This is one of the most common questions I encounter and, unfortunately, there is a lot of confusion out there in the construction industry. There are two general types of waivers that the construction industry uses. First, we have the "partial lien waiver." Second, we have the "final lien waiver." Sometimes the document will identify itself as partial or final but, in others, it is not entirely clear. More problematic is when the waiver identifies itself as partial, but is really final, or final, but is really partial. In order to understand what you are signing, you have to actually read the lien waiver regardless of the title.
Partial Lien Waivers
A partial lien waiver should be required for all interim payments made on a construction project. Contractors, subcontractors, vendors and suppliers should have no problem signing a partial lien waiver on a construction project in exchange for an interim partial payment. Owners should insist that progress payments only be made after a partial lien waiver through the date of payment has been provided. A partial lien waiver should only waive the right to lien, and acknowledge payment, for work performed through a certain date. For example, if a contractor submits a payment application for work performed through March 30th, it should be required to provide partial lien waivers for all work performed through March 30th before payment is made (or simultaneously with payment).
Final Lien Waivers
A final lien waiver should be required at the end of a project before final payment is made and before retainage is released. Contractors, subcontractors, vendors and suppliers should have no problem signing a final lien waiver on a construction project in exchange for final payment. Owners should insist that final payments only be made after a final, unconditional, lien waiver has been provided. A final lien waiver should cover the entire project and, unlike a partial lien waiver, should not be temporally limited. A final lien waiver acknowledges that all work has been performed and paid for and nothing remains due and owing now or in the future. A final lien waiver is presumptive proof of payment in full so it should only be signed upon final payment and it is a good idea to consult your attorney prior to signing a final lien waiver (if not prior to signing any lien waiver).
Conditional Lien Waivers
Both final and partial lien waivers can be made "conditional." This means that the waiver does not take effect until the payment identified in the waiver is actually received by the payee (and clears their account). For example a partial conditional lien waiver may state that upon receipt of payment of $50,000.00 all work performed through March 20th has been paid and the contractor waives the right to lien. Likewise, a final conditional lien waiver may state that upon receipt of payment of $50,000.00 all work on the project has been paid and the contractor finally and forever waives the right to lien.
Vincent T. Pallaci is a partner with the New York law firm of Kushnick | Pallaci, PLLC where his practice concentrates on construction law. Mr. Pallaci's practice includes filing and preparing mechanic's liens, mechanic's lien waivers, mechanic's lien satisfactions and more.