If you’re investing in commercial real estate, there’s a good chance that you’ll be building on or making significant improvements to the property. There’s also a good chance that you won’t be making these improvements on your own, and you’ll be hiring contractors or construction companies to assist with the process. To protect your financial interests when building or improving a property, you’ll want to get familiar with what’s known as a lien waiver.
These lien waivers protect you from being taken to court for payments to those entities who are working to improve your property. In today’s blog, we look at some of the most common types of lien waivers in the commercial real estate world, and we explain how they can be helpful when improving a property.
Understanding Lien Waivers
A lien is a legal claim against a property as a result of an unpaid debt, so a lien waiver is essentially an agreement that states one party waives their right to take another to court for unpaid debt. Collecting lien waivers as you improve a commercial property is imperative for a commercial investor, because things can go wrong in a hurry without them.
To prevent liens against your property, you can work to secure a lien waiver. There are a few different types of lien waivers that are commonly seen in commercial real estate:
- Unconditional Partial Waiver - This lien waiver acts as confirmation of payment received and gives up all rights to place a lien against the property for a specific amount up until the date listed on the waiver. This may be issued prior to the completion of all the work, but after some projects have been completed. For example, this type of waiver may be issued after a driveway was poured and payments have been made, but before the contractors tackled a project with the roof. This essentially says that everything has gone as planned so far, and the contractor is waiving the right to bring a lien for completed work. This will be signed after payment has been made.
- Conditional Partial Waiver - This is the same as the above lien, but it is signed in advance of the money being received. This essentially states that the contractor agrees not to bring a lien for specific work performed, so long as they receive payment for services by a specific date. The contractor can sign this without payment, knowing that they have recourse in the event the planned payments end up not being made.
- Unconditional Final Waiver - This type of lien waiver is signed after the work has been completed and all the payments have been made. The contractor has been fully paid, and the work has been fully completed, and the contractor relinquishes the right to bring a lien for any aspect of the job.
- Conditional Final Waiver - Again, this is similar to the above waiver, but it can be signed in advance of final payment. This states that the contractor will not bring a lien against the property assuming the final payments are made by a specific date. The contractor can sign this final release without payment, knowing that they have recourse in the event the planned payments end up not being made.
As a commercial investor, it is very important that you secure these lien waivers or you work with a title company that can secure them or ensure payments are made when work is completed. Even if you make payments as required, if shady contractors are slow paying their subcontractors or suppliers, it’s you who will feel the effects of any associated project delays. These delays can end up costing you tens of thousands of dollars or more depending on your situation, so make sure payments are made and lien waivers are secured.
The team at Commercial Partners would be more than happy to assist with payments and securing lien waivers to ensure your commercial venture stays as envisioned. For more information on how we can help with all aspects of commercial investing, reach out to our team today at (612) 337-2470.