Building a Better Owner – Learn to Love Lien Waivers

Remarkably, Lien Waivers continue to be among the most overlooked construction project documents. For a CRE Developer or Property Owner, the purpose of the Lien Waiver is clear: to ensure Contractors are paid so as to reduce the risk of liens on the property. The Lien Waiver is an affirmation from the Contractor to the Owner/GC that it has received a payment, and they will not record a lien against the property for their work.

After all, getting the construction project done timely and free from liens is the goal.

In many states, as discussed in a recent article from the Credit Management Association, construction lien waivers can be like a scene out of the wild west. A standoff between Owner and Contractor over the waiver, free from any real rules and oftentimes unrestrained in scope. For example, in some instances signing a release not only waives the Contractor’s right to file a mechanic’s lien, but also their ability to file claims for other related issues such as breach of a contract, and delays caused by project mismanagement.

Texas has become a bit more refined. In 2011, the Texas Legislature addressed the topic of Lien Waivers in Chapter 53 of the Texas Property Code. For the first time, parties to a construction contract signed after January 1, 2012 are to use statutorily prescribed Lien Waiver forms. In fact, the Texas Legislature mandated forms for both progress payments and final payment on a construction project.

The 4 different Lien Waiver forms include:

1. Conditional Waiver and Release on Progress Payment – to be used when a contractor/subcontractor is required to execute a waiver and release before receiving a progress payment, or the progress payment is made by check.
2. Unconditional Waiver and Release of Progress Payment – to be used when a contractor/subcontractor is required to execute a waiver and release to prove the receipt of a progress payment.
3. Conditional Waiver and Release on Final Payment – to be used when a contractor/subcontractor is required to execute a waiver and release before receiving a final payment, or the final payment is made by check.
4. Unconditional Waiver and Release on Final Payment – to be used when a contractor/subcontractor is required to execute a waiver and release to prove the receipt of a final payment.

Texas Property Code. Chapter 53, Section 53.284

CRE Developers or Owners should learn to love these 4 Lien Waiver forms. When a Contractor signs a valid Lien Waiver and submits it to the Owner, the Contractor waives any lien rights it may have had for work it performed on the project to date.

Of course, there remain some notable exceptions to these waivers, such as written agreements relating to accord and satisfaction disputes, settlement of a pending court or arbitration proceeding, or agreements made after a lien affidavit claim has been filed. The Property Code sets forth the full breath of exceptions.

As a business and construction attorney, I often see those in CRE with bad Lien Waiver practices finding themselves at the center of construction project disputes.  As a Developer or Owner, if done correctly, the days of worrying about liens surfacing weeks or even months after the last payment should be over.  Taking simple steps with Lien Waivers can build a better and more successful Owner.