A lien waiver is a document frequently used in the construction industry. It can be quite complex and have significant consequences for your business. Often accepted as a receipt for payment, it states the claimant has received payment for an agreed upon service or materials. Below, we’ll provide a more detailed explanation and cover some important considerations.
Lien Waivers Explained
When you sign a lien waiver, it waives your right to file a lien against a specified monetary amount. In effect, this legally binding document states a contractor, subcontractor, supplier, or other claimant holding a mechanic’s lien has been paid. Future lien rights are waived even if there’s a property dispute. Owners that have made full or partial payments can benefit from the waiver.
The challenge with lien waivers is, on large-scale projects with numerous parties involved, there can be a lot of them. Keeping track of all the waivers signed can be difficult. The general contractor is typically responsible for collecting and tracking all lien waivers and passing them on to the appropriate party. In addition, there are different types of lien waivers, including:
Conditional Lien Waivers
Typically submitted with each contractor/vendor invoice, conditional waivers discharge claimant rights, once payments have been received and processed, through a specified date. They protect both parties as claimants retain rights to file a lien until paid, and payers are protected against double payment.
Unconditional Lien Waivers
Effective immediately upon signing, an unconditional lien waiver also discharges claimant rights through a specified date. However, there are no stipulations. But it’s considered risker because a contractor can receive a check, sign the waiver, and won’t have legal tools to recover funds if that check bounces.
Waivers on Progress Payments vs. Waivers on Final Payments
Both types can be signed with a progress payment or final payment. A waiver on a progress payment is issued when the claimant has paid an agreed upon portion of the total, whether as a monthly or periodical installment. On the other hand, a waiver on final payment is signed when the claimant has paid the total value of the contract.
Why Are Lien Waivers Needed?
Any contributor to a construction project may be entitled to file a mechanics lien or bond claim. This is to protect them in case they’re not paid; in fact, it can help them get paid faster. Meanwhile, property owners, construction managers, or lenders are typically motivated to complete the project without filing liens or bond claims. Thus, a lien waiver serves as proof of payment. The payee essentially acknowledges they’ve received payment and promises not to file a lien.
Lien Waivers in California
California is one of 12 states that regulate the use of lien waiver forms. Any form that doesn’t “substantially” conform to the state statute is invalidated. This means the form should exactly meet the legal requirements; courts won’t allow for any changes beyond minor stylistic or formatting changes. The rules are tight, and a mandatory form is required for each type of lien waiver (there are four different forms in California and each must be used at the right time). Any mistakes can lead to a costly penalty.
Lien waivers come with some risk. For example, a construction contract may identify a certain right, and a party signs a waiver giving up that right. There’s also a possibility the lien waiver says you were paid one amount, and you were in fact paid less. This can happen due to mistakes or the amount specified was requested with a promise to pay in full later.
Courts and state legislators often balance the rights of owners against those of potential lien claimants. The goal is to protect third parties against unknown liens. If the third party collects the waivers, then state statutes must protect them in case of inaccuracies that aren’t their fault. To avoid conflicts of interest, read the waiver thoroughly and:
- Know the status and nature of the payment.
- Make sure the payment and lien waiver type match.
- Check the length/clarity of the document.
- Verify accuracy as the waiver’s content is what matters to the court.
- Look for language that waives more than intended.
- If anything is unclear, consult a lawyer.
Call Jacob Today
It’s important to have an attorney who understands lien waivers and best practices for processing and managing them. We’re familiar with how California regulates them, from using the right form to providing a comprehensive review and speeding up the exchange process. At The Law Offices of Jacob Emrani, our team also specializes in handling cases involving construction site accident injuries. If you’ve been injured on the job site, get your free case estimate online or call 888-952-2952 today.