Lien waivers: Overview, definition, and example
What are lien waivers?
A lien waiver is a legal document in which a party, such as a contractor, subcontractor, or supplier, voluntarily relinquishes their right to place a lien on a property in the event of a payment dispute. The waiver is typically signed when a payment is made or received, indicating that the party waiving the lien no longer has a legal claim to the property for unpaid work, materials, or services. Lien waivers are commonly used in construction projects and real estate transactions.
There are two main types of lien waivers:
- Conditional lien waiver – This waiver is provided with the condition that payment has been made or will be made. It is not effective until the payment is received.
- Unconditional lien waiver – This waiver is provided after payment has been made, and it immediately relinquishes the right to file a lien, regardless of whether the payment is cleared or not.
Lien waivers are designed to facilitate smoother transactions by resolving potential claims on the property and ensuring that parties involved in the project are paid.
Why are lien waivers important?
Lien waivers are important because they help protect property owners from potential legal claims related to unpaid work or services. They provide a way to settle disputes regarding payments by formally releasing any future claims against the property. For contractors and subcontractors, lien waivers can be a necessary part of the payment process, helping to ensure that they receive compensation for their work while maintaining positive relationships with property owners and other parties.
By using lien waivers, parties can avoid the lengthy and costly process of filing a mechanic's lien, which can delay the sale of a property or impact its marketability. Lien waivers also provide clarity and prevent misunderstandings, helping to ensure that all parties involved are clear about the payment terms and the status of outstanding obligations.
Understanding lien waivers through an example
Imagine a subcontractor, John, who has completed electrical work on a commercial building. John submits an invoice to the general contractor for the work done. The general contractor agrees to make the payment and requests a lien waiver to ensure that John cannot later file a mechanic's lien on the property for nonpayment.
John provides a conditional lien waiver with the invoice, meaning that once he receives payment, he will sign an unconditional lien waiver, releasing any claim to the property for the work completed. After receiving payment, John signs the unconditional lien waiver, ensuring that there will be no lien filed on the building due to his work.
In another example, a materials supplier provides building materials to a contractor for a residential project. The supplier receives a partial payment for the materials but must submit a lien waiver to the homeowner before receiving the next installment. The waiver ensures that the supplier has no right to file a lien against the homeowner’s property for the materials already paid for.
An example of a lien waiver clause
Here’s how a clause related to lien waivers might appear in a contract:
“Upon receipt of payment, the Contractor shall provide an unconditional lien waiver, releasing any rights to file a lien against the property for the work completed. In the event of partial payment, the Contractor shall provide a conditional lien waiver, which shall become effective only upon full payment being received.”
Conclusion
Lien waivers are critical legal tools in construction and real estate transactions that help ensure payments are made without the risk of future claims against the property. By providing a formal release of lien rights, lien waivers help to facilitate smoother and more transparent transactions, protecting both property owners and contractors from potential disputes over unpaid work. Whether conditional or unconditional, lien waivers provide peace of mind for all parties involved and help maintain the flow of business in construction and property projects.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.