How to Exchange Lien Waivers

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  • How to Exchange Lien Waivers A Guide for Everybody in Construction

    presented by:

  • Alternating Wednesdays (Generally)1pm CSTSignup At:http://www.zlien.com/credit-academy/webinars/

    Construction Credit Knowledge

  • Lien Waivers: Introduction

    everybody in construction industry encounters lien waivers, but they are often overlooked or treated as an inconsequential part of doing business.

    company should have defined policy of how lien waivers are received/handled

    special attention and care should be given to which specific type of lien waiver is appropriate for the situation

    some states have specific statutory waiver forms that must be used - your company should know which states these are, and know the form required

  • Lien Waivers: What Are They?

    parties performing work or delivering materials to a construction project generally have the ability to file a mechanics lien (or bond claim) in the event that they are not paid for their work

    parties at the top of the payment chain (owners and GCs) have a big incentive to ensure that such claims are not filed.

    liens encumber the property and cause problems with financing and bonding, as well as the propertys title - a filed lien can make it so the project cannot be successfully completed

    in some circumstances, liens can require the top-of-chain parties to pay twice for the same work - nobody wants to do that.

  • Lien Waivers: What Are They?

    many construction projects involve a large number of parties, many of which may be unknown to the parties close to the top of the payment chain.

    this can make it diicult to keep a project clear of lien claims (and the associated diiculties) - the owner may not know whether some supplier to a subcontractor is getting paid or not.

    lien waivers exist, at least in part, for this reason.

  • Lien Waivers: What Are They?

    definition

    a lien waiver is a document from acontractor,subcontractor, materialman, equipment lessor or other party to theconstructionproject(a potential lien claimant) stating they waive future lien rights against the property improved to the extent set forth in the waiver.

  • Lien Waivers: What Are They?

    definition, cont.

    generally, it may be easier to think of lien waivers as a type of receipt:

    if a party gets paid $100k, that party waives $100k in lien rights. Its as simple as that. everybody is protected, and the payment process is fair.

  • Lien Waivers: What Are They?

    while the general definition, and function, of lien waivers really is that simple, there are some complexities that must be considered

  • Lien Waivers: Types

    4 basic types of lien waivers

    minority of states actually make these distinctions by statute

    in states that do make the distinction, the specific waiver form will identify the waiver by type

    majority of states do not regulate lien waivers - or provide statutory formal guidance. this means that in many cases a lien waivers category can be unclear and must be determined by examination of the text of the document

  • Lien Waivers: Types

    whether or not the state in which your project is located regulates the form of lien waivers by type, it is important to understand the dierent categories, and more importantly, to which category a lien waiver you are providing / being asked to sign belongs

  • Lien Waivers: Types

    conditional waivers

    when its time to exchange payment in construction, there can be some tension b/c there are perceived liabilities on both sides

    the paying party wants a lien waiver before handing over the money, and the receiving party wants payment before giving a lien waiver

    conditional waivers can be used in this instance and should be satisfactory

  • Lien Waivers: Types

    conditional waivers, cont.

    these waivers work to waive the signors lien rights conditioned upon the occurrence of some other event (generally actual receipt of payment)

    the lien waiver therefore, can be given to the party that will pay prior to payment (which provides the benefit of protecting against double payment), but is ineective until payment is received (which provides the benefit of not waiving lien rights prior to payment) - this type of waiver is immediately eective when the payment is made

  • Lien Waivers: Types

    conditional waivers, cont.

    two sub-types of conditional waivers

    conditional waiver for partial payment (progress payment)

    conditional waiver for final payment

  • Lien Waivers: Types

    conditional waivers, cont.

    conditional waiver for partial/progress payment

    used by parties making and receiving progress payments. future payments on the project may be expected, but the parties may still wish to exchange a waiver for a specific progress or partial payment received.in this case it is ok if the waiving party has not yet received the payment. since the waiver is conditional on receipt of the payment, it is not valid if payment is not ultimately received.

  • Lien Waivers: Types

    conditional waivers, cont.

    conditional waiver for final payment

    used by parties making and receiving final payment. after singing and exchanging this waiver, no future payments on the project are expected.it is ok if the waiving party has not yet received the final payment. since the waiver is conditional on receipt of the payment, it will be invalid if payment is not ultimately received.

  • Lien Waivers: Types

    unconditional waivers

    have the potential for significant and undesired consequences to lower-chain parties.

    these waivers are completely and entirely eective and enforceable upon signing - it doesnt matter if the payment has been received, or is ever received

  • Lien Waivers: Types

    unconditional waivers, cont.

    two sub-types of unconditional waiver (mirrors conditional)

    conditional waiver for partial payment (progress payment)

    conditional waiver for final payment

  • Lien Waivers: Types

    unconditional waivers, cont.

    unconditional waiver for partial/progress payment

    this waiver should only be used when a progress payment has been actually made & received. future payments may be expected on the project, but a specific progress or partial payment has been made & received and the rights to file a lien for that payment may be waived.

  • Lien Waivers: Types

    unconditional waivers, cont.

    unconditional waiver for final payment

    this waiver should only be used when final payment for the project has been made & received. after exchange of this waiver, no further payments in the future are expected to be made & received; actual receipt of all payments should have occurred, if there is any reason the payment might fail (i.e. check hasnt cleared, etc. this waiver shouldnt be used).

  • Lien Waivers: Differences Between Waivers and Cancellations

    there can be some confusion regarding terminology surrounding these documents, especially since waivers are unregulated in many states.

    lien waiver: waives the right to file a lien

    lien release/cancellation: releases or cancels a lien that has already been filed

  • Lien Waivers: Differences Between Waivers and No Lien Clause

    there can be some confusion regarding terminology surrounding these documents, especially since waivers are unregulated in many states.

    lien waiver: waives the right to file a lien (after payment is due for work already done)

    no lien clause: contractual agreement before any payment is due and/or before any furnishing, through which a party agrees to waive any future lien claims

  • No Lien Clause aside

    no lien clauses are looked upon with disfavor, are specifically not allowed in many states, and only specifically allowed in 2.

  • Lien Waivers: Regulated forms

    12 states have statutory requirements for lien waiver forms - in these states, if a lien waiver does not follow the appropriate statutory form, it can be rendered null and void - this means that top-tier parties using the wrong forms in these states may be required to pay double (even when they thought a waiver was obtained)

    no room for debate about content of forms

    california, nevada, utah, arizona, wyoming, texas, missouri, mississippi, florida, georgia, michigan, and massachusetts

  • Lien Waivers: Un-regulated forms

    the other 38 states do not have statutory requirements for lien waiver forms - and allow the forms to appear in basically whatever form the parties want.

    this creates confusion

    forms may look similar but there is no standard, they may actually be drastically dierent

    lien waivers can be used as a document to craft a legal position

  • Lien Waivers: Un-regulated forms

    legal provisions to consider, understand, and avoid

    lien waivers are not the place to supplement the contract or jockey for legal position - they should work as created to be like a receipt and further a fair payment process

    retainage, change orders, other work

    waive contractual rights

    personal attestation

  • Lien Waivers: Un-regulated forms

    retainage, change orders, other work

    waivers generally waive the ability to lien for work performed through a certain date, but this can be a problem if there are retainage amounts outstanding, or pending change orders, etc.

    can be avoided by including an exceptions section in which these are listed

  • Li