What is a waiver of privilege?
A waiver of lien is a written agreement between a payer and a counterparty where that counterparty waives their right to place a lien on the property or property of the payer.
Key points to remember
- A waiver of lien is a written agreement between a payer and a counterparty where that counterparty waives their right to place a lien on the property or property of the payer.
- Exemptions from lien are often used in the construction industry throughout the project phases.
- A waiver of privilege is similar to a receipt and may prevent the filing of a mechanic’s lien.
Understanding privilege exemptions
A waiver of lien is quite common in the construction industry. It is essentially a document from a contractor, subcontractor, supplier or other party who holds a mechanic’s lien which declares that they have been paid in full and waives the future lien rights on the disputed property.
In the United States, many states recognize only conditional waivers on progress payments and unconditional waivers on final payments. Just as a mechanic’s lien can be of great help to those requesting payment for services rendered, a waiver of the lien can be beneficial to owners who have made full or partial payments.
Generally, there are four types of privilege waivers:
- An “unconditional waiver and release on progressive payment” releases all rights of the applicant until a specific date without stipulation.
- A “conditional waiver and release on progress payment” releases all rights of the claimant until a specific date, provided that the payments have been effectively received and processed.
- An “unconditional waiver and release upon final payment” extinguishes all rights of the claimant upon receipt of payment.
- A “conditional waiver and release at the time of final payment” extinguishes all rights of the claimant upon receipt of the final payment with certain provisions.
How to Apply a Privilege Waiver in the Construction and Development Process
Privilege exemptions can see frequent use in the construction industry through many phases of a project. A waiver of privilege could be exchanged as each service is completed and payment is received by each party. Certain parties will not release payment until a waiver of lien has been signed and given to them. It may not always be prudent to sign a waiver of privilege before receiving payment. It is possible that a check bounces or that the actual delivery of the payment is otherwise delayed.
The lien waiver document serves as a receipt and eliminates the possibility of filing a mechanic’s lien. The document is intended to ensure that all parties are properly planned in their business relationship. They give payers the confidence of knowing that they will not be faced with multiple payments for a single service. They can also speed up the payment process, allowing paid parties to receive their payments earlier. Often, paying parties do not want to write checks until a waiver of the privilege has been signed. The sooner a waiver of privilege enters the business relationship, payment can be made more quickly once the job is done. The party receiving the payment may write their own waiver of privilege in order to be completely sure of waiving only the privilege rights.
If subcontractors are involved in a project, the complexity of receiving privilege waivers may increase. The prime contractor could take action by granting a waiver of lien for the last payment and waivers of lien for subcontractors for previous work on the project for which they have already received payment. Exemptions from privilege must describe the specific documents, works and projects for which they are issued. If they do not, it is possible that the privilege waiver may claim that the payment was for any project they wish, rather than the one in question and that the new payment is still required.