What Information Should You Include In Lien Waivers?
Lien waivers; we can’t get enough of ‘em! A lien waiver is a signed document in which the lien claimant agrees to waive rights to its claim based on payment to be received or received. So, what information should be included in a lien waiver?
Lien Waivers Should Include
Every lien waiver should clearly identify the property name & project location, the debtor’s name (your customer), the invoice or purchase order number, the payment amount and the disputed claim amount. If the lien waiver is for partial payment, you should also include the payment period or a through date.
Conditional or Unconditional: Lien Waivers, Not Love
Unconditional love is great! Unconditional lien waivers, not so much. In the lien waiver world, conditional is always better.
- Conditional Lien Waivers: A signed document agreeing to waive rights to a claim given conditioned upon receipt and clearance of a final payment. If the client does not get the final payment, the waiver does not waive their rights.
- Unconditional Lien Waivers: A signed document agreeing to waive rights to a claim. The waiver is not conditioned upon clearance of a final payment. The client’s rights will be waived whether payment is received or cleared.
What Else Can Be Included in Lien Waivers?
This week we shared an article by Jason Lambert, Construction lien Waiver Provisions Contractors Should Be Using. Lambert recommends that those who request lien waivers include the following in their waivers:
- Lien waivers don’t have to waive lien rights only.
“…a lien waiver can also include releases of any claims against surety bonds, other statutory rights or claims, and at its broadest, claims against the paying party. One example of a provision that could help accomplish this is a release of ‘any right arising from a payment bond that complies with a state or federal statute, any common law payment bond right, any claim for payment, and any rights under any similar ordinance, rule, or statute related to claim or payment rights.’”
- Confirmation that others have been paid.
“…contractors can include language requiring the company receiving payment to represent and warrant that all subcontractors of a lower tier have been paid or will be paid within a certain time frame using the funds provided and that these are material representations and inducements into providing payment.”
- Make them a payment affidavit.
“…turn a lien waiver into a miniature payment affidavit and require the party receiving payment to swear that subcontractors have been paid or will be paid. They can also require that a list of unpaid subcontractors or material suppliers be listed on the affidavit to give them the ability to track a continuing lack of payments or to confirm that previously unpaid subcontractors have been paid as the project continues.”
Lambert also recommends including an indemnification provision.
“…include an indemnification provision requiring the party receiving payment to indemnify them (and maybe even the property owner) from payment claims made by lower tier subcontractors or material suppliers. This can provide another incentive to a payee to use the funds to pay downstream subcontractors if they know that failing to do so will subject them to additional liability.”
What’s in Your Lien Waiver?
Man, I wanted that to sound like the actor “What’s in your wallet?” Alas, I don’t do voice-overs, however I do recommend all lien waivers be reviewed by legal counsel PRIOR to executing the waivers. It’s imperative you remain protected.