What is a waiver of lien?
A written agreement between a payer and a counterparty that releases the latter from the need to impose a lien on the payer’s assets or products is known as a lien waiver.
Recognizing Lien Waivers
In the construction industry, lien waivers are frequently used. Essentially, it’s a written statement from a mechanic’s lien holder, such as a supplier, contractor, or subcontractor, indicating that they have been paid in full and have released any further lien rights to the contested property.
Only conditional waivers on progress payments and unconditional waivers upon final payments are recognized in many US jurisdictions. A lien waiver can help owners who have made full or partial payments, much like a mechanic’s lien can help those trying to get paid for services.
Lien waivers generally come in four varieties:
- “Unconditional Waiver and Release Upon Progress Payment” unconditionally relieves the claimant from all rights up to a specific date.
- All claimant rights are released under a “Conditional Waiver and Release Upon Progress Payment” until a specific date, provided the payments have been received and processed.
- An “Unconditional Waiver and Release Upon Final Payment” ends a claimant’s rights upon receiving the money.
- A “Conditional Waiver and Release Upon Final Payment” with specific clauses eliminates claimant rights when the final payment is received.
How to Use a Lien Waiver During the Development and Construction Process
Throughout a project, lien waivers may be used frequently in the construction sector. As each service is finished and each party receives payment, a lien release may be exchanged. Certain parties demand the signing and delivery of a lien waiver before they can release payment. Signing a lien waiver before getting paid might only sometimes be a wise decision. It is possible for a check to bounce or for some other delay in the payment’s arrival.
In addition to acting as a receipt, the lien waiver document prevents the filing of a mechanic’s lien. The purpose of the contract is to ensure that each party in the business connection is being fairly and appropriately taken care of. They assure paying parties that they will only have to pay once for the same service. Additionally, they can expedite the payment process so that parties being paid can get their money sooner. Only when a lien waiver is signed will paying parties frequently choose not to write a check.
Payment for completed services can be made more quickly if a lien waiver is included early in the business arrangement. To be sure that only lien rights are being signed away, the party receiving the cash may draft its lien waiver.
Receiving lien waivers may become more complicated if a project involves subcontractors. If a subcontractor files a lien waiver for work completed on a project for which they have already been paid, the prime contractor may file a lien waiver for the most recent payment. Lien waivers should specify the materials, tasks, and projects they are granted. If they don’t, the beneficiary of the lien waiver can argue that the money was paid for an entirely different purpose and that the original payment is still necessary.
CONCLUSION
- A lien waiver is a formal agreement between a payer and a counterparty in which the counterparty agrees not to impose a lien on the payer’s property or products.
- Lien waivers are frequently employed in the construction sector at various project stages.
- A lien waiver, similar to a receipt, can preclude the filing of a mechanic’s lien.