The ultimate guide to using construction lien waivers

Minimal legal risk, smooth payments, no disputes, strong relationships and punctual projects are all part of a builder’s dream scenario. Lien waivers – when used correctly – make all of these wishes a reality. Plus, they offer protection for both contractors and homeowners. Don’t overlook these important documents – they may save your business from making a very expensive mistake.

What is a lien waiver?

A lien transfers possession of property until a debt is paid. A lien waiver is a legal document signed by the contractor, subcontractor or supplier that waives the right to place a lien on a property. Lien waivers essentially provide a receipt of payment for services and block these individuals from filing a mechanics lien.

The importance of getting a lien waiver right

The main goal of lien waivers is to protect property owners. It’s important to understand lien waivers and manage them well because they give necessary transparency to the payment process. Here are some of the top reasons businesses use lien waivers and why it’s important to get it right.

Protecting the property owner

When payments are made, homeowners should secure a lien waiver to avoid liens or legal claims from contractors or subcontractors. When a lien waiver is signed, the builder or sub acknowledges the agreed-upon amount in the waiver and cannot file a lien for this amount.

Avoiding double payment

Lien waivers avoid double payment for the same work. For example, once a lien waiver is issued, it ensures that a subcontractor doesn’t receive payment from both the contractor and the property owners.

Ensuring project financing

Most banks require lien waivers as evidence of payment before lending money. If a business needs additional funding on a project, it’ll provide lien waivers to lenders to show subcontractors have been paid for completed work up to that point.

Facilitating project progress

Anyone who supplies materials, labor or services on a project can file a mechanics lien if they aren’t fully paid. When this happens, projects are slowed down or even stopped. Subcontractors will work more efficiently – and you’ll meet your deadlines – when you practice timely construction payments and provide proof of payment.

Avoiding disputes

Properly executed lien waivers help avoid construction payment disputes. By signing a lien waiver, a subcontractor acknowledges being paid for their work and provides evidence of payment for the contractor and property owner.

Mitigating legal risks

When payment disputes or nonpayment issues arise, businesses that use lien waivers correctly have a well-documented defense against lien claims. It’s important to keep a record of signed lien waivers in the event that legal issues come up. 

What are the different types of lien waivers?

All parties on a construction project need to understand the different types of lien waivers. There are payment options for collecting at milestones or at the project’s completion – each option has guidelines to follow and necessary documentation.

Conditional lien waiver on progress payment

A conditional waiver on progress payment is issued by a contractor or subcontractor upon receiving a partial payment for work completed up to a specific point in the project. Conditional means the lien rights are waived when payment is received. This type of lien waiver is common to use when projects hit significant milestones such as foundation in or framing up.

Unconditional lien waiver on progress payment

An unconditional lien waiver on progress payment is also given when a general contractor or subcontractor receives a partial payment for the work completed. The difference in an unconditional waiver is that the lien rights are waived immediately when the document is signed. This type of waiver would only be used when there’s a solid level of trust between parties and the payment doesn’t require any further confirmation.

Conditional lien waiver on final payment

A conditional lien waiver on final payment is issued when a contractor or subcontractor receives the final payment for the completed project but includes a condition that the waiver is valid only after the payment successfully clears the bank.

Unconditional lien waiver on final payment

An unconditional lien waiver on final payment is given when a contractor or subcontractor receives the final payment, and they waive their lien rights immediately without any conditions. For example, a flooring contractor may provide an unconditional lien waiver on final payment once all flooring is installed.

How to create and fill out a lien waiver

Creating and filling out lien waivers requires attention to detail. Because they’re legal documents, key steps must be followed. It’s important to also know your state laws regarding lien waivers to avoid contractual mistakes. Here are the basic directions for filling out a standard lien waiver.

Identify the type of lien waiver

Determine the type of lien waiver based on project milestone and whether payment has been received or is still expected. The four types of lien waivers are outlined in the section above.

Provide project information

Include essential information like the project’s name, address and description. This is to ensure your lien waiver is associated with the correct construction project.

Identify the parties involved

State the names and roles of all parties involved with the project. This includes the contractor, subcontractors, suppliers and homeowner.

Specify the payment amount

List the specific payment amount for which the lien waiver is being issued. Add in whether it’s a partial or final payment.

Add the date and signature

Have your subcontractors or suppliers sign and date the document to acknowledge their agreement with the details of the lien waiver.

Retain a copy

Keep a copy for your records. Most construction management software will automatically save this information for you.

Mass apply them to bills/POs

Forget manual entry – use a construction management software like Buildertrend to apply lien waivers to multiple bills and purchase orders at once.

How to improve the lien waiver process to make it more efficient

There are always options for updating your lien waiver processes. Use this as your guide to successfully improve your business’s approach from start to finish.

Getting started with construction lien waivers

1. Standardize lien waiver templates

Create standardized lien waiver templates for each payment milestone. Having a template for your subcontractors to use for every progress payment or final payment will save time, provide consistency and make sure all necessary information is included every time.

2. Automate documentation with software

Use a construction management software that has lien waiver features to reduce paperwork and improve your efficiency. Using a smart program will automate the writing, signing and storage of all lien waivers. When you have multiple projects going, there’s a lot of paperwork to manage, so it’s best to automate this part.

3. Establish clear timelines

Set deadlines for submitting and processing lien waivers and clearly communicate to all parties. Your business may establish a policy that lien waivers must be signed within a certain number of days from receiving a payment request.

Optimizing the lien waiver process

While you may be following the legal requirements for lien waivers, there’s probably a way to make the process more time-efficient. Here are some ideas for optimization.

1. Implement a centralized system or platform

With a centralized system, all involved parties can access and update lien waiver information in real time. This creates collaboration and lessens the need for administrative responsibilities.

2. Establish clear communication channels

Updating all stakeholders on a regular basis about payment schedules, completed work and lien waiver status will make for an efficient lien waiver process. Managing subcontractors well starts with clear communication channels like a good construction management software.

3. Provide training to relevant personnel

Compliance is key, but you need to train your personnel on how to achieve your expectations. Offer training to employees who are involved in the lien waiver process to be sure everyone understands how important it is to be timely and accurate.

Review and analyze

1. Conduct regular reviews

Conducting regular reviews will show the areas in your process that need improvement. Analyze your current way of dealing with lien waivers and find areas that could run more efficiently. The construction industry is always changing, so it’s worth your time to see if there’s a better and faster way of doing business. 

2. Consult legal professionals

Legal professionals with experience in construction law will be your best guide for making sure you’re following state regulations and industry standards. Seek help from legal professionals to avoid the risks that come with improper lien waivers.

Set up your lien waivers faster with Buildertrend

Improve your lien waiver process by creating, organizing and storing them right in Buildertrend. Buildertrend gives you the option of using standard lien waivers or uploading your own.

Link your lien waiver payments with Buildertrend’s financial tools. We’ve got you covered by centrally documenting your company’s financials and tracking all costs. Our organized record-keeping ensures documents are organized and easy to access should any legal issues pop up.

Schedule a demo today to see how Buildertrend can help improve your lien waiver process.

Construction lien waiver FAQs

Get answers to the most common construction lien waiver questions.