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What does it mean if we sign an unconditional lien waiver?

I have questions about an “unconditional waiver of lien” form. My parents own a construction LLC business in Oregon. We work in subdivisions for new homes. Recently we received a letter from a contractor and we aren’t sure what it means. Based on what I was able to find, if I’m understanding this correctly, an unconditional waiver of lien means once we sign it, if the contractor fails to pay us for the work we do due to liquidation, bankruptcy or other things, we cannot get paid? I dabbled a little into what a mechanics lien is, if we sign this waiver, we wouldn’t be able to file a mechanics lien?

1 reply

Apr 17, 2020

Though lien waiver documents can be intimidating sometimes, they are pretty simple once you break them down. The most challenging aspect is getting everyone on the same page about the waiver requirements. Because contractors frequently have different understandings about the lien waiver process, it's common for one party to make waiver demands on the other that is incorrect or unreasonable, and this can erupt into disputes or can significantly slow down payment. So, hopefully this answer can help you and your parents company avoid that.

#1) Lien Waivers Are Designed To Act As a Receipt of Payment

Lien waivers are designed to act as a receipt to prove that someone on the job has gotten paid. So, if you're a property owner and building a house, you want to make sure your general contractor paid the roofer, and that the roofer paid the roofing supplier. This is important to you because -- as owner -- if the roofer doesn't pay the supplier, then the supplier can file a lien and make you pay for the roofing supplies. Yes, even if you already paid for them to the general contractor. The lien waiver is designed to help the owner in that instance. Before the owner pays the general contractor, the owner wants to see a "lien waiver" from the roofing supplier. This is an acknowledgment from the supplier that they have been paid, and therefore, waive their lien rights.

#2) Unconditional v. Conditional Waivers Boils Down To Whether Payment Actually Received

So, the key phrase there is "they have been paid." Because, of course, it's possible that the roofing supplier has not yet been paid. The roofing contractor may be waiting for the general contractor to pay them before they pay the supplier. This is very common. In construction, there's an annoying catch-22 going on. Everyone is waiting for money to "come down the chain" before they get paid. But, in order to get that money moving, they need to "acknowledgment payment" through a lien waiver. But, of course, they haven't been paid! Argh! This is what is going on with "conditional" lien waivers and "unconditional" lien waivers. If you have been paid and the money is in the bank, then you can and should sign an unconditional lien waiver. This waiver means that you are waiving all lien rights because you have been paid. If you have not been paid, then you should only sign a "conditional" lien waiver, which says that you will waive lien rights if and when you are paid. Here is a full post on the difference between unconditional & conditional lien waivers, and here is a video about the different types of lien waivers:

#3) What if the contractor demands I sign an unconditional waiver even if I haven't been paid?

Now that you (hopefully) understand the issues at play here a little better the question becomes...should you sign that lien waiver?!. In other words, if you haven't been actually paid, should you agree to sign an unconditional lien waiver anyway? And what happens if you do? Here are 2 good resources on this:

But let's talk about the law in Oregon specifically, too. You can find 0ur Resource Center for Oregon Construction Lien Waivers here. In many states, contractors are prohibited from signing unconditional lien waivers. In fact, some states go so far as to make it a crime for anyone to ask a contractor to sign these types of documents before payment is received. Yikes! That is not the case in Oregon. Lien waivers are pretty unregulated in Oregon, which means that if you sign an unconditional lien waiver...you are very likely signing away your right to ever file a lien on the job. If you're comfortable doing that, then you can...but I would always, always, always advise people against this. For two reasons. First, it's not good practice or good form for someone to ask you to do this. As mentioned, it's a literal crime in some states. Second, you never know when you're going to need your lien rights. Especially in the current economic environment. Giving them away for no actual reason is not prudent. You can sign a conditional lien waiver, you can agree to a joint check agreement, etc., etc. There are options. Use those.

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