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What is a lien waiver and how can it protect real estate developers?

On Behalf of | Jul 27, 2022 | Real Estate/Construction Law

Real estate developers are often interested in looking at anything possible that can protect their financial position. One such option is considering adding a lien waiver during a project.

In some ways, you can think of a lien waiver as a receipt. It is tied to the payments that have been made, and it asks the other party to waive their right to file a mechanic’s lien. This can be done at multiple points in the project, but a waiver signed at one point can impact other phases of the same project.

How it works

These are very common documents in the construction industry. They’re often used with subcontractors, suppliers or contractors. Any party that may be able to file a mechanic’s lien can sign one of these lien waivers indicating that payment has already been fully made. This eliminates their ability to file for a lien at the time, and they can also give up the right to do so in the future.

The biggest benefit is often those who have made either full or partial payments. As noted, the waiver prevents those who have been paid from filing for a mechanic’s lien after the fact. This can take some of the uncertainty out of the situation.

For a developer, having this waiver on file means that there is no risk of a lien being leveled against the property for any reason. The property is then protected from any sort of dispute and the developer doesn’t have to worry about claims being made against it from a third party who was involved in the project. Many of these major development projects involve dozens of different companies, contractors, suppliers and workers. Developers want to make sure that everything goes smoothly, and a waiver can help make that possible.

Do you need to use a lien waiver?

There are numerous types of lien waivers. These include conditional and unconditional waivers. They can also be linked to final payment or a progress payment. It’s very important to know exactly which type of waiver will work best in your situation and what legal steps you need to take to put it in place.