What is Lien Waiver?
Lien Waiver refers to a legally binding document signed between a payer and a payee where the payee agrees to give up the right to retain the possession of the payer’s property or goods. It usually occurs in response to the payer’s payment or promises to make payment.
It is one of the important documents in the construction industry. The entities like contractors, subcontractors, or suppliers use this to deal with the default payment. The payer exercises their right to possess the payer’s property unless the legally agreed amount is paid. The payeePayeeA payee refers to a person, business, government, or any other entity that receives payment for providing goods or services.‘s right is to keep a hold on the payor’s property or belongings in case of default payments.
Table of contents
- Lein waiver is an agreement between a payer and a payee where the payee gives up the right of lien against the payer if the payer fulfills his payment obligations towards the payee. It works as proof of payment between the payor and the payee.
- There are four types of it – partial conditional, partial unconditional, final conditional, and final unconditional waiver.
- Under the conditional waiver, the agreement is void until the payment is made.
- In case of an unconditional waiver, if the agreement is signed, the lien is waived regardless of payment status.
A lien waiver is a legally binding document furnished by two entities amid a financial relationship. Creating this document is beneficial to both parties to the agreement. It ensures the absence of disagreement between parties of the agreement by acting as proof of payment and preventing an unfair lien from happening. Hence, create a less stressful environment for a person expecting the payment against their service. Furthermore, payment processing is a time-consuming cumbersome process; having a waiver form can speed up the payment process by delays.
Its features may vary between places. For example, in California, it is “Waiver and release.” In the United States, a group of states mandated a particular lien form, whereas other states don’t have any specific requirements. Furthermore, another similar document named ‘Lien release” invalidates the existing lien. The common types used by the majority of places are conditional partial, unconditional partial, conditional final, and unconditional final waivers.
It is a general term in the construction business. If any workmen, labor, or individual service provider serves at a construction project, they are entitled to file a bond claim or mechanic’s lien if they are not paid. On the other hand, the project heads, contractors, or property owners do not like such claims to be filed and want to finish the project satisfactorily. It is where this waiver comes into the picture. Liner waivers serve as proof of payment.
Every time a payment is processed regarding a construction project, the payor and a payee is involved, the payee will sign a lien waiver acknowledging the payment as received and an assurance that they will not file a lien. In addition, the payor collects and keeps a record of all such waivers received from different suppliers, subcontractors, workers, laborers, etc.
#1 – Conditional partial waiver
The conditional partial waiver is exercised when the payee can receive a partial payment on the project. At the time of this agreement, they are not expecting the complete payment but the partial payment and full payment by a future date. The payee can deliver the waiver agreement before receiving the partial payment, and when the payment is received, the agreement becomes valid. It is a conditional waiver. Here the condition is payment receipt; if the payment is received, the agreement is valid, and it is void if the payee didn’t receive the promised partial payment.
#2 – Unconditional partial waiver
An unconditional partial waiver is given when the payee receives a progress payment and expects remaining payments in the future. Now, this is an unconditional waiver. Whether the payee has received the payment or not, the agreement is valid when signed. The deal will not become void if the payer fails to make the agreed partial payment.
#3 – Conditional final waiver
In conditional final waivers, the waiver agreement to lift the lien upon receiving complete payment between payor and payee will become void if the payee didn’t receive the final payment even after sharing the waiver agreement. It’s the payor’s responsibility to ensure that all the payments are made and there is no liability left. Usually, signing a final waiver clarifies that the final payment is made and there is no further payment due.
#4 – Unconditional final waiver
The lien is waived if the waiver agreement is signed, even if the payee didn’t receive full payment. It is usually furnished when the payee has received the final payment. After signing this unconditional final waiver, the payee will not be expecting any further payments and is confirming that the payee has received the full payment and no liability is left. When it is an unconditional” waiver, the payee must have received and held possession of the payment.
Lien Waiver Examples
Let’s look into an example from the construction industry. It is an important document in the construction sector, helping contractors reduce financial riskFinancial RiskFinancial risk refers to the risk of losing funds and assets with the possibility of not being able to pay off the debt taken from creditors, banks and financial institutions. A firm may face this due to incompetent business decisions and practices, eventually leading to bankruptcy. and expediting the payment. Nowadays, some softwares help entities manage the lien waiver processes like requesting, generating lien waiver forms, tracking, collecting the legally compliant waiver documents.
For example, Land Gorilla, Inc., a construction finance software provider, has integrated with Zlien, a collaborative construction payment ecosystem. One of the important product features that emerged from the integration process is the digitalization process of the lien waiver procedure associated with the loan draw management process and reduces the turn-time for construction loans. In addition, the integration provides an accurate and easy method to manage waivers and prevent complications.
Frequently Asked Questions (FAQs)
It refers to a type of waiver document inscribing the promise to give up the right of lien possessed by the party receiving the payment. It usually occurs between two parties in a financial or business relationship. The party entitled to make the payment can obtain this document when the party make the payment or promise to make the payment by the due date.
A conditional waiver agreement is valid only if the condition mentioned is satisfied, that is, the payment receipt. The payer owes money to the payee, and the latter will waive their lien rights once payment has been received. Even if the agreement is signed and shared, the document’s validity is invoked only when the payee receives the compensation. Conditional waivers are of two types conditional partial and final waiver.
The supplier or contractor lien waiver to property owners usually comes in different forms. The four types of waivers are –
Conditional partial waiver
Unconditional partial waiver
Conditional final waiver
Unconditional final waiver
This has been a guide to what is Lien Waiver. We discuss the meaning of lien waiver, its forms, examples, & how contractors use lien release in construction.. You can learn more about financing from the following articles –