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Understanding Conditional/Unconditional and Final Payment release

Hello. My company is trying to receive payment for a construction job. The GC is requesting two lien releases: 1. Unconditional Waiver and Release Upon Progress Payment for $51,035. They want this prior to sending the check for this amount. 2. Conditional Waiver and Release Upon Final Payment for $2,500.They also want this prior to sending either check. The way I read this says if I sign 1. I must have the 51K check in hand already. If I sign 2. that is saying $2,500 is the final payment; however, I am still owed the 51,035.Can you help me understand this better? Thank you, Karlie

1 reply

Jul 19, 2019

Hey Karlie! These are good questions, and it's totally natural to be a little unsure about how lien waivers should be exchanged. Before I get rolling, it's worth noting that there isn't necessarily a right or wrong way to do thing - every business and every situation is different. Still, I'll provide some information below that should help you decide what's best for your situation. At the end, I'll share some other resources that should be valuable.

Unconditional lien waivers
Unconditional lien waivers waive lien rights right immediately once they're signed. So, if payment hasn't been made, typically, unpaid construction businesses strongly prefer not to submit unconditional lien waivers. Once an unconditional lien waiver has been signed and submitted, the claimant will no longer have the leverage of a mechanics lien on their side to ensure that they're paid. Of course, a construction business can always operate as they see fit - and when there are strong relationships between a construction company and their customer, there may be enough trust there to forgo using conditional waivers. Still: When payment is not in hand, conditional lien waivers present a lot of risk.

Conditional lien waivers
Conditional lien waivers present a lot less risk while also working to waive lien rights. Conditional lien waivers don't go into effect until payment is actually received. But, once that payment is received, a conditional lien waiver becomes completely effective for the amounts waived. So, effectively, if payment is actually made, there isn't much of a difference between a conditional and unconditional waiver for a party receiving payment. But again - with a conditional lien waiver, lien rights aren't actually waived until payment has been made, so, there's far less risk involved. And, when a customer intends to make full payment, there should be little difference in their waiver preference. Granted, sometimes a property owner will want unconditional lien waivers prior to making payments. But, a potential workaround here might be to offer conditional lien waivers in exchange for payment, then follow up with an unconditional lien waiver once the check has been deposited. That way, a customer could get the unconditional lien waiver they need while the unpaid business isn't exposed to the potential loss of lien rights.

Unconditional vs. conditional waivers
Because such a large sum is involved, it makes sense that a customer might prefer to move forward with unconditional lien waivers rather than conditional ones. However, as described above, if payment is actually received, there's no difference - a conditional lien waiver is wholly effective to waive lien rights, and no further waiver would be necessary. But, asking a sub or supplier to forgo all of their potential lien rights before actually receiving such a substantial sum is a tall order.

This is especially true considering that Nevada has statutory lien waiver forms. § 108.2457(5)(a) and (c) both create forms that should be used when payment has not yet been made. Further, the Nevada lien statute specifically says "If you have not been paid, use a conditional release form." on the last line of each unconditional lien waiver template set out in the statute. Thus, when payment hasn't been made, the Nevada lien statute makes it clear that utilizing a conditional lien waiver form is typically appropriate.

Lastly, if you'd like to keep learning about conditional and unconditional lien waivers, here are some great resources:
(1) Nevada Lien Waiver Forms & Guide – All You Need to Know
(2) Nevada Lien Waiver Overview
(3) Unconditional Lien Waivers vs Conditional Lien Waivers
(4) The Ultimate Guide to Lien Waivers

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