When you took the accounting job at a commercial trade contractor, you might not have realized what you were getting into—a pile of paperwork and a lack of standardization. There are always dozens of documents to complete, track down, update, submit, and resubmit. Every GC has its own requirements and schedules. Terms and details are always changing. And processes that should be simple—like lien waivers—become a nightmare to juggle.
This guide will cover everything you need to know about lien waivers, including how to manage them upward (to the general contractor) and downward (to your vendors and lower-tier subcontractors).
Basics of Construction Lien Waivers
You’re probably familiar with liens, specifically mechanic’s liens (i.e., your best course of action when a general contractor refuses to pay you), but how much do you know about lien waivers? Lien waivers are crucial documents for subcontractors to understand, but they can be confusing. Let’s start with the basics of lien waivers: what, who, when, and why.
What is a lien waiver?
AIA defines a lien waiver as “an express agreement by a claimant (typically a contractor, subcontractor, or materials supplier) to waive its rights to assert a lien against the project in exchange for payment for performed work.”
You can look at it like a receipt. But it’s a receipt that says “I acknowledge that you paid me $X and I give up my right to file a lien against the property for that amount.”
Why are lien waivers so important?
Lien waivers are essential because they serve as proof that you got paid and protect general contractors from litigious actions.
Who cares about lien waivers? And why?
General contractors (GCs) and developers care the most about these documents. As a standard to minimize the risk of legal action, they collect lien waivers from contractors, subcontractors, suppliers, equipment rental companies, and any other parties involved in the construction project. Of course, since the status of payment often hinges on you submitting a lien waiver, subcontractors care about them tremendously.
You will only be asked to submit a lien waiver if you filed a preliminary notice at the start of the project. (If you’re not familiar with these documents, here’s a great resource on preliminary notices.)
When do lien waivers need to be submitted?
The best time to submit a lien waiver depends on the type of waiver you’re using. Typically, you’ll submit it either when you send in a payment application or after you receive a payment. You can wait for the GC to request a lien waiver, or you can send it proactively. Getting ahead of the game is a great way to demonstrate that you know your stuff and build solid relationships with your GCs.
Pros and Cons of Lien Waivers
When used properly, lien waivers create favorable outcomes for everyone as they increase accountability for all parties. You get the money you’re owed, and the general contractor gets the assurance that you won’t file a lien down the road.
Filing lien waivers on time will help you get paid faster. Plus, they go a long way toward building strong relationships with your general contractors.
Unfortunately, lien waivers involve cumbersome paperwork, which can give even the savviest finance folks a headache. What’s worse, a missing lien waiver can cause significant payment delays, costing you thousands of dollars in the short term.
Types of Construction Lien Waivers
There are two categories of construction lien waivers: conditional and unconditional.
- Unconditional waivers go into effect as soon as they’re signed, regardless of whether you’ve received payment.
- Conditional waivers include specific provisions that must be met before the waiver goes into effect.
Each of these has two subcategories: waivers on progress payments and final payments.
So there are four basic types of lien waivers: conditional progress, conditional final, unconditional progress, and unconditional final. Let’s break down the specifics of each. (Progress waivers are also sometimes referred to as partial waivers.)
Conditional progress lien waivers
A conditional progress waiver specifies that you’ll waive your right to file a lien on that part of the project once the GC pays the specified amount.
- You can submit a conditional progress waiver when you submit a pay app for a progress payment during a project.
- If you don’t submit this waiver, your current progress payment could be put on hold.
Unconditional progress lien waivers
An unconditional progress waiver states that the GC has paid the specified amount and you waive your right to file a lien on that part of the project.
- You don’t want to submit this waiver until after you’ve been paid for a progress pay app.
- If you don’t submit this waiver after you’ve received payment, future payments could be delayed.
Conditional final lien waivers
A conditional final waiver states that you’ll waive your right to file a lien on the entire project if the GC pays the remaining balance in full.
- You can submit a conditional final waiver along with the final pay app to close out a project.
- Failure to submit this waiver could result in the GC putting your retention payment or any other closeout balances on hold.
Unconditional final lien waivers
An unconditional final lien waiver confirms that the GC has paid you in full and you waive all rights to file a lien on the project.
- You want to wait until you’ve received your final payment, including retention and any other fees, to file an unconditional final waiver.
- Even though you’ll have already received all the money you’re owed, it’s still important to follow through with this document. Not doing so can cause closeout documents and other closeout requirements to be put on hold.
Primary vs. Lower-Tier Lien Waivers
There’s one more important distinction to note: the difference between primary lien waivers and lower-tier lien waivers.
Primary lien waivers are the ones you complete and submit to the GC. They waive your right to file a lien for the work you performed.
Lower-tier waivers are completed by your vendors, sub-tier contractors, and materials suppliers. They waive the other parties’ rights to file a lien for the work they performed. As the party who contracted the work out to them, you’re responsible for collecting these lower-tier lien waivers and submitting them to the GC. (Not all GCs will require these. Some may only require them for certain types of vendors. But it’s best to cover your bases and collect lower-tier lien waivers from everyone you brought in on the project.)
Lien Waiver Requirements
Aside from the many types of waivers you need to track and manage, another thing that makes lien waivers so confusing is that there isn’t a one-size-fits-all lien waiver form. Requirements can vary from state to state, contractor to contractor, and project to project.
Twelve states—Arizona, California, Florida, Georgia, Massachusetts, Michigan, Mississippi, Missouri, Nevada, Texas, Utah, and Wyoming—have standardized lien waiver forms that you must use for projects completed in those states. Two of these states—Wyoming and Mississippi—require lien waivers to be notarized. Texas used to require notarization, but this changed in January 2022. If you don’t follow these requirements, your waiver won’t be valid.
Everywhere else seems a bit like a free-for-all.
What information needs to be in a lien waiver?
There is some basic info that every lien waiver must include in order to be valid:
Pertinent parties info: Contact info for both the payer and the payee. Includes legal business names, addresses, contact names, and email addresses or phone numbers for both parties.
- Payer details (This could be the owner, general contractor, or even you in some cases.)
- Payee details (This could be you or any sub-tier contractors or vendors to whom you’re sending payments.)
Project info: General info about the property and project.
- Property address
- Project start date
- Project manager and contact info
Payment details: Specific information about the payment and the lien waiver amount.
- Payment amount: It’s important to be precise here and to double-check your digits.
- Check, invoice, or pay app number
Beyond these basics, the GC may have separate requirements of what needs to be in your lien waiver. And these requirements might vary for different types of projects.
What is some risky lien waiver language to look out for?
A word to the wise—anytime a payer requires you to use their specific lien waiver form, pay close attention to the fine print. Unfortunately, some firms sneak in terms that are only favorable to them.
Keep an eye out for the following before you sign any lien waivers:
- Clauses that require you to waive your contractual rights
- Verbiage that says you personally attest to the information in the waiver
- Unconditional waivers when you’ve agreed to retainage, change orders, or additional work
Managing Lien Waivers
Common approaches to managing lien waivers include spreadsheets, paper lists, Post-It notes, whiteboards, and good old-fashioned memory. But between conditional and unconditional, progress and final, primary and sub-tier, and the countless different form variations, it’s easy to see how documents can get lost in the shuffle—or you can fail to account for them in the first place.
Here are a few tips to help you make your lien waiver process smoother.
1. Make them part of your billing process.
The easiest way to do this is by adding conditional waivers to your pay app package. That way, anytime you sign a pay app, you also sign the conditional waiver.
2. Track waivers in the same place you track payments.
Keeping this information in the same place means that when you mark a payment as received, you know to automatically send an unconditional waiver. This will protect you from future payment holds.
3. Use lien waiver forms to standardize the process.
Build a simple, standard lien waiver form so you only have to fill in a few blank spaces for each project. This will help you create forms faster and more accurately. There are lots of ways to automatically fill in this info so all you have to do is sign and submit each form.
4. Know which GC expects lower-tier waivers.
This serves two benefits. 1) You’ll make sure payments don’t get held up simply because you’re missing a waiver from one supplier. 2) It will prevent you from wasting time chasing down waivers you don’t need.
5. Require waivers from lower-tiers and vendors when they submit invoices.
Set this expectation early on so you always have lower-tier and vendor waivers when you need them and can avoid the risk of a payment being held up. It will also save you a lot of time, calls, and emails down the road.
6. Combine lower-tier waivers into a single package.
Providing everything the GC needs in a single email or upload makes the whole payment process easier. You can avoid the headache of missing attachments affecting your cash flow. (Helpful hint: Consider including a table of contents to help your payer stay organized.)
7. Use software to make this all easier.
There are some great construction software and tools you can use to make your lien waivers process a whole lot easier. Siteline, for instance, manages all things related to billing and getting paid, including lien waivers.
Subcontractors use Siteline to:
- Create, manage, and track all your lien waivers
- Automatically fill out and send the right lien waivers at the right time
- Request lower-tier lien waivers from all your sub-tier contractors, vendors, and suppliers
- Remind lower-tiers about outstanding waivers
- Track and compile a package of lower-tier waivers
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