In construction projects, waivers of lien are a vital part of the payment process. These documents help ensure that contractors, subcontractors, and suppliers receive payments and, in turn, prevent them from placing a lien on the property in the event of non-payment. Properly managing waivers of lien can help avoid future legal disputes and ensure smooth project completion.

What are Waivers of Lien?

A waiver of lien is a legal document that waives the right of a contractor, subcontractor, or supplier to file a lien against the property for unpaid work or materials. There are two main types of waivers:

Conditional Waiver: This waiver is given when progress payments are made and is contingent upon the actual receipt of funds.

Unconditional Waiver: This waiver is given once payment has been received, and the contractor or subcontractor relinquishes any rights to file a lien.

These waivers help ensure that all parties involved in the construction project are compensated appropriately and that the property owner remains protected from any potential legal claims.

Steps for Managing Waivers of Lien

Successfully handling waivers of lien involves a few key steps, from tracking discrepancies to ensuring the documents are compliant with state requirements. Here’s how to manage waivers effectively:

Resolving Discrepancies Early

If discrepancies in the waivers arise, it’s crucial to address them as quickly as possible. These issues should be resolved during the pencil payment application review process or, ideally, before a funding recommendation is made.

Addressing Before Funding: If the payment application is not received until the draw is issued by the developer, we can still proceed with a full payment recommendation, but we’ll note that payment to the general contractor should be conditional until we receive the revised waivers for record.

By resolving issues before payments are finalized, you can prevent delays and ensure that all waivers are accurately reflected in the final documentation.

Understanding State-Specific Requirements

The format and requirements for waivers of lien are often dictated by state law. Different states may have specific rules regarding the language, format, and conditions under which a waiver is legally binding.

State-Specific Formats: A quick search online can provide you with the required language and format for waivers in your state. Additionally, the construction agreement and project specifications manual may include sample waivers that meet local legal requirements.

By adhering to the state’s legal format, you ensure that the waivers are enforceable and protect the project from potential legal challenges.

Unique situations also arise such as in the State of Georgia where a conditional waiver automatically converts to an unconditional waiver after 90 days.

Tracking Waivers Using a Log

To stay organized and ensure all waivers are collected and processed on time, the general contractor should provide a log for both conditional and unconditional waivers received from each subcontractor. This log should be submitted along with the Application for Payment documents.

Keeping an accurate log helps track the status of each waiver and prevents delays in the payment process.

Reviewing Conditional Waivers

Conditional Waivers Upon Progress Payment are essential for protecting against future lien claims while payments are being processed. These waivers should be provided by the general contractor and each subcontractor billing during the current period.

When reviewing conditional waivers:

Match the Waiver Values: Ensure that the values on the waivers align with the requested payment for the period.

Verify the Work-Through Date: Check that the waiver’s “work through” date matches the application period.

State Compliance: Make sure the waiver format adheres to your state’s legal requirements.

Retention Requests: For final payments, when retention is released, ensure that both the general contractor and subcontractors provide a Conditional Waiver Upon Final Payment for their specific requests.

Reviewing Unconditional Waivers

An Unconditional Waiver Upon Progress Payment should be provided by the general contractor and subcontractors for the amounts billed in the previous period. These waivers indicate that payment obligation have been fulfilled and no lien can be filed for that portion of the work.

Conclusion

Waivers of lien are essential tools for keeping construction projects on track and free from potential legal complications. By understanding the process and following the necessary steps for managing conditional and unconditional waivers, project teams can prevent payment issues and protect against future lien claims. Stay organized, ensure all waivers are collected and reviewed on time, and always comply with state-specific legal requirements to keep your project running smoothly.