Construction professionals are skilled at juggling subcontractors and suppliers, but what happens if one of these teams does not receive payment? The answer is that they may file a mechanic’s lien, inhibiting the owner from selling without distributing the proceeds accordingly. The process can turn into a convoluted mess. 

A lien waiver acts as payment protection and provides peace of mind for all parties involved in a transaction. Here is why your business needs to implement lien waivers as a standard practice and how you can leverage them to streamline your processes. 

What is a Lien Waiver?

A lien waiver is a legal document that acknowledges receipt of payment and waives the right to file a mechanic’s lien on the property. Mechanic’s liens are typically filed when construction professionals or suppliers are not paid for their work or materials. These liens prevent property owners from selling or refinancing until the lien is resolved.

In contrast, a lien waiver serves as a receipt of payment, protecting property owners from future lien claims and ensuring that contractors and suppliers are paid for their work.

Why Use Lien Waivers in California?

Properly executed lien waivers offer numerous benefits, such as protection for all parties. Property owners are protected from mechanic’s liens, while contractors and suppliers have assurance of payment.

Additionally, lien wavers can offer a streamlined payment process by simplifying financial transactions and providing transparency, reducing disputes and delays.

In turn, this leads to increased trust with clients, contractors, and lenders, who are reassured that all parties involved are working in good faith.

Types of Lien Waivers in California

California law mandates the use of specific, unaltered lien waiver forms as outlined in the California Civil Code. These statutory forms ensure consistency and protect all parties from disputes. 

There are four types of lien waivers used in California:

  1. Conditional Waiver and Release Upon Progress Payment
    • Used when a payment is promised but not yet received.
    • This waiver becomes effective only when the payment is processed.
  2. Unconditional Waiver and Release Upon Progress Payment
    • Used when a contractor or supplier confirms they have received a progress payment.
    • This waiver is effective immediately upon signing.
  3. Conditional Waiver and Release Upon Final Payment
    • Used when the claimant is awaiting final payment.
    • It becomes binding only when the final payment is received.
  4. Unconditional Waiver and Release Upon Final Payment
    • Used when the final payment has been received and acknowledged.
    • This waiver takes effect immediately upon signing.

The strict use of these statutory forms is non-negotiable in California. Any modifications to these forms can render them invalid, jeopardizing the protections they offer.

Unique Aspects of Lien Waivers in California

Each state has its own rules and requirements when it comes to mechanic’s liens and lien waivers, so it’s important to research the specific rules for your state. In California, the lien waiver process has these specific requirements:

  • Statutory Forms Only: The state requires the use of the lien waiver forms outlined in the Civil Code. Altering or adding language to these forms is not allowed and could void the waiver.
  • No Advance Waiver of Lien Rights: Contractors and suppliers cannot waive their lien rights through contract clauses before work begins. Lien rights can only be waived through the execution of one of the statutory forms after payment is made.
  • No Notarization Required: Unlike some states, California does not require lien waivers to be notarized. In fact, notarization could invalidate the waiver.
  • Preliminary 20-Day Notice Requirement: Most contractors, subcontractors, and suppliers must serve a Preliminary 20-Day Notice to preserve their lien rights. This notice ensures the right to file a mechanic’s lien if payment issues arise later.

Best Practices for Using Lien Waivers in California

To maximize the benefits of lien waivers in your construction business, follow these best practices:

  1. Use the Statutory Forms: Always use the lien waiver forms required by California law. Keep copies readily available to avoid unnecessary delays.
  2. Establish Clear Processes: Designate a team member to manage lien waivers, ensuring they are requested, reviewed, and authorized promptly. Having a dedicated process reduces errors and streamlines operations.
  3. Automate with Technology: Use software tailored to the construction industry to automate the preparation and distribution of lien waivers. Automation ensures compliance with California’s requirements and makes document management more efficient.

Streamline Your Business with Titan

At Titan, we help construction professionals secure their lien rights and get paid faster. From serving Preliminary Notices to filing Lien Claims, we provide tools and expertise to simplify your operations and protect your payments.

Ready to take control of your lien waivers? Explore our services or sign up today to get started!