Many contractors will run into waivers in their construction careers, either as a clause of their contract agreement or as a condition of payment for services rendered. Despite their prevalence, lien waivers are often misunderstood, and contractors may sign them without a lot of regard as to the power they may carry.
Don’t be pressured to sign a lien waiver without understanding the legal rights you’re giving up and the local rules that govern the documents.
Here’s a primer on lien waivers and when you should consider signing one. As with many technical terms, a lien waiver is a pretty simple concept when you break it down.
What is a lien waiver?
First, let's start with the definition of a lien. A lien is a legal action that is marked on the land register against a property. If the property is sold while a lien is registered, part or all of the proceeds of the sale can be used to pay the person who filed the lien.
Contractors and materials providers can file a lien on the property if they have built on or renovated a property and were not paid for the improvements. There is a specific legal process to filing a lien, but it is a very powerful tool that contractors use to get their clients to pay up.
A lien waiver is a document that a service provider or materials supplier gives a general contractor or owner when they are paid, preventing them from filing a lien on the property for that amount. In this way, the lien acts like a payment receipt.
When the lien waiver process works, it protects all parties involved. The GC and owner are protected against a lien by the signed lien waiver, and the subcontractor or material supplier is paid appropriately.
Are lien waivers applicable in my area?
Sometimes general contractors will ask for lien waivers as a condition of payment, but rules that govern the use of lien waivers vary quite a lot by location.
US lien waiver provisions
In the US, twelve states have mandatory lien waiver forms, meaning that if they're to be used, this particular form is the lien waiver form everyone will sign. Those states are:
In all the other states, a lien waiver is drawn up like any other legal agreement, meaning however the parties see fit.
Canadian lien waiver provisions
The lien waiver situation doesn't get any simpler south of the border.
- British Columbia
The rest of the provinces and territories will accept lien waivers only under certain circumstances. In most cases, only managers or supervisors can waive lien rights, not laborers, and nobody that wasn't party to the waiver agreement.
What types of lien waivers are there?
Broadly speaking, lien waivers fall into two categories: conditional and unconditional. Beyond those two categories, they can be further broken down depending on whether the waiver covers a partial or a final payment.
Conditional Lien Waivers
A conditional lien waiver is a document the contractor would send to the GC or owner before having been paid. The agreement essentially promises that provided payment occurs, the contractor releases their right to file a lien.
A contractor might send a conditional lien as a sort of request for consensus on the amount owed. For instance, the contract might stipulate that the GC will issue a payment to the contractor for whatever work has been completed by a specific date.
When the date rolls around, the sub calculates the fee for the work done so far and sends over a lien waiver detailing the work's completion dates and the associated cost. If the GC then pays the amount on the lien waiver, the release takes effect and the contractor is no longer legally allowed to file a lien for that amount.
A final conditional waiver should be submitted only when the contractor is expecting the last payment on a project and all work is complete.
Unconditional Lien Waivers
Conversely, unconditional lien waivers are ones contractors sign after receiving a payment. The waiver details that the payment is received and the check cleared, and immediately revokes the right to file a lien.
An unconditional waiver signals that the contractor has been paid, and that the payment was in the correct amount. The contractor can't decide later on to file a lien based on what should have been paid, the right to file a lien against that work has been released.
A final unconditional lien waiver should only be used when a contractor's work on the project is complete, all work is tabulated, and the final check is in the bank.
Should you sign a lien waiver?
In many cases, a lien waiver is used as a show of good faith between the contractor and the GC. It protects the owner and the general contractor from legal action down the line while paying the subcontractors and materials suppliers the amount they've agreed should be paid.
However, as with all legal proceedings, there are risks that the process will be abused.
Because the rules around lien waivers vary so much from place to place (and they apply to the area the work has been done, not the place the contractor is based), it's crucial to read the details of the agreement you're about to sign. If in doubt, always contact a legal representative that understands lien laws.
Best Practices to Ensure You Get Paid
Lien waivers are all about who paid whom—consistently using contract and payment best practices that can help clear up some confusion and avoid disputes. Here are some things you can do:
Prepare for possible pitfalls.
Because construction is so nuanced, it can be tricky to recognize who should foot the bill when unexpected costs arise. A full and detailed contract recognizes possible sticking points and sets out solutions in advance.
Do your homework before signing on with a contractor.
This goes for subs and for GCs. Subs, look into the general's history and look for red flags that payment could be an issue before signing any contracts. Generals, if your subs have a reputation for arguing about how much they're owed, you might be in trouble.
Do everything you can to make sure payment happens quickly.
If you're an owner or a general, you should have financing set out in advance so that when bills come due you know how they'll get paid. Don't give contractors any reason to file a lien on the property. Contractors should invoice immediately when agreed milestones are met or once work is complete, using fast and simple invoicing tools. Include short payment terms, and consider sending electronic invoices with a payment link right on the invoice, like with MazumaGo.
Payments can take a long time in construction, but you can trim some time off by avoiding paper shuffle delays. Ready to make it super easy for your clients to pay? Contact MazumaGo to get started for free!