. But when that person or company is paid, a lien waiver form can be used to release lien rights. These forms can be used to prove the lack of a lien, and due to their common use, it’s a good idea to know how they work. There are four types of waivers of lien forms to consider. It’s important you use the one most applicable to your situation.
THE FOUR TYPES OF LIEN WAIVER FORMS
There are four types of lien waiver forms for you to consider, based purely on whether they intend to release all or part of a project’s liens and whether they intend to be conditional or unconditional in nature.
- Final & Unconditional Lien Waiver Form
The cleanest of these forms to consider. It should be used only when the contractor has completed all work on the project and has received final payment for services rendered. Signing this waiver will relinquish all lien rights immediately.
- Final & Conditional Lien Waiver Form
Similar in purpose to the previous but is used before the final payment has been made. With this form waiver, it is conditional because it does not take effect until after payment has been made.
- Partial & Unconditional Lien Waiver Form
This Waiver form is appropriate when a contractor has only partially finished the project but has been paid in full. Signing this waiver immediately ends any lien rights you may have.
- Partial & Conditional Lien Waiver Form
A partial and conditional lien waiver form is used when a contractor or supplier has finished part, but not all of a project and is due payment for his partial work. Here, the contractor is owed money but has not been paid, and this waiver is conditioned upon payment. In other words, this is more akin to a promise to release the lien when payment is eventually made.
The most important rule deciding on the RIGHT form
The most important rule in using these form waivers is to never accept an unconditional waiver without payment. Many construction projects operate under a system of retainage, the part of the project’s cost withheld until final completion of the project. This payment to be considered when discussing your lien rights. So if you have not been paid, including retainage, do not sign a final and unconditional lien waiver. We recommend waiting until the check has cleared before considering the payment final.
WHAT NOT TO DO
Complications arise when lien waiver forms appear to indicate a ‘through date.’ These types of lien waiver forms detail the lien rights up to and including a specific date, making calculation and enforcement challenges. If not properly managed, this type of lien waiver form can risk non-payment for future work, simply by not knowing the dates on the lien waiver form. If offered this kind of form, it may be better to sign a conditional lien waiver form clearly defined by partial payments rather than a specific date.
EXCEPTIONS ALLOW CONTROL OVER LIEN WAIVER FORMS
You can control the content of any lien waiver form through the use of exceptions. The broad nature of the language used in these lien waiver forms means that they may release all lien claims you have, even if that wasn’t the original intent. For example, a standard form waiver may waive lien rights for unapproved change orders, costs, expenses, and other secondary charges. Listing any exemptions that may apply to your situation can protect all of your legal rights.
BEWARE OF STANDARDIZED FORMS
Check your state for information about statutory lien waiver forms. Some states have them, but others do not. Even more concerning is the standardized form of many contracts in the construction field, often designed to give the general contractor the power to dictate the specific terms of the contract. Unaware subcontractors may sign these contracts without considering its impact on mechanic’s lien rights. And once you sign the contract, you may be left without options when it comes to lien waiver forms. To protect yourself from being tied to contractual terms you may not like, make sure to negotiate not only the price of the contract, but also other details like materials, time-frames and especially what type of lien waiver form can be used.
BE CAREFUL OF LAWYER SPEECH
As is the case with all legal documents, it is incredibly important to understand the specific language used. Different general contractors may play games with things like lien waive forms, and subcontractors are often unaware of terms they are signing. This may sound obvious but take the time to read and understand the entire lien waiver form! No matter how easy negotiations appear, you should always keep an eye out for additional affirmations or certifications. These could expand your contractual obligations or obligate you to indemnify a party in the event of a dispute. Legalese and complex lawyer language can cause trouble, so make sure that you read and understand your lien waiver form before you sign.