We’ve seen many questions asked on the web, as well as from our clients, about the need to provide or obtain a lien waiver. Before proceeding, let’s define some terms. A lien waiver simply put, waives your right to file a lien or bond claim on a construction project. It can be a limited in nature and only waive rights for a certain time period during the project, or it can entirely waive your right to file a claim for labor provided, materials furnished or equipment rented. The document can be a conditional waiver, meaning it isn’t valid until there is an exchange of value, typically money received, or it can be unconditional, stating that all funds due have been received and the claimant is voluntarily giving up any and all future rights to file a claim.
Other terms that are commonly listed on waivers include: claimant, prime contractor, owner, owner’s agent, surety, indemnification, hold harmless, construction lender, for good and valuable consideration, etc. We’ll include future articles around these terms and issues, but if you have some immediate questions, please don’t hesitate to call the firm.
Two interesting questions about lien waivers are: A) Why are they necessary and B) Who benefits from receiving them? On a private works construction project, one that is either residential or commercial in character, the beneficiary of a lien waiver is the property owner. On a public works project, i.e. state, city, county, school district or federal project, the beneficiary is the prime contractor. To be fair, subcontractors, suppliers and equipment renters benefit to some degree by signing a waiver because it is often a prerequisite for receiving payment. However, the real beneficiary on a private works project is the property owner because waivers assure the owner that sub-trades working on or supplying his project have been paid and won’t file a lien claim during the progress of the work or after the project is complete.
If the reader of this post is a property owner who is currently involved in a construction project, waivers from the sub-trades are absolutely essential to the financial integrity of your project. Obtaining a waiver from the general contractor stating that he has paid all of his sub trades is simply inadequate and exposes the property owner to substantial risk. Of course, there are other strategies a property owner can utilize, such as joint checks to the sub trades, but nothing beats a full set of lien waivers. Waivers are so important that many states, such as California, have created statutory forms for this purpose, and we believe that more states will follow California’s lead.
On public projects, the beneficiary is the prime contractor because it protects the prime from claims against his payment bond. As you probably know, lien claims cannot be filed against public property. Hence, the public agency is insulated from claims for non-payment by the sub-trades.
Because so many of our clients are material suppliers, subcontractors and equipment renters, we would like to provide the short list of dos and don’ts:
- Make sure you understand every term in the waiver. Remember, waivers are not written for the benefit of sub-trades. If you have a question, call our firm and we would be glad to help you decipher the document.
- Make sure you are signing the correct form.
- If you haven’t yet received a payment described in the waiver, then only sign a conditional waiver.
- If your work is continuing and a conditional or unconditional progress waiver is being requested, carefully review the dates to be certain you are not waiving rights in the future.
- Don’t sign waivers that include indemnifications.
- Don’t sign an unconditional waiver unless the funds have been received and deposited in your account.
