Unlike other aspects of the payment process, in California, exchanging lien waivers is super important in California for everyone involved with a construction project, since every single stakeholder on the project is affected by lien waivers. And it’s a headache for all of them.
- Project lenders frequently require lien waivers to approve loan disbursements.
- Developers or homeowners require lien waivers to limit the possibility that they pay for the same work twice.
- General contractors must collect lien waivers on behalf of the owners and lenders, and also to protect themselves.
- Subcontractors and suppliers must deal with everyone’s lien waiver needs to get their payment processed.
If you’re reading this, you’re likely in charge of getting the lien waivers right on a California project. And getting it right is important. In fact, in many cases, getting one tiny thing wrong could invalidate the entire waiver, leaving you in a pretty tight spot.
There’s a lot that goes into getting the lien waiver exchange right.
This California Lien Waivers Overview will provide you with the resources, information, and forms you need.
Table of Contents
Overview of California’s Lien Waiver Rules
Although every state has different rules, lien waivers are generally the same everywhere, including in California. That is to say that at its core, a lien waiver is simply a document signed by a potential lien claimant (such as a contractor or supplier) stating that they waive future lien rights against the property, usually in exchange for payment.
The devil — and all of the differences — are in the details. In addition to this guide, you can find a lot of the forms, statutes, and frequently asked questions about California’s lien waivers here: California Lien Waiver FAQs.
You can’t just waive lien rights in your contract
The lien waiver exchange process can be a pain in the neck…so why not just skip it entirely and have all lien rights waived within the construction contract? Well, because you can’t.
California is like most states that disallow the parties from contractually prohibiting liens. The law specifically provides that parties “may not, by contract or otherwise, waive” lien rights, and “any term of a contract that purports to do so is void and unenforceable.” In fact, the law states that the only way to waive those lien rights is through the lien waiver exchange process.
But, lien right can be waived in some cases even without payment
California’s lien waiver rules generally work to avoid the circumstance when a contractor or supplier waives their lien rights before payment. However, if it is explicitly done, it’s possible to do so. This is done when the parties exchange an “unconditional” lien waiver. These lien waivers can be very powerful, and are likely effective even if a check or ACH payment bounces or is reversed after the waiver is signed.
There’s very little wiggle room on California lien waiver forms
The last major thing you need to know about California’s lien waiver laws is that there’s very little wiggle room with the waiver forms. It’s common that lenders, developers, and general contractors want to use their own custom lien waiver forms. In California, that’s a mistake.
The state laws provide the specific form to be used right within the law itself, word for word.
It’s super clear that a particular type of lien waiver form be used, and it’s also clear that a waiver is not effective if it’s not using the correct form. So, in a sense, lien waiver exchanges in California are quite simple: just use the provided form.
Choosing the Right California Lien Waiver Form
On the one hand, California makes it easy to “choose the right lien waiver form” because the laws provide the actual forms and require those forms be used. This does make things more simple. In other states, the parties will fight a great deal about what provisions are included in the lien waiver form. That’s not a consideration in California.
On the other hand, there are still 4 different types of lien waiver forms, and the parties must choose the correct type of form with every payment. Here is a short guide to help you determine which form to use.
Question 1: Is It A Progress Payment, or a Final Payment?
Every payment on a construction project is either a “partial” payment or a “final” payment. To select the correct lien waiver form, you must figure out which type of payment you’re dealing with.
If a contractor or supplier is getting paid on a project and will never be paid again for that project, the payment is a “final” payment. If the contractor or supplier will likely be paid again in the future, and the payment in question is just one of many future payments, then the payment is a “partial” payment.
Question 2: Has Payment Been Made Yet, or Not?
The second key question in selecting the appropriate lien waiver form is whether the actual payment has exchanged hands or not. And it’s important that not only has the payment been made, but that the payment is permanent and not subject to a credit card dispute, an ACH reversal, or a bounced check.
Selecting The Right Form Based on Answers To These Questions
Now that you have answers to these 2 simple questions, you’re ready to select the correct California lien waiver form. Here is a table to assist:
|Final Or Partial Payment?||Payment Made Already or Not?||Lien Waiver Form Download|
|Final||Payment Already Made||Unconditional Final Lien Waiver|
|Final||Payment Not Made||Conditional Final Lien Waiver|
|Partial||Payment Already Made||Unconditional Partial Lien Waiver|
|Partial||Payment Not Made||Conditional Partial Lien Waiver|
One size does not fit all, and when push comes to shove, a tiny mistake can create a big (and expensive) headache. This is pretty simple. Of course, if you’re juggling multiple contractors and suppliers and/or multiple invoices and payment applications, this becomes a pretty convoluted calculation.
And further, the names of the forms are brain twisters.
Nevertheless, as you’ll see in the next section, it’s important to take your time and get these things right.
Common Questions About California Lien Waivers
Now you should have a good handle on the general way that California lien waivers work, but some things can pop up to cause you to scratch your head. Below are some frequently encountered situations and questions, and some general answers.
Do You Need To Exchange a Conditional AND Unconditional Waiver Form?
Conditional lien waivers are exchanged when payments hasn’t yet been made, so the natural question is whether you the parties will need to exchange another waiver after the payment (i.e. the unconditional)?
The answer is No.
The “conditional” waiver is all you need, and the California statutes are explicitly clear about this. According to §8124, a conditional lien waiver is fully effective and lien rights are completely released once there is “evidence of payment,” which is either:
- The claimant’s endorsement on a single or joint payee check that has been paid by the financial institution on which it was drawn.
- Written acknowledgment of payment by the claimant.
It’s unfortunate that the California legislature was a little short-sighted when drafting this law because they don’t contemplate credit card payments, ACH payments, and other electronic payments, but I don’t think it’s worth getting tripped up here. No sensible judge is going to be confused about this. Any evidence of payment + a conditional release is all you need.
Does California lien waiver need to be notarized?
In fact, it’s much more likely that notarizing a California lien waiver would invalidate the lien waiver as opposed to make it valid.
If you’re someone responsible for payments in construction you’ll encounter requests or suggestions that lien waivers be notarized. Heck, you may even hear from an attorney to get it notarized as a “best practice.” This is really common but misguided.
As discussed in “Do Lien Waivers Need To Be Notarized?,” only 3 states require notarization on waivers (Wyoming, Texas, and Mississippi). In all other states – including California – it’s clearly not a requirement. So, don’t waste time and effort with it. The lien waiver process is already convoluted enough.
Can “Unconditional” Waivers Be Exchanged Even If Payment Not Made?
Some states will restrict the parties from exchanging “unconditional” lien waivers unless payment is actually made, and will invalidate any such waivers. California does not take this approach, but instead requires all unconditional waivers to be very, very clear that it is unconditional.
Unconditional lien waivers in California must contain very specific language warning any signors that it’s unconditional. The language includes the following statement: THIS DOCUMENT IS ENFORCEABLE AGAINST YOU IF YOU SIGN IT, EVEN IF YOU HAVE NOT BEEN PAID.
If you’re signing an unconditional waiver…beware! You may find it better to exchange conditional lien waivers.
How Strict Are The California Lien Waiver Rules?
The California lien waiver rules are pretty strict, and you can assume that they will be strictly enforced. Many states have pithy and general lien waiver rules, and many states specifically give the parties a lot of leeway in determining how they want to exchange lien waivers and deal with lien rights. That is absolutely not the case in California.
The rules in California are specific and fairly lengthy. They must be strictly followed.
Additional Resources on California Lien Waivers: