As part of the process of getting paid for construction work you’ve performed, you often have to execute a lien waiver and release. These documents say that you have been paid (or will be paid) and eliminate your lien rights. There are different types of lien waiver and release documents, and it’s important to know the difference between them and what signing them might mean for you.
A lien waiver is used to preemptively waive lien rights. A lien waiver is signed before a lien is actually filed. The party submitting the lien waiver states that they waive the right to lien against the project.
In some instances, the property owner or general contractor may request that you sign and deliver a lien waiver before payment is disbursed. This is to protect them from paying you and still have a lien filed on the property. While it works in their favor, it may not work to your benefit to release your rights before the check has cleared.
There are two types of Lien Waivers, and it is important to understand what you are signing:
Unconditional Lien Waiver: Signing an unconditional waiver immediately waives the right to file a lien for the specific payment noted in the waiver document. An unconditional waiver for payment should only be used when the payment has actually been made and received. It is important to note that many states prohibit owners and contractors from requiring an unconditional waiver before payment has been issued. This regulation provides you with some protection from being confronted with an unconditional waiver before payment. If the property owner or general contractor insists that an unconditional lien waiver be signed before payment is disbursed, you could request to use an escrow service to hold the money from the contractor and ensure you are paid. Once the documents are done, the money you are owed automatically comes to you.
Conditional Lien Waiver: This document states that the lien release is valid once payment is received. This protects your rights until the check has cleared, and the agreed amount is in your business’s account.
A lien release is used to cancel a lien that has already been filed. If the claimant receives payment and wishes to cancel a previously filed lien, generally they will file a lien release (also known as a release of lien or cancellation of lien). This action releases the claim of lien from the property in question.
Even if it is not required by your state, it is best practice to release a lien (and file any necessary documents with the registrar of deeds) as soon as payment clears. You do not want to have a lien outstanding after you’ve been paid for the work performed. Especially since as some states have penalties for failing to release the lien in a certain period of time or you could get sued for slandering the title of the property.
Negotiating Lien Waivers and Releases
Usually, handling lien waivers and lien releases is a straightforward process that occurs regularly throughout the construction project when different payment milestones are met. Your general contractor may have a preferred method of payment that addresses both the need for lien releases and payment. Consider the timing of the payments and the type of document to decide if it is something you’re comfortable with. As long as you’re aware of whether you’re signing a conditional or unconditional waiver, and you’re comfortable with the process for exchanging waiver for funds, then the property owner, the general contractor, and you can work out an intelligent system that balances everyone’s concerns.
For assistance understanding a particular waiver request, the process for releasing an existing lien, or help to handle a contentious situation, reach out to the team at National Lien & Bond. We have the experience necessary to help you get comfortable with a payment process and can provide escrow services when necessary.
A version of this blog post was first published in Aug. 2017.