Home>Levelset Community>Legal Help>We receive various lien waivers from our customers without payments. Many times they will not release partial or final payments until we sign a waiver but the waiver states that we have already been paid. What is our risk and how do we address this with our customers to maintain a good relationship?
We receive various lien waivers from our customers without payments. Many times they will not release partial or final payments until we sign a waiver but the waiver states that we have already been paid. What is our risk and how do we address this with our customers to maintain a good relationship?
We would like to have some of these documents reviewed by your legal department if possible.
Sep 27, 2018
That's a great question. Lien waivers are a crucial part of any construction project, and are among the most-exchanged documents in the payment process. Since they are exchanged so often, though, many times they are just rubber-stamped without much thought given to what the document actually says. This can be a problem.
Generally, lien waivers can be divided both between waivers given for progress payments and waivers given for final payments, AND conditional waivers and unconditional waivers. The first distinction merely relates to whether additional work and payment is expected on the project, but the second distinction (between conditional and unconditional) relates to the status of the actual payment at issue itself.
Requesting waivers prior to or commensurate with payment being made is common, for many reasons. Luckily there are ways to protect both parties, and provide waivers prior to payment without giving up protections.
A "conditional" waiver is only effective once some condition has been met - generally this condition is the actual receipt of the payment due. Immediately upon satisfaction of the condition the waiver is effective, but the waiving party retains their ability to claim a lien to the extent the payment is not received. In order to provide further clarity to the customer, an unconditional waiver can then be sent after the payment is received.
The above solution protects everybody and is a good business practice, for parties all throughout the payment chain on a project. Signing unconditional waivers prior to payment is usually a bad idea, however. Since third parties must be able to rely on waivers, what the waiver says can be more important than what actually happened. This means that if an unconditional waiver says a party has been paid, it's basically the same as actually being paid (at least as with respect to mechanics lien rights) in many circumstances.
If you or your customers would like a booklet explaining lien waivers and lien waiver best practices in detail, let us know and we can send one out!