As an office manager for a construction industry company, you have a lot on your plate. In fact, probably too much. So, when you’re supposed to handle lien waivers, it’s just one more thing to add to the pile, and something you likely don’t have the time to deeply examine. This is unfortunate, though. Lien waivers are a crucial part of payment in the construction industry, and may be one of the most important documents you need to deal with on a regular basis.
What Is a Lien Waiver?
A lien waiver is a document from a party on a construction project (a potential lien claimant) stating that they give up certain rights to file a mechanics lien against the improved property (generally pursuant to payment or the promise of payment) as set forth in the document. This is supposed to work like a receipt, the waving party gets paid a certain amount and they waive the corresponding amount in lien rights. It’s as simple as that. Everybody is protected, and the payment process is fair. Since nobody wants liens to be filed on a project, and nobody wants to pay twice for the same work, lien waivers are collected before nearly every payment. Property owners and GCs want to make sure the project and property are protected before they make payment.
Do You Even Need to Know About Lien Waivers?
Given the importance of lien waivers in getting paid what you deserve, it makes sense to have a basic knowledge of what to look out for. Nobody expects you to be a construction attorney, and the task of minutely investigating every lien waiver request you get is likely overkill – but it is important to know what you’re signing, and why.
Here’s a quick lien waiver summary:
Different Types of Waivers
There are 4 basic types of lien waivers, grouped by 2 general types, each with 2 sub-types.
The two general types are “Conditional” or “Unconditional”, and under each of those categories are waivers for partial/progress payments, and waivers for final payments. While the difference between conditional and unconditional waivers is discussed below, the difference between progress and final is straightforward – it’s based on whether your work on the project is still ongoing, or if your work is complete.
Conditional Lien Waivers
A conditional waiver, as the name implies, is conditioned upon the occurrence of some other event (generally actual receipt of payment). The lien waiver therefore, can be given to the party that will pay prior to payment (which provides the benefit of protecting against double payment), but is ineffective until payment is received (which provides the benefit of not waiving lien rights prior to payment) – this type of waiver is immediately effective when the payment is made.
Unconditional Lien Waivers
Unconditional waivers are completely and entirely effective and enforceable upon signing – it doesn’t matter if the payment has been received, or is ever received. It is in the public’s best interest to be able to rely on lien wavers, so what the document says is more important than what actually occurred.
Because of this, an unconditional waiver should only be provided when payment has been actually made & received.
Important Note: No matter what the waiver type, the waiver should always accurately reflect the amount paid/to be paid for the work performed.
Some States Mandate What Waiver Forms Must Look Like – But Waivers Are Unregulated in Most States
12 states have specific statutory forms that must be used in order for the wavier to be valid. These states are:
*Florida does not require that parties use the statutory lien waiver, but it offers the waiver as a safe option, and seems to prohibit parties from requiring a non-statutory form.
Other than in these particular states, however, lien waivers occupy the “wild wild west” of construction legal documents. Lien waivers are essentially contracts, which means that (to a large extent) they are only limited by what the parties agree to by signing the document. This means that lien waivers can actually do more than waive lien rights, which brings us to the next point.
Look Out For Clauses Waiving More Than Just Lien Rights
Because most states don’t regulate the contents of lien waivers, they can contain basically anything. While an office manager tasked with getting the waivers signed and to the requesting party quickly in order to get paid probably can’t be expected to go over every waiver request received with a fine-toothed comb, it pays to be vigilant. A review of the waiver document is crucial to make sure it only says what it’s supposed to say.
Even better, you can make a practice of supplying your own waiver forms that pass muster to do just what they are supposed to do. If you give conditional waivers proactively with each pay-app or invoice, you can position yourself for faster payment every time.
Office managers have to wear many hats, and for construction companies one of those hats can be dealing with lien waiver requests, and getting waivers out quickly and accurately to make sure you’re paid. With this brief guide, you know what to look for and can tackle that task without too much frustration.