The mechanic’s lien is perhaps the most powerful tool that a contractor, subcontractor, or material supplier can employ to receive payment. However, signing a lien waiver and forfeiting lien rights is often the cost of doing business in the construction industry. In the event that full payment is not received on a project, a contractor’s options will be determined by which one of the two types of lien waivers they signed: conditional or unconditional.
In this two-part article, we will discuss the difference between a conditional and unconditional lien waiver. Before you sign anything, consult with a Houston construction attorney from Cotney Law to ensure that you aren’t signing away your right to payment.
What’s a Lien Waiver?
A lien waiver is often described as a receipt for project payment, but it’s much more than that. It’s a legal document that effectively forfeits the mechanic’s lien rights of those that sign it. In signing this document, you are signing over your lien rights. Ideally, you’ll receive payment in full at the same time that you sign a lien waiver. But that’s not always the case. In those instances, you’ll be faced with signing an unconditional lien waiver, a waiver that you are not required to sign under Texas law unless you’ve received at least partial payment.
What’s an Unconditional Lien Waiver?
While both lien waivers forfeit your lien rights, an unconditional lien waiver does so immediately, regardless of whether or not you’ve received full payment. If you have not received full payment, you will be unable to file a mechanic’s lien in the future if there is a payment discrepancy. Remember, nonpayment can occur for any number of reasons ranging from bankruptcy to intentional refusal. For this reason, you should only sign an unconditional lien waiver not only upon receiving a check but also once it clears the bank. Additionally, you should only ever sign an unconditional lien waiver after reviewing its contents to ensure that the payment amount and the date in which labor is performed are accurate.
We will continue to highlight the differences between conditional and unconditional lien waivers in part two. As we will cover, the type of waiver you sign can mean the difference between receiving full and partial payment. Consult with a Houston construction attorney from Cotney Law to ensure that you know what you’re signing and what you’re signing over.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.