Lien Waiver Definition, Four Types, and Uses in Construction

James Chen, CMT is an expert trader, investment adviser, and global market strategist.

What Is a Lien Waiver?

A lien waiver is a written agreement between a payer and a counterparty where said counterparty gives up their right to place a lien on the payer's property or goods.

Key Takeaways

• A lien waiver is a written agreement between a payer and a counterparty where said counterparty gives up their right to place a lien on the payer's property or goods.
• Lien waivers are often used in the construction industry throughout phases of projects.
• A lien waiver is similar to a receipt and can prevent a mechanic's lien from being filed.

Understanding Lien Waivers

A lien waiver is quite common in the construction business. Essentially, it is a document from a contractor, subcontractor, supplier, or another party who holds a mechanic's lien that states they have been paid in full and waive future lien rights to the disputed property.

In the United States, many states only recognize conditional waivers on progress payments and unconditional waivers upon final payments. Just as a mechanic's lien can be a great aid to those seeking payment for services rendered, a lien waiver can be beneficial for owners that have made full or partial payments.

Generally, there are four types of lien waivers:

1. An "Unconditional Waiver and Release Upon Progress Payment" discharges all claimant rights through a specific date with no stipulations.
2. A "Conditional Waiver and Release Upon Progress Payment" discharges all claimant rights through a specific date, provided the payments have actually been received and processed.
3. An "Unconditional Waiver and Release Upon Final Payment" extinguishes all claimant rights upon receipt of the payment.
4. A "Conditional Waiver and Release Upon Final Payment" extinguishes all claimant rights upon receipt of the final payment with certain provisions.

How to Apply a Lien Waiver in the Construction and Development Process

Lien waivers may see frequent use in the construction industry through many phases of a project. A lien waiver could be exchanged as each service is completed and payment is received by each party. Some parties will not release payment until a lien waiver is signed and delivered to them. It might not always be prudent to sign a lien waiver in advance of receiving payment. There is the possibility that a check might bounce or that the actual delivery of payment is otherwise delayed.

The lien waiver document serves as a form of receipt and eliminates the possibility of a mechanic's lien from being filed. The document is meant to guarantee that all parties are being properly provided for in their business relationship. They give paying parties the confidence of knowing that they won't be faced with making multiple payments for a single service. They can also speed up the payment process, allowing parties being paid to receive their payments sooner. Often, paying parties don't want to cut a check until a lien waiver has been signed. The sooner a lien waiver enters the business relationship, the faster payment can be made once the work is complete. The party receiving the payment may write its own lien waiver in order to be completely confident of signing away only lien rights.

If subcontractors are involved in a project, the complexity of receiving lien waivers can increase. The primary contractor might take action by issuing a lien waiver for the latest payment and lien waivers from subcontractors for earlier work on the project they have already received payment for. Lien waivers should outline the specific materials, work, and project they are issued for. If they do not, it is possible that the recipient of the lien waiver might claim the payment was for any project they wish, rather than the one in question and that the new payment is still required.