Are you in the construction business? If yes, you should be a familiar with lien waivers, whether you are a construction client, contractor, or homeowner. A lien waiver may not seem like a minor item in a construction contract to many, but if it’s not used the right way and in a timely manner this could result in problems for all parties on a project, from suppliers to homeowners.
A lien waiver is normally used in the process for mechanic’s lien to let the claimant party, which is usually a supplier, contractor or subcontractor, let another party, which is usually the owner, knows that payment has been received and so any future lien rights is waived for the property. Many people take lien waivers for granted in the industry because they are a routine part of the construction contracts, but this should not be the case.
Can Lien Waivers protect you against contractors/subcontractors?
It is common for owners to ask contractors, sub-contractors and even other lower-tier ones to submit lien waivers in order to ensure that mechanics liens does not appear unexpectedly on projects.
A lien waiver is the affirmation that the contractor gives to the owner for the receipt of payment and a lien will not be recorded against the property for such work. Once a standard lien waiver is signed by the contractor and it’s submitted to the owner, that person has waived all lien rights that might have been related to any work done on the project up to that date, irrespective of whether or not the contractor has received payment. For the owner, the purpose of a lien waiver is quite clear as its to ensure that all the contractors are accounted for and paid up to minimize the risk of having mechanics liens on their property.
Generally speaking, lien waivers can be helpful for homeowners and owners of any commercial project. For instance, a homeowner would want to know about the money that the bank distributed to the general contractor, while the bank would want to ensure that the money is used for the right purpose. In this case, they will want to get a lien waiver from whoever is getting paid.
Types of Lien Waivers
There are normally two kinds of lien waivers, the waiver-to-date and the final waiver. Persons submit the waiver-to-date frequently for progress payments and waive their lien rights to the date of a lien waiver. On the other hand, the final waiver will be submitted during a lien process after the final payment is received and it will waive all the lien rights on a project.
The lien waivers could be unconditional or conditional, as well as apply to final or partial payment. An unconditional one on a partial payment will unconditionally release all the claimant rights through a certain date. A conditional one on partial payment states that the waiver is effective proof for any lien claim made on a property if a claimant is paid to date, thus providing the highest protection for a supplier, contractor, and sub contractor.
Lastly, a conditional waiver on any final payment will release all the rights that a claimant has to file the mechanic’s lien process once they are paid to date. The unconditional final waiver on final payment will release the claimant’s rights to put a mechanics lien unconditionally on the owner’s property, this providing more protection to owners.