Lien waivers are legal documents designed to protect both parties: the payee and the payer. However, addressing unfavorable language and negotiating the conditions of the waiver is essential to ensure your company receives equal protection in the process.
To start, what constitutes conditional and unconditional lien waivers? Conditional waivers become effective upon the receipt of payment. Both parties will then reap the benefit because the payer won't be faced with double payment and the payee can maintain its lien rights until the check has been received. Look for language that states clearance of funds or add "upon receipt and clearance of funds" with your initials.
Unconditional waivers go into effect immediately after they are signed, regardless of whether payment has been made. During a recent NACM STS webinar, attorney James D. Fullerton, of Fullerton & Knowles, P.C. (Clifton, VA), advised that material suppliers make all waivers conditional. Unconditional waivers should only be signed once payment has been received and cleared the bank.
Marlene Groh, CCE, ICCE, regional credit manager for Carrier Enterprise (Charlotte, NC), states that neither type of waiver is superior, but using the right one in the right situation and being cautious of the language is vital.
"If you have not received the payment, you use conditional and make sure it is worded [so] it is conditional on not only receiving payment but also that the payment clears the bank," Groh said. "Don't be scared to cross out wording that makes you uncomfortable or add information to clarify something on the lien waivers."
When a general contractor requires a lien waiver on a project, Groh verifies the information before signing it. "I review the amount billed on the job at the date referenced on the waiver and the total amount of the job," she said. "I review all the wording on the documents for accuracy. Sometimes, I think they make some of them long on purpose hoping people will not read them in full."
It helps to have at least one team member who can understand and amend waivers for specific language, retention, change orders and dates, Fullerton advises. The most common language credit professionals should look out for in waivers include:
Fullerton also suggests adding "except for change orders." However, he acknowledged "there might be pushback." General contractors may be reluctant to comply with this revision, so Fullerton mentioned using the language "except change orders actually submitted on this date" to keep both parties satisfied.
"Most of the time customers are not educated in what they are signing," Groh said. "If you explain the reason why you are not signing or explain which form you are willing to sign, the customer usually understands."
Occasionally, general contractors may police their subcontractor by making them acquire waivers from all suppliers involved to ensure everyone is getting paid, Fullerton explained. In addition, he said suppliers should make sure general contractors aren't forcing waivers on current payments so you can be certain your debts, dates, change orders and so on are protected.
Lien Navigator subscribers can view Fullerton's entire webinar, "Mechanic's Lien & Bond Waivers: Reading and Revising Waivers to Protect Security Rights," through the NACM STS Construction Credit Academy webpage.
-Bryan Mason, editorial associate