General Contractors Lien Waivers
Lien waivers present interesting problems for parties at the top of the contracting chain.
A top tier party’s primary lien waiver objective is usually to obtain waivers from the parties below, such as subcontractors and suppliers, and to make sure those lien waivers are valid and correspond correctly with the payments that were given.
In order to accomplish this and remain protected, general contractors and owners should follow several best practices. So how should you utilize lien waivers?
Lien Notices are Your Friend. Use Them.
Before we can get into the functions of a lien waiver, we need to understand lien notices. Lien notices are actually strongly related to a lien waiver, and can even provide top-tier parties with enormous benefits.
One of the most pressing issues for parties at the top of the contracting chain, with respect to lien waivers, is not knowing every party on the project from which lien waivers should be obtained to fully protect against lien-based financial risk.
Construction projects can be large, complex, convoluted endeavors, and some participants on the project can be unknown or “hidden” from the parties at the top of the contracting chain. Preliminary notices were designed to correct this deficiency. A top-tier party will use preliminary notices for this purpose. These notices provide a perfect template for creating a bird’s eye view of the project and filling in the gaps regarding the parties affiliated with the job.
By using received notices, owners and general contractors can create a project tree of all involved participants. This helps top-tier parties form a custom-made checklist of everyone from whom lien waivers should be obtained.
Some states even provide specific information request notices to be sent by top-tier parties to their subcontractors in order to be provided with the identity of other project participants. If the project is located in a state in which these notices can be used, it’s a best practice to make use of this ability to gain information about the parties on the project. The more parties a general contractor knows are on the project, the easier it will be to obtain lien waivers.
Use Sufficient Waiver Forms
While many states have almost no regulation or oversight when it comes to waivers, there are 12 states in which a statutorily mandated form must be used. In those 12 states, failure to use the form required by law can result in the invalidity of the lien waiver. This can put top-tier parties in significant jeopardy of double payment if payment disputes arise. Since the specific point of a lien waiver is to protect against valid liens being filed on the project for work that was already paid for, it’s extremely important to make sure that the forms being used actually accomplish that task.
So, if the project is in:
It is a best practice to make sure the proper statutory form is used.
Further, just because the content of lien waiver forms is not regulated by statute in most other states, it is still generally a good practice to be fair in the content and requesting of lien waivers. A lien waiver should never be used as leverage over other parties, but rather as what it was intended for, which is used to specific lien rights to a particular payment amount.
Along these same lines, it’s best practice to request appropriate waivers. Are you going to make a payment? Request a conditional waiver. Has payment already been made? Request an unconditional waiver. This bit of thoughtfulness will go a long way to building trust and a respectful relationship with your subcontractors, which can result in smoother projects and more business down the road.
Tie Waivers to Particular Payments
A successfully orchestrated lien waiver policy will ensure that all parties have protection from financial risk and will be compensated for their work. This is why a well-formed project tree of all participants is beneficial. This helps ensure that each payment made is associated with a lien waiver all the way down the chain.
If waivers are specifically tied to the proper payments and are distributed and obtained from all parties down the chain, an owner or general contractor can essentially eliminate the risk of valid liens being filed against the project. This way, everyone is getting paid for the work they’ve done, and top-tier parties don’t have to worry about unnecessary claims, which is what everyone should strive for.