What you don’t know about lien waivers can hurt you
Construction professionals understand mechanic’s liens well enough to know they are used to pursue a legal remedy when a party involved in a project has not been paid. Less understood are construction lien waivers – what they can accomplish and when they can be used.
As the term suggests, a lien waiver is a document that forfeits the lien rights of the signing party. A construction lien waiver is typically exchanged at the point one party pays another, say a contractor pays a subcontractor. The lien waiver serves as a receipt of payment, thus it limits lien liability for the contractor.
Texas requirements for lien waivers
Texas is one of 12 states that provides statutory lien waiver forms. Parties must use the state-mandated lien waiver document. It is also one of only three states in the U.S. that requires lien waivers to be notarized. Failure to use the proper form or to get it notarized will render the lien waiver invalid.
The use of a lien waiver template is designed to eliminate the variation of language used in a lien, which creates risk of abuse. Parties can forfeit more rights than they intended in non-statutory lien waiver forms.
Four types of Texas lien waivers
Texas uses four types of lien waivers. They are:
Conditional progress lien waiver – Used when payment for progress on a project is expected. Future payments are often expected. Because it is a conditional waiver, this lien waiver can be signed even if payment has not been received. It is conditional upon payment and will be invalid if payment is not received.
Unconditional progress lien waiver – Used when payment has been received for partial progress on a project. Because it is unconditional, it should not be used if payment has not been received.
Conditional final lien waiver – Used when the final payment for a project is expected but has not been received. This waiver signifies that no additional payments are expected once this payment is received. Because it is conditional upon receipt of payment and will be invalid if payment is not received, it is safe to use if payment has not been received.
Unconditional final lien waiver – Used when all of the work has been completed and all payments have been waived.
Lien waivers are complex legal documents. Because they often involve payment of tens of thousands or hundreds of thousands of dollars, it is critical to fully understand what is stated in a lien waiver before signing it. An experienced construction law attorney can provide important counsel that will keep your company from committing an expensive mistake.