Final lien waivers and partial lien waivers are common financial tools for contractors to use in their construction finances. Both acknowledge owner payments and sign away rights to place a lien on the project property title.
Here, we'll discuss the differences between final lien waivers and partial lien waivers in the construction industry, the advantages and disadvantages of each, and how to decide which to use.
What are Lien Waivers?
First, let's back up a couple of steps to understand lien waivers and how they apply in construction finance. Lien waivers are financial documents that act as a formal acknowledgment of payment on construction projects. Here's how the process works.
A construction lien is a formal mark on a property title that assigns part of the proceeds of the sale of the property to the lien holder. Contractors and material suppliers use liens to ensure they get paid for their work and expenses. When the property owner makes a payment, the contractor issues a lien waiver, relinquishing the rights to place a lien against the property.
Some governments require that lien waivers be written on specific lien waiver forms, while other areas have less regulated lien waiver requirements.
Depending on the payment amount and the project's standing, the contractor or supplier can issue a partial or final lien waiver.
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Lien waiver vs. lien release
Lien waivers are sometimes confused with lien releases (or release of lien) 鈥� although the names sound similar, the two are different documents. Lien releases are issued when a contractor or supplier has already filed a mechanics lien on a property, and the issuer wishes to cancel the lien.
What is a Partial Lien Waiver?
A partial lien waiver (sometimes called a progress waiver) acknowledges a progress payment by ensuring a contractor can no longer put a lien against a piece of the property proportional to the partial payment. A contractor issues a partial waiver when an owner issues a partial payment that leaves a remaining balance on the construction project.
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Advantages of a Partial Lien Waiver
A partial lien waiver offers peace of mind. It ensures that a mechanics lien can鈥檛 be filed against the property for the amount the owner has paid out.听 It is an acknowledgment of the payment.
However, the contractor retains the right to file a lien against the property based on any unpaid portion of the final bill.
Disadvantages of a Partial Lien Waiver
A contractor who issues a partial lien waiver after receiving a progress payment on a project may have to issue another lien waiver when the owner pays the balance on the project, adding to paperwork and hassle for all stakeholders.
What is a Final Lien Waiver?
Contractors sign a final lien waiver when the owner issues the last project payment, and no balance is left owing. A final waiver signs away the contractor's right to place a lien on any part of the project property.
Final waivers can also be final conditional or final unconditional waivers, depending on the final payment status.
Advantages of a final lien waiver
A final lien waiver signs away the rights to file a mechanics lien on any portion of the property, so there's no further lien paperwork down the line. Contractors sign a final lien waiver when they've received payment for services for an entire outstanding balance on a construction project or when an owner pays the entire amount owed for work done on the project. For owners, it's an acknowledgment they have cleared their obligations to the general contractor.
Disadvantages of a final lien waiver
Final lien waivers are just that - final. That means contractors must ensure they've been compensated for all materials and work for the entire construction job before issuing a final lien waiver because they won't have any leverage to fight for compensation after signing one.
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What are Conditional and Unconditional Lien Waivers?
Within the partial and final lien waiver categories, there are two more distinctions: conditional and unconditional lien waivers.听
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Conditional lien waiver
A construction business issues a conditional lien waiver when it expects an owner payment but has yet to receive it. The conditional lien waiver removes the right to place a lien on the property only if the payment is received.
Unconditional lien waiver
Unconditional lien waivers are appropriate when a contractor has already received the expected payment, because they become effective the minute a contractor signs them. Any payment reciprocated with an unconditional lien waiver should be completely cleared and settled.
What's the difference between final and partial lien waivers?
Any time a contractor or supplier goes through the lien waiver process, they must be sure that the terms of the waiver are fair, and that the waiver aligns with their expectations of payment.听
Risk of non-payment
Signing a final lien waiver requires a lot of care and attention. Are all project costs accounted for? Have all payments cleared? Do the terms of the waiver completely match the expectations for payment?
Partial lien waivers are less risky to sign, since there's still the opportunity to account for outstanding expenses on the next payment.
Transfer of rights
Contractors and suppliers have the right to file a lien against a property right up until they sign a lien waiver. Once they have been paid and have issued a lien waiver, they no longer have lien rights 鈥� they have essentially traded the right to place a lien for the payments they've received.
A final lien waiver removes all the rights to place a lien from the issuer, while a partial lien waiver removes the rights to place a lien against a portion of the property.
Lien Waivers Shouldn鈥檛 Be Taken Lightly
Like all legal documents, all stakeholders must read and understand all the details before they sign. When an owner asks a contractor to sign a lien waiver, signors must ensure:
- It is the appropriate waiver for the payment received
- All expenses and work named in the document are accounted for
- If using an unconditional waiver, the payment is not only in hand, but the check cleared and funds are in the bank.
When owners and contractors make their payments through 吃瓜新闻, funds are available to the recipient immediately, meaning there's no risk of non-payment after the lien waiver is signed.
Partial lien waivers provide a paper trail for partial or progress payments on a project, when there are further expected payments before a project's conclusion. Final lien waivers are appropriately issued when an owner issues payment for the entire outstanding balance on a project or for the entire work and materials on the project.听
There is some risk involved in signing a lien waiver, since contractors and suppliers are trading their right to file a lien on the property for payment from the owner. Prompt and secure construction payments through 吃瓜新闻 can alleviate much of the stress involved with waiting for payments, encouraging good faith between project stakeholders.
