Nonpayment for work completed on a project is a serious financial risk for subcontractors. Preserving your lien rights is vital as it offers considerable power to subcontractors that are owed debts from a general contractor or another party. The lien law allows subcontractors to seek payment through the property.
Many state laws provide property owners and general contractors with several ways to reduce or eliminate the risk of a subcontractor filing a claim of lien. Lien waivers are the most common ways that states allow, so it is critical that subcontractors understand lien waivers. This two-part article will explain lien waivers in further detail. Mechanics lien law can be confusing, so when in doubt, consult a construction lawyer in Mobile, AL.
What Is a Lien Waiver?
Lien waivers are exchanged between parties in exchange for payment. Typically, owners request that subcontractors (or any potential lien claimant) sign this document in exchange for payment. Signing the waiver also means that subcontractors are also waiving their right to file a mechanics lien against the property. At times, lien waivers are mutually beneficial; however, the correct lien waiver should be signed at the correct time. There are four types of lien waivers: partial conditional, final conditional, partial unconditional, and final unconditional.
Partial conditional lien waivers are used for progress payments on a project. If you are expecting future payments but are expecting to receive a progress or partial payment, you would need to sign this type of waiver. This waiver is conditional upon your receipt of payment and becomes invalid if the payment is not received eventually.
A final conditional lien waiver is used when there is an expectation of a final payment for project work (no additional payments are expected beyond this payment). It is conditional upon your receipt of this final payment. In the event that you do not receive your payment, the lien waiver is invalid.
A partial unconditional waiver is used when a progress payment has already been received for project work. Regardless of whether you are receiving additional future payment, this waiver is used for a specific progress or partial payment that you are receiving.
A final unconditional payment is used after receiving your final payment on a project — and you are not expecting any further payments in the future. This waiver confirms that you have received every payment (i.e., you have the payment in hand or the check has cleared) owed to you.
In part two, we will conclude our series by discussing lien waiver red flags, complying with requirements, and paying attention to document language.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.