Lien waivers are contracts designed to protect contractors and property owners during construction projects. The documents protect contractors in the event they are not paid. As such, contractors use them in high-risk situations to protect their businesses. Accordingly, unconditional lien waivers are unavoidable. After all, some projects present more challenges or financial risks than others. In light of this, it's essential to understand what unconditional lien waivers are and how to use them.
What are unconditional lien waivers?
An unconditional lien waiver is a legal document that signifies that a contractor received payment for their work. It is a type of document that goes into effect immediately upon signing. As a result, it uses the past tense. Or in other words: when a subcontractor signs an unconditional lien waiver, they agree that they received payment. This agreement then waives their right to file a lien.
What types of unconditional lien waivers are there?
Unconditional lien waivers come in two types of waivers.
A partial unconditional lien waiver outlines specific services and the contractor's pay.
A final unconditional lien waiver signifies that all work has been completed and paid for on a project.
Once these are signed, the contractor who signed it no longer has the right to file a lien on the property.
When to use unconditional lien waivers
General contractors issue unconditional lien waivers for many reasons. Some of these include:
Projects with high financial risk
When using a new subcontractor
Subcontractors with quality issues in the past
Unconditional lien waivers go into effect immediately, so contractors should only sign them once they have received payment. Also, subcontractors will want to check that the amount they received is correct. Only when the money is in the bank should subcontractors sign away their lien rights.
The risks of unconditional lien waivers
For subcontractors
Unconditional lien waivers go into effect immediately. Or in other words- if a subcontractor signed a lien waiver before they got the payment, they couldn't file a lien. For example, a subcontractor might receive a check from their general contractor and sign the lien. However, when the bank processed the check, the check bounced. Even though they didn't get paid because they signed the lien waiver, the subcontractor would not be able to file a lien. Unfortunately, there may be pressure for subcontractors to sign lien waivers before they get paid.
For general contractors
A general contractor's point of risk happens after they pay the subcontractor. If they send payments through check, they must wait for the subcontractor to release the signed unconditional. Suppose the subcontractor refuses to sign this and files a lien. In that case, the general contractor must go to court to prove they paid the correct amounts. If a GC doesn't have perfect records, the courts may not rule in favor of the GC.
For any contractors
Both GCs and Subs should very carefully review any lien waiver. A legal professional can also give feedback on lien waivers. There can be huge impacts implicated with small wording choices. For example- a "conditional" lien waiver that uses past tense language is still an agreement that the general contractor paid the subcontractor.
Unconditional lien waivers supposedly protect both parties. Unfortunately, most companies use old methods of issuing, signing, and returning these forms. Accordingly, there is a constant push and pull to determine which action takes place first.
Using technology to mitigate the risks of unconditional lien waivers
Payment is only sometimes a simple transaction when a project requires multiple parties to perform different actions. GCs don't want to deal with a lien. Subcontractors need to ensure they get paid.
This process risks both parties when it's not secure or instantaneous. Companies shouldn't have to guess about payments or legality. Fortunately, with Trimble Pay, formerly Flashtract, we've recently released a feature that helps avoid these problems.
The unconditional lien waiver vault
As we mentioned earlier, collecting unconditional lien waivers is risky and frequently very slow. Unfortunately, companies exchange these documents through email. Additionally, collecting these documents in a timely manner can be difficult. An unconditional lien waiver is a terrible document to lose, so now Trimble Pay will allow for management of it directly in the app.
Rather than relying solely on emails and word of mouth to confirm payments, both parties must certify that they issued or received payment within our app. Release happens one of two ways.
The GC pays their subcontractor via our official ACH feature. The official unconditional would be released immediately upon the payment clearing.
Both parties put in their pin and acknowledge they sent or received the payment. The official document would only be released once the general contractor has marked the invoice as paid and the subcontractor has agreed that they received the correct amount.
So what's next?
Handling unconditional lien waivers has many risks involved for all parties. Rather than leaving time-sensitive payments up to mail or chasing down final unconditional after paying someone, you can handle everything quickly and securely through Trimble Pay.
