What is a subcontractor lien waiver?
A subcontractor lien waiver is, simply put, a lien waiver for subcontractors. I can guess what you’re thinking now: What is a lien waiver!?
A lien waiver is a document that two construction parties sign and exchange at or near the time that they exchange payment. Lien waivers state that the party receiving payment gives up his or her right to file a lien for the amount of money he or she receives.
Let’s say that Subcontractor Sarah has just completed the work she was contracted to do for General Contractor Gary. The contract was for $4,500. Sarah and Gary each sign the lien waiver, agreeing that in return for the $4,500 Gary pays Sarah, Sarah can no longer file a mechanics lien for that $4,500.
A lien waiver is sometimes called a Waiver of Lien, but should not be confused with a Lien Release (or lien cancellation). A lien release is a document that one files to release a previously-recorded lien. A lien waiver (or waiver of lien) is signed before a lien is ever filed, as it gives up one’s ability to file the lien.
What are the different types of lien waivers for subcontractors?
There are four basic types of lien waivers:
- Partial Conditional: a partial conditional lien waiver (sometimes known as a lien waiver upon partial or progress payment) waives the right to file a lien for the sum of a partial payment. This waiver only takes effect after payment has been received (its validity is conditioned upon payment).
- Partial Unconditional: Like a partial conditional waiver, a partial unconditional waiver gives up the right to file a lien for the sum of a partial payment. However, this lien waiver is effective immediately after the parties sign it, whether or not they exchange payment. It is best practice not to sign an unconditional lien waiver until after you receive payment and the check clears.
- Final Conditional: Final conditional waivers are signed in exchange for final payment on a project. It is best practice to only sign a final waiver if you are not expecting further payment on that project. Like a partial conditional lien waiver, final conditional waivers are only effective after one party receives payment.
- Final Unconditional: Like a final unconditional waiver, final conditional waivers are signed in exchange for final payment on a project. It is best practice to only sign a final waiver if you are not expecting further payment on that project. Like a partial unconditional waiver, this documents effective immediately after the parties sign it, whether or not they exchange payment. It is best practice not to sign an unconditional lien waiver until after you receive payment and the check clears.
Notice that the four types of lien waivers are not specific to the party signing them. In other words, the format of a subcontractor’s lien waiver will not look different from that of a material supplier’s lien waiver.
Do I have to use a specific subcontractor lien waiver form?
12 states mandate the use of statutory lien waiver forms. That means that if you are in one of these 12 states and you are exchanging a lien waiver, you must use a specific form set forth by the state’s lien laws.
The 12 states that have statutory lien waivers are listed below. Click on each state’s link to see the Lien Waiver FAQs for that state. You can also download all of the waiver forms used in each state, all for free.
The forms set forth by these 12 states are not specific to your role on a construction project. In Arizona, for example, a subcontractor’s lien waiver will be the same as a material supplier or GC’s lien waiver. Some of these twelve states provide four types of lien waivers (as described above), and some only have one.
How do I draft a subcontractor lien waiver form?
If you’ve performed work in one of the twelve states mentioned above, you can usually find the statutory waiver in the state’s lien laws. Levelset has every state’s lien laws on our website. Visit Levelset resources to learn more.
Outside of the twelve states mentioned above, it is up to you and the other party involved to draft, agree upon, and sign the waiver. It is essential that you always thoroughly read, and understand, the contents of a lien waiver you are going to sign. This goes for waivers in all 50 states. If you prematurely give up your right to file a lien, you may be throwing away your best option for receiving payment.
For your convenience, Levelset has compiled lien waiver templates for all 50 states. (Note that these are templates, intended to be used as guides and references for drafting your own lien waivers.)
Can a subcontractor sign a lien waiver in exchange for providing payment?
Yes. This scenario is not as common, but a subcontractor may ask a sub-subcontractor or a material supplier to sign a lien waiver when the subcontractor gives payment.
- Requesting a Lien Waiver? Here’s What to Keep in Mind
- Signing a Lien Waiver? Here’s What to Keep in Mind
- How Subcontractors Can Grow Business by Minimizing Risk
- Lien Waivers: What to Know When Hiring a Contractor
- Lien Waivers: Best Practices
- Lien Waiver vs Lien Release: What’s the Difference?
- When to Use an Unconditional Lien Waiver