How do lien waivers reduce liability?

On Behalf of | Apr 18, 2022 | Real Estate Law |

In the Florida construction industry, the exchange of funds between all parties along the chain of production can be complicated, as each transfer usually comes with signed documents, called lien waivers, that ensure mutual protection between parties. Lien waivers fall under several categories and are appropriate at different stages in the project.

Because everyone wants to get paid on time and would rather not have the complication of a mechanics lien or a bond claim to deal with, lien waivers are commonly exchanged by both parties in the transaction. Having these and other important documents in place at the outset of any construction project will reduce risk and minimize potential legal conflicts.

What is a lien waiver for?

Since there is an exchange of lien waivers in just about every payment in construction, it is important to know what kind of waiver is appropriate and when to use it. For the recipient of a payment, in signing a lien waiver they give up their right to file a mechanics lien later. But signing the waiver also ensures faster payment.

For the payor, a lien waiver not only protects them from future legal action from the other side, it also documents the payment and provides a record, as it is the General Contractor who will probably collect all paperwork. Parties also exchange lien waivers for mutual protection against future claims. As waivers are mutually beneficial to both parties, they also build stronger relationships.

What are the kinds of lien waivers?

There are basically two types of lien waiver:

  • Conditional waivers are contingent on something, such as a receipt of payment.
  • Unconditional waivers go into effect immediately.

There are also two subcategories of lien waivers. Waivers on final payment are appropriate for final payments or if one party will pay the entire contract value at one time. Waivers on progress payments are typically used for multiple payments. Since unconditional waivers go into effect immediately, a bounced check or missed shipment could leave the contractor emptyhanded with no lien rights. For this reason, conditional waivers are more common.

Florida requires a statutory form for a lien waiver unless the parties have made a separate agreement. All parties must consent to the revised form. It is important to note that statutory lien waivers are unconditional, but under state law, parties may add terms and conditions to the form.