This article is sponsored by Siteline.

Lien waivers are a critical part of construction payment. They serve as proof that all parties involved in a construction project (e.g., trade contractors, suppliers, equipment rental companies) have either received or will receive compensation for their work. They also provide assurance to GCs and property owners that signing parties won’t file liens down the road.

However, managing lien waivers can be challenging. The sheer volume of paperwork involved and the varying terms from project to project can turn what should be a straightforward task into a complex ordeal. Fortunately, with some effort and awareness of potential pitfalls, you can transform lien waivers from a headache to a valuable tool for ensuring timely payments.

Mistake #1: Using the Wrong Lien Waiver — Or Not Submitting One at All

Just like hats, there’s a waiver for every occasion. But unlike hats, using the wrong lien waiver —or failing to submit them — can have serious consequences, including:

• Losing your right to file a lien for unpaid work;
• Jeopardizing your ability to collect retainage or other outstanding payments; and
• Facing legal challenges from the GC if the waiver language is too broad.

So, how do you know which lien waiver to use and when? Let’s get into it.

Types of Lien Waivers

There are two primary categories of construction lien waivers:

1. Unconditional: These go into effect as soon as they’re signed, regardless of whether you’ve received payment.
2. Conditional: These include specific provisions that must be met before the waiver goes into effect.

Each of these primary categories has two subcategories: waivers on progress payments and waivers on final payments. 

Combine these together, and you get the four main types of lien waivers: conditional progress, conditional final, unconditional progress, and unconditional final.

Alright, now that we’ve got the terms and definitions down, let’s talk about when you’d use each of them.

Conditional Progress (or Partial) Waiver

This lien waiver is your go-to when you’ve been paid for some of the work but not all. It basically says to the client, “Hey, I got part of my money, but I’m still holding my right to file a lien if you don’t pay the rest.”

• You’ll submit a conditional progress waiver when you submit a pay app for a progress payment during a project until you’ve been fully paid for that portion of the work.
• If you don’t submit this waiver, then your current progress payment could be put on hold.

Unconditional Progress (or Partial) Waiver

This waiver states that the GC has paid the specified amount they were invoiced, and therefore you waive your right to file a lien on that part of the project.

• You should not submit this waiver until after you’ve received payment for a progress pay app.
• If you don’t submit this waiver after you’ve been paid, then future payments could be delayed.

Conditional Final Waivers

This waiver states that upon receiving full payment (from the GC or owner), you waive your right to file a lien against the property.

• You’ll submit this lien waiver with the final pay app to close out the project.
• Failure to submit this waiver will result in the GC holding your retention payment or any other closeout balances.

Unconditional Final Lien Waivers

This is the grand finale lien waiver. It confirms that the GC has paid you in full and that you waive the rights to file a lien on the project — end of story.

• You should not submit this waiver until you’ve received your final payment, including retention and other closeout balances. Be aware that some GC-specific software may require signing waivers in advance of payment. If you encounter this, then discuss it with the GC to explore a more mutually agreeable arrangement.
• Even though you’ll already have received all the money you’re owed, it’s still important to submit this document, as not doing so can hold up the closeout process.

Mistake #2: Failing to Collect & Submit Lower-Tier Waivers

In addition to the four lien waiver types outlined previously, there is one more important distinction to keep in mind: primary lien waivers vs. lower-tier lien waivers.

• Primary Lien Waivers: These are the ones you fill out and submit to the GC, waiving your right to file a lien for the work you performed.
• Lower-Tier Lien Waivers: These come from vendors, sub-tier contractors, and materials suppliers, waiving their right to file a lien for the work they’ve performed.

Not every GC requires lower-tier lien waivers, so make sure you look into that before the project kicks off so you can prepare accordingly. If they are required, then the responsibility of collecting and submitting lower-tier lien waivers falls to the subcontractor that hired out the work.

When mistakes happen here, they’re often attributed to a lack of oversight, organization, or understanding of the importance of lower-tier waivers. The result? Delayed or withheld payments.

If you’re the one responsible for managing lower-tier lien waivers, then here are some tips to stay on top of this:

• Make it a rule to get lien waivers from all lower-tier parties when they send in their invoices.
• Spell out this requirement clearly in your subcontracts.
• Gather all lower-tier waivers and submit them to the GC as a single package to streamline the process.

Mistake #3: Not Adhering to All Lien Waiver Requirements

There is some basic info that every lien waiver must include to be valid, including:

• Payer details (typically the owner or the GC)
• Payee details (you or any sub-tier contractors or vendors)
• Property address
• Project start date
• Project manager and contact info
• Precise payment amounts
• Check, invoice, or pay app number

Beyond these basics, though, specific requirements can vary based on your project's location or the GC you're working with. Before starting any project, make sure you understand and are comfortable with its lien waiver requirements.

State-Specific Requirements

Lien laws vary significantly from state to state. Some states, like Arizona and Texas, have mandatory lien waiver forms that must be used, while others may have specific notarization or other requirements.

Failing to comply with these state-specific requirements can render your lien waiver invalid, leaving you unprotected and potentially unable to collect payment. Always check your state's lien laws before submitting any waivers.

GC-Specific Requirements

Oftentimes, GCs or property owners have their own specific requirements for lien waivers. These may involve additional information, specific language, or even using their own custom forms. Carefully review any instructions or templates provided by the GC or owner to ensure compliance, as overlooking even the smallest detail (like a missing signature) could cause a payment issue.

Risky Language to Look Out For

While on the topic of using a payer’s specific lien waiver form, I want to stress the importance of reading the fine print. Unfortunately, some companies will add language that is unfavorable to other stakeholders and could potentially jeopardize your profitability. Be wary of phrases that:

• Require you to waive your contractual rights
• State you personally attest to the information in the waiver
• Include unconditional waivers when you’ve agreed to retainage, change orders, or additional work

If you encounter any of these red flags or are unsure about any lien waiver language, then it’s strongly recommended that you have a lawyer review the documents to ensure your rights are protected.

Mistake #4: Managing Lien Waivers Reactively

As is true for most construction workflows, handling lien waivers reactively is a recipe for trouble. It often looks something like this:

• Constantly scrambling to collect lien waivers at the last minute
• Manually tracking down documents and chasing signatures
• Dealing with payment delays due to missing or incorrect paperwork

This approach breeds unnecessary stress, misunderstandings, and mistakes that will inevitably disrupt your cash flow.

To break free from this cycle, consider upgrading to a digital system that keeps all your lien waiver ducks in a row, enabling you to:

• Generate, sign, and submit accurate lien waivers automatically using project data
• Collect waivers from lower-tier contractors and vendors, sending reminders as needed
• Monitor the status of all waivers in real-time
• Collaborate seamlessly with team members and stakeholders

These technological advancements naturally propel you toward proactivity, ultimately saving you time, reducing errors, and ensuring you always submit the right waivers and the right time.

Conclusion 

Remember, lien waivers are more than just paperwork — they’re crucial to protecting your rights and ensuring profitable projects. And with the right knowledge and systems in place, you can turn these potential stumbling blocks into stepping stones for success in your construction business.