The Basics of Waivers and Releases of Lien or Payment Bond Rights in Construction

By Sara M. Bour, Esq., Manager and Counsel, AIA Contract Documents

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June 7, 2022

In construction, a contractor’s ability to collect payment often depends on submitting a lien waiver or payment bond waiver—documents that release a contractor’s right to file a mechanic’s lien or claim against a payment bond. These waivers serve as a necessary step in the payment process, but their significance goes far beyond just securing payment. This article provides a detailed overview of lien release waivers, highlighting their importance for owners, contractors, and subcontractors. 

 

What Is a Lien Waiver? 

A lien waiver is an agreement by a claimant to forgo the right to assert a mechanic’s lien or payment bond claim on a construction project in exchange for payment. In some cases, these waivers also serve to confirm that payments have been made or received up to a certain date. Depending on the jurisdiction, lien waivers may be required to follow a specific format set by law, ensuring enforceability in states like California, Texas, and Florida. 

Waivers generally fall into four categories: 

  1. Conditional Waivers on Progress Payment – Waives lien rights upon receipt of payment, but only if the payment is received. 
  2. Unconditional Waivers on Progress Payment – Waives lien rights immediately upon execution, regardless of when payment is received. 
  3. Conditional Waivers on Final Payment – Similar to the first, but applies to final payments. 
  4. Unconditional Waivers on Final Payment – Waives lien rights as soon as executed, typically after the project is completed and the final payment is made. 

 

Who Requires Waivers and Why? 

Project Owners: In many cases, project owners require contractors and their subcontractors or suppliers to submit lien waivers as a condition for payment. This can be part of a prime contract or stipulated by the construction lender to ensure that no liens have been filed against the project before funding is disbursed. 

Lenders: Construction lenders often require these waivers with each payment draw to ensure that their collateral (the construction project) remains free of any claims or encumbrances. A waiver serves as proof that a payment has been made and that the claimant relinquishes their right to file a lien for the performed work. 

 

When Are Waivers Exchanged? 

Lien waivers are commonly submitted during the payment application process, particularly as part of progress or final payments. According to the AIA A201-2017 General Conditions of the Contract for Construction, subcontractors are often required to submit waivers to the architect, who, in turn, submits them to the owner or lender. This process ensures that the project funding is handled properly and that the owner or lender can verify that no lien claims exist before releasing funds. 

 

Why Are Waivers Necessary? 

Lien waivers provide a layer of protection for both the project owner and the lender. Owners are assured that payments are being properly applied to the project work. Lenders, on the other hand, are assured that their loan collateral is free from potential liens. 

However, caution is essential when signing a waiver. Some waivers may release not only lien rights but also unresolved claims or obligations. Additionally, they may contain clauses for indemnification or confirmations that proper payments were made to subcontractors. Before executing any waiver, all parties must fully understand the terms, including whether the waiver complies with state law or specific statutory requirements. 

 

Key Considerations When Signing a Waiver 

  1. Understand What’s Being Released: Some waivers may release more than just lien rights; they could affect claims for other unresolved issues. 
  2. Be Aware of Broad Indemnification Clauses: Check for provisions that might require you to assume liability for damages. 
  3. Verify State-Specific Requirements: Make sure the waiver follows state-specific requirements, especially in jurisdictions with strict statutory formats like California, Florida, and Texas. 
  4. Review Payment Status: Make sure that the waiver only applies once payment has been received and properly processed. 

 

State-Specific Lien Waiver and Release Forms.

Several states regulate Lien Waiver and Release forms and require that a specific form be used on projects in that state. Depending on the jurisdiction of your project, governing law may require specific content and formatting within these documents. If your project is located in the states listed below, consider using an AIA Contract Documents state-specific form. It is important to consult with an attorney to determine which form is suitable for your needs.  

Lien waivers are a crucial tool in the construction industry, ensuring smooth payment processes and protecting project owners and lenders from the risks of unpaid claims or liens. While waivers are relatively straightforward, they carry substantial legal weight and must be approached with careful consideration of all terms, especially when state laws dictate their structure and enforceability. 

For more detailed guidance and state-specific forms, explore AIA Contract Documents’ collection of lien waiver and release forms. Consider consulting with an attorney to ensure that the right forms are used for your specific needs. 

 

This article is provided for general informational purposes only. The information provided is not legal opinion or legal advice, and does not create an attorney-client relationship of any kind. This article is also not intended to provide guidance as to how project parties should interpret their specific contractors or resolve contract disputes, as those decisions should be made in consultation with legal counsel and other professionals.