First, what is a lien waiver? A lien waiver is a signed document in which the would-be lien claimant agrees to waive rights to its claim based on payment received.
Lien Waivers are common in construction credit. Project owners will often require lien waivers from contractors, subcontractors & suppliers to alleviate the possibility of mechanic’s lien filings.
There are four primary types of lien waivers:
- Partial Conditional: A signed document agreeing to waive rights to a claim for a dollar amount or through a specified date, conditioned upon receipt and clearance of the partial payment.
- Partial Unconditional: A signed document agreeing to waive rights to a claim for a dollar amount or through a specified date. The waiver is not conditioned upon clearance of a payment. If the check is not received, or does not clear, the client will have waived their rights to that partial payment.
- Final Conditional: A signed document agreeing to waive rights to a claim given conditioned upon receipt and clearance of a final payment. If the client does not get the final payment, the waiver does not waive their rights.
- Final Unconditional: A signed document agreeing to waive rights to a claim. The waiver is not conditioned upon clearance of a final payment. The client’s rights will be waived whether payment is received or cleared.
More Information on Conditional Lien Waivers
For conditional lien waivers, the “conditional” language typically appears prominently at the beginning of the document.
Upon receipt by the undersigned of a check in the above referenced Payment Amount payable to the undersigned, and when the check has been properly endorsed and has been paid by the bank on which it is drawn, without any bankruptcy filing by <<Name of Debtor>> within ninety days thereafter, this document becomes effective to release and the undersigned shall be deemed to waive any notice of lien, any private bond right, any claim for payment and any rights under any similar ordinance, rule or statute related to payment rights that the undersigned has on the above described Property to the following extent…
This waiver has clear conditions: it is only effective once the creditor receives payment, payment has cleared and if the debtor files bankruptcy within 90 days after remitted payment, the waiver becomes null & void.
In this example, the waiver happens to be a partial conditional waiver, based on the following language:
This release covers a progress payment for all work, materials or equipment furnished by the undersigned to the Property or to the Undersigned’s Customer, for only the Payment Amount or such portion of the Payment Amount as the undersigned is actually paid, and does not cover any retention withheld, any items, modifications or changes pending approval, disputed items and claims, or items furnished or invoiced after the Payment Period. Before any recipient of this document relies on it, he should verify evidence of payment to the undersigned.
If the waiver was a final conditional waiver, instead of calling out that the waiver covers “…a progress payment for all work…” it may state “…covers the final payment to the undersigned for all work…”
This release covers the final payment to the undersigned for all work, materials or equipment furnished by the undersigned to the Property or the Undersigned’s Customer and does not cover payment for Disputed Claims, if any. Before any recipient of this document relies on it, he should verify evidence of payment to the undersigned.
Conditional lien waivers are preferred over unconditional lien waivers, because the “conditions” provide the creditor with leverage, in the event payment is not received or doesn’t clear.
More Information on Unconditional Lien Waivers
Unconditional lien waivers can be dangerous if blindly signed, as the signor is waiving all rights to further remedy regardless of whether payment has cleared. As you will see, the language in an unconditional waiver is absolute:
The undersigned has been paid and has received a progress payment in the above referenced Payment Amount for all work, materials and equipment the undersigned furnished to his Customer for all above described Property and does hereby waive and release any notice of lien, any private bond right, any claim for payment and any rights under any similar ordinance, rule or statute related to payment rights that the undersigned has on the above described Property to the following extent:
An unconditional partial waiver will also include wording like the conditional partial waiver, with respect to the monies received: “…covers a progress payment for all work, materials and equipment furnished by…”
The unconditional final lien waiver is generally the “end,” meaning there is no turning back from an executed unconditional lien waiver – even if your debtor fails to pay or payment does not clear:
The undersigned has been paid in full for all work, materials and equipment the undersigned furnished to his Customer for the above described Property and does hereby waive and release any notice of lien, any private bond right, any claim for payment and any rights under any similar ordinance, rule or statute related to payment rights that the undersigned has on the above described Property, except for the payment of the Disputed Claims, if any, noted above.
Common Lien Waiver Questions
What information should appear within a lien waiver? Every lien waiver should clearly identify the property name & project location, the debtor’s name (your customer), the invoice or purchase order number, the payment amount and the disputed claim amount. If the lien waiver is for partial payment, you should also include the payment period or a through date.
Are lien waiver requirements the same in all states? Most states do not require a particular lien waiver format; however, there are some states with statutory requirements: Arizona, California, Colorado, Florida, Georgia, Massachusetts, Michigan, Mississippi, Missouri (residential), Nevada, Texas, Utah, Wyoming.
Is a lien waiver the same as a release of lien? No, and this is a common misconception. A lien waiver acknowledges receipt of payment whereas a release of lien releases a previously recorded document.