What is a Conditional Lien Waiver? How it Works and When to Use One
When it comes to construction, everyone needs to be protected. Having a lien waiver is one way to protect yourself and your clients.
Lien waivers can either be unconditional or conditional. The difference between the two is HUGE.
However, there are ways to automate these types of forms — taking a lot of stress off your shoulders.
This comprehensive guide will walk you through all you need to know about protecting yourself with a conditional lien waiver while using best practices and automation.
Automate The Process of Sending and Unlocking A Conditional Lien Waiver With Flexbase
Flexbase makes your life a breeze by automating paperwork and compliance.
With Flexbase, you can generate...
- Payment apps with AIA forms
- Schedule of values
- Notarizations
- Prevailing wage
- Insurance documents, and
- Lien waivers
…and more in just two minutes.
For lien waivers, we streamline the process of sending conditional lien waivers and then unlock unconditional lien waivers only when it’s the right time for you, making the process worry-free.
What Are Lien Waivers?
A lien waiver is quite standard in the construction business.
It’s a document from a contractor, subcontractor, supplier, or other party who holds a lien stating they have been paid in full and waive future lien rights to the disputed property.
Simply put, it’s a signed document in exchange for payment that waives the signer’s right to file a lien for the amount specified in the waiver.
For example, a general contractor (GC) for Tim Guy Construction pays his roofing subcontractor $12k and sends a waiver for the subcontractor to sign. The subcontractor then waives $12k worth of lien rights when he signs the waiver. It’s fairly straight-forward.
It’s all about protection. In our example, the GC is protected from the threat of a mechanics lien, and the waiver protects the roofing subcontractor from non-payment. When all goes as intended, the payment process is:
- smooth,
- fair, and
- transparent.
What is the Difference Between A Conditional vs. Unconditional Lien Waiver?
With so many documents to manage, many people find themselves wondering what exactly is the difference between a conditional vs unconditional lien waiver. They wonder when to use which one for what circumstance.
Let’s tackle each one separately.
Conditional Lien Waiver
Conditional lien waivers are as they imply – conditional.
They are conditioned upon something (such as the receipt of payment). These liens protect both the payer and the payee because the waivers only go into effect when the transaction has occurred.
What you need to understand about a conditional lien waiver:
- The party receiving payment maintains its right to file a lien until the money is received and cashed.
- The amount of money the lien waiver says you received matters more than the amount of money you actually received. So pay close attention before signing.
Unconditional Lien Waiver
Warning: Unconditional lien waivers go into effect as soon as they’re signed — regardless of whether payment has been received and cashed.
If the check bounces, the contractor now has no lien rights AND no payment. Only sign an unconditional waiver after payment is received and in the bank.
It’s important to remember to:
- Read the waiver carefully.
- Double-check the amount stated and received.
- Make sure the dates on the waiver match the dates for payment received.
- If the waiver’s date is later than the patent received date, the payee no longer has the right to file a lien for the time frame between the patent and the date on the unconditional lien waiver.
This is when it’s vital to your business to have this process automated.
Flexbase manages and automates all of your paperwork. You don’t have to worry about managing these lien waivers. When the money is given (AND verified), the unconditional lien is automatically signed for you and you're always fully protected.
Conditional Lien Waiver Upon Progress Payment
It’s always best practice to begin with a conditional lien waiver – even if payment is placed in your hand at the time of signing the waiver. If your client wants you to sign a lien waiver before they hand over money, it must be a conditional lien waiver to protect your business.
You are never certain that you’re fully paid until the money clears the bank.
To recap, you must sign a conditional lien waiver when:
- You have not yet received payment for the services rendered.
- Until it clears the bank, the payment is considered not received.
OR
- You are expecting to receive progress or partial payment from the client.
Either of these instances requires the protection of a conditional lien waiver.
Conditional Lien Waiver Release
A conditional lien waiver release (upon payment) discharges all claimant rights through a specific date. This is provided the payments have actually been received and processed.
What Does A Conditional Lien Waiver Form Include?
A conditional lien waiver will generally include:
- The names of the claimant and customer
- The duties to be performed
- Detail of the value of all labor services and supplies provided to the project
- What compensation has not yet been received
This will vary depending on each state, so a generic “template” that is truly compliant with state laws will be hard to come by. But you don’t have to worry about what your state requires with Flexbase. No matter which state you’re in, we’ve got you covered. Check out the app and get a FREE demo.
3 Examples of How to Fill Out a Conditional Lien Waiver By State
Since a conditional lien waiver can vary by state (and even by county within a state), ensuring that you’re legally covered in your state can be a bit overwhelming, confusing, and often time-consuming.
There are times when the conditional lien waiver is even dependent on the client rather than a state. In this case, Flexbase allows you to upload your own lien waiver, and then we’ll take care of the automation for you from there.
Let’s take a look at three states and how a conditional lien waiver looks in each one.
#1: Conditional Lien Waiver: Arizona
Arizona conditional lien waivers are regulated by statute. The rules, forms, and procedures are specific. Suppose you’re involved in an Arizona construction job. In that case, it’s essential that you understand the lien waiver requirements and adhere to them during the payment and lien waiver exchange process.
Arizona is one of twelve states that provide statutory conditional lien waiver forms, so choosing the right form is pretty straightforward.
The type of form depends on two things:
- If you’ve actually received payment, and
- The type of payment
#2: Conditional Waiver of Lien: Florida
In Florida, conditional waivers are commonly called “Lien Waiver” and “Releases”. They are also regulated by state statute and have specific rules and form requirements.
Their approach to lien waivers can include some tricky things about whether certain things are or are not required. This can get confusing.
Two things are unique to Florida’s conditional lien waiver laws:
- Statutory waiver forms are “required” unless the parties agree otherwise.
- Statutory lien waivers are all unconditional unless conditional language is added.
#3: Conditional Waiver of Lien: Illinois
Unlike Arizona and Florida, Illinois conditional lien waivers are mostly unregulated in regards to the language and form used in order to be effective.
Every state is different... Lien waivers for California will likely be different than for Texas.
Illinois does not provide lien waiver form templates. You have the freedom to choose the exact format and language of lien waivers. This can be both freeing and confusing.
There are some limitations on how and when you can waive lien rights in Illinois.
With all the confusion that a state’s requirements can bring, it makes sense to have automated processes. That’s why Flexbase has access to all fifty states’ requirements and is ready to make the document process easy for you.
Conditional Lien Waiver FAQs
Let’s look at a few of the top conditional lien waiver questions and answers.
What is a Contractor's Conditional Waiver of Lien?
A contractor's conditional waiver of liens provides the client with a signed conditional lien waiver, given before they’ve been paid in full. The form says that they will waive their right to lien once they receive payment. This protects both parties, and the contractor can’t file a lien after payment has been received and processed.
How Do You Fill Out a Conditional Lien Waiver?
Filling out a conditional lien waiver is typically easy and straightforward. You just input the requested information on the form line by line. The hard part is making sure that you have the correct form and wording. You also want to double-check the date and all information before signing it.
If you use a trusted automated program like Flexbase, you can rest easy knowing that you’re legally covered and taken care of.
What Is An AIA Conditional Lien Waiver?
An AIA conditional lien waiver is used in the event that the owner requires a sworn statement of the contractor stating that all releases or waivers of liens have been received.
How To Use A Conditional Lien Waiver With Flexbase
Flexbase allows you to say farewell to:
- Gathering paperwork
- Triple checking, and
- Headaches
The best part?
Instead of wondering which lien waiver to use — conditional lien waiver vs. unconditional — you can focus on the people and the projects and less on the paperwork.
We know that you will find Flexbase to be the easiest software you have used for your company. It’s the way construction finance and document management should be designed.
Check out how the app works and get started today with a free demo.
