A construction lien waiver is a legal document saying a party waives future lien rights against a property. Lien waivers are designed to protect both a payer and a payee. Payers are protected from the threat of a mechanics lien, and payees are protected from not receiving a payment.
There are two categories of lien waivers: conditional and unconditional. What is the difference between the two?
Conditional lien waivers
Conditional lien waivers are conditioned upon something (typically the receipt of payment). Because conditional waivers only go into effect when the transaction has occurred, both the payer and payee are protected. The party receiving payment maintains its right to file a lien until the check is actually cashed; the party making payment will never face double payment (paying the party they hired and also being faced with a lien).
It is best practice to always use a conditional lien waiver if possible because this type of waiver protects both parties.
A note of caution with conditional lien waivers: the amount of money the lien waiver says you received matters more than the amount of money you actually received. So pay close attention that the amount on the lien waiver matches the payment you received before you sign the conditional lien waiver.
Unconditional lien waivers
Unconditional lien waivers go into effect as soon as they are signed, regardless of whether payment has actually been received. This can be dangerous. If a contractor receives a check and signs an unconditional waiver but the check bounces, the contractor now has no lien rights and no payment. Only sign an unconditional waiver after payment is received and in the bank.
The amount of payment stated in an unconditional waiver is also important. If the waiver states $1,000 has been paid but only $500 was received, and the waiver is signed, the payee is out $500. Read the waiver carefully.
The dates on the waiver are also important. Make sure the dates on the waiver match the dates for payment received. If the waiver states a date later than the payment received date, the payee no longer has the right to file a lien for the time frame between payment and the date on the waiver.
Progress/Partial vs Final lien waivers
There are two subcategories for each type of waiver. These are progress/partial and final. So contractors have four lien waiver options in all:
- Progress/Partial Conditional
- Final Conditional
- Progress/Partial Unconditional
- Final Unconditional
A partial waiver should be used when you are expecting to receive a progress payment on a project — meaning you expect future payments on a project. A final waiver should be used when you are expecting to receive final payment on a project and no future payments are expected.
Want to learn more about construction lien waivers? Scott Wolfe Jr. of zlien, takes a more in-depth dive into construction lien waivers in the article “What Do You Need to Know About Construction Lien Waivers?”
Additional Resources:
3 Dangers of Lien Waivers for Subcontractors
5 Tips for Requesting, Collecting and Tracking Lien Waivers
