Texas Lien Waivers: Best Practices and the Gotchas to Look For - Texas Webinar

In this webinar, presented by SunRay Construction Solutions and Rebecca A Hicks, Managing Partner, Hicks Law Group, we will primarily focus on statutory form lien waivers—specifically, which one to use and when. We will also discuss what to do if you receive a lien waiver that does not follow the statutory form and how to handle that situation effectively.

What is a Lien Waiver?

First, let’s clarify what a lien waiver is. A lien waiver is simply a representation that either you have been paid—meaning the money is in your company’s bank account—or you will be paid from the next draw. Owners and general contractors seek lien waivers to ensure that contractors and suppliers have been paid or will be paid so that they do not later assert a mechanics lien. This assurance is the main reason lien waivers are so important in the construction process.

Understanding Chapter 53 of the Texas Property Code

In Texas, lien laws are found in Chapter 53 of the Texas Property Code. This chapter governs all lien-related matters for private projects, meaning those owned by companies or individuals. It does not apply to government jobs, which are subject to different rules. Since most projects are private, Chapter 53 is the primary source of guidance for lien waivers. Recognizing the disputes surrounding lien waivers, the Texas legislature published statutory form lien waivers to standardize the process. These forms are explicitly outlined in the statute, making it uncommon but beneficial to use them as they provide enforceability.

What Are the Different Types of Lien Waivers?

The statute also specifies that if a party does not use these forms, their lien waiver may not be enforceable. Therefore, for private projects, everyone should be using the statutory lien waivers. The Texas Property Code provides four types of lien waivers:

1. Conditional waiver and release on progress payment

2. Unconditional waiver and release on progress payment

3. Conditional waiver and release on final payment

4. Unconditional waiver and release on final payment

We will go through each of these forms, discussing when and how to use them. The Texas Property Code Chapter 53 forms are designed for use on private projects such as commercial buildings, strip malls, high-rise developments, and apartment complexes. However, they technically do not apply to government projects such as school buildings, TxDOT jobs, or fire stations. That said, while these forms are not required for government work, they can still be used effectively.

When Do You Use Lien Waivers?

These statutory forms are intended for use before a mechanics lien is filed. According to Chapter 53, once a mechanics lien has been filed, these forms no longer apply. However, using the forms afterward is not prohibited, and many companies continue to do so as a best practice. When in doubt, using the statutory form is the safest course of action.

It is crucial to use the appropriate form at the right time. The four forms serve different purposes and using the wrong one can lead to unintended consequences. Two of the forms are for progress payments, while the other two apply for final payments. The key distinction between them is whether they are conditional or unconditional.

Conditional lien waivers should be used only when the money has not yet been received in the company's bank account. On the other hand, unconditional lien waivers should be used only when the funds have already been deposited and cleared in the bank account. A check does not constitute payment. If you sign an unconditional lien waiver in exchange for a check and the check bounces, you may lose your lien rights.

If you take away just one thing from today’s discussion, let it be this: Never provide an unconditional lien waiver in exchange for a check. If that check bounces, you will have waived your lien rights without having received actual payment. Payment should be considered received only when the funds are in your bank account and are no longer at risk of being returned for insufficient funds. Some banks have a waiting period of up to two weeks for checks to clear, so always confirm that the waiting period has passed before issuing an unconditional waiver.

Now, let’s go over the four statutory lien waiver forms in more detail.

1. Conditional Waiver and Release on Progress Payment

This form is used when your company is still working on the project and has not yet received full payment for all invoices. If payment is being made via check or ACH transfer, and the funds have not yet cleared, this form is appropriate. Because this form is conditional, it only becomes effective once the check clears or the ACH funds are deposited into the account.

When filling out this form, it is crucial to specify exactly which invoices or pay applications are covered. The best practice is to list invoice numbers rather than using vague language like "for labor and materials provided up to [date]," which may unintentionally waive rights to future payments. The statute also anticipates that a statement of account, invoices, or pay applications will be attached to the waiver to clarify exactly what is being waived.

2. Unconditional Waiver and Release on Progress Payment

This form should be used when work on the project is ongoing and payment has already been received and cleared. Unlike the conditional waiver, this form is immediately effective upon signing. Because of this, it is critical not to use this form unless the money is already in your company's bank account.

The statutory notice at the top of this form serves as a warning: if you sign this form before receiving actual payment, you may be permanently waiving your lien rights without having received the money. If a general contractor or owner insists on receiving this form after a check has cleared, it is fine to provide it. However, if a conditional waiver has already been submitted, an additional unconditional waiver is technically unnecessary, as the conditional waiver automatically becomes effective once the check clears.

3. Conditional Waiver and Release on Final Payment

So, what's the third type of lien release or lien waiver that you might need to use in a particular circumstance? It is called the Conditional Waiver and Release on Final Payment.

This form is used when you will not be supplying any further labor or materials to the project, meaning your work is complete, and you are signing this waiver as part of receiving your final payment. You should use this conditional waiver when accepting payment either in exchange for a check or when the money has not yet been received by your company.

Some general contractors (GCs) or owners require that a conditional waiver be submitted with your pay application, which is acceptable. A conditional waiver is safe to use because it is specifically contingent upon you actually receiving payment. It is not effective until the payment is received. If your final payment has not been received, you should be using this conditional waiver form.

This waiver follows the exact statutory language outlined by Texas law. If you need copies of these forms, you can find them by searching for "Texas statutory form lien waivers" online. Alternatively, feel free to reach out via email, and we would be happy to direct you to the correct resources. Sunray also provides lien release and waiver forms, so you can consult your Sunray representatives as well.

4. Unconditional Waiver and Release on Final Payment.

Now, what is the fourth type of lien waiver under Texas statutes? It is called the Unconditional Waiver and Release on Final Payment.

You should use this form only when you have received your final payment, meaning the funds are already in your company's bank account. This form applies when there are no more pending change orders, outstanding invoices, or additional punch list work for which you might bill. Once your final payment has been received and cleared, you can use this unconditional waiver.

This form is meant to confirm that every single penny owed to your company has been fully paid. It should not be used if you are still expecting a check or payment. The money must already be in your company’s bank account before signing this form.

The statutory language in this form includes a prominent, all-caps notice at the top, which warns you not to sign the waiver unless you have actually received the money. Texas law makes it illegal for a general contractor or owner to require you to sign an unconditional waiver if you have not been paid. However, despite this legal protection, these requests still happen frequently. Therefore, as subcontractors and suppliers, it is crucial that you carefully review these forms and ensure you are using the correct one.

What happens if you sign the wrong type of waiver?

There is no definitive appellate-level case law yet on whether courts would enforce an unconditional waiver signed under the mistaken belief that payment had been received. However, the statutory notice at the top of the waiver is very clear, and courts may very well enforce it strictly. If you sign an unconditional waiver without actually receiving payment, you may lose your lien rights permanently. You do not want your company to be the test case for this issue.

Another issue arises if the through-date on your waiver is incorrect. If you sign a waiver stating that you have been paid for all work through January 31, 2025, but later submit a change order or realize an invoice covering work before that date was left unpaid, you may have inadvertently waived your right to collect payment. This issue is sometimes litigated, but there is no definitive case law. Again, it is best to avoid becoming the test case.

When Texas implemented these statutory forms, they also removed the requirement to notarize lien waivers. This change was made because the notary requirement was slowing down construction processes, particularly for smaller subcontractors who had difficulty accessing a notary. If you look at the statutory forms in Chapter 53, you will see that they do not include a notary section because notarization is no longer required. That said, while notarization is not necessary, there is nothing wrong with choosing to notarize your waiver if you prefer. Some general contractors and owners still request notarization, but they are not legally required to do so.

How quickly do you need to provide a lien waiver after being paid?

Under Chapter 53 of the Texas Property Code, lien waivers must be provided within 10 days of receiving payment. However, "receipt of payment" means the date the money is actually in your company's bank account and is no longer at risk of being returned for insufficient funds. It does not mean the date you pick up a check. Therefore, it is perfectly acceptable to wait until the check has cleared, even if that takes longer than 10 days. While the 10-day deadline exists, there is no strong enforcement mechanism for it.

What should you do if you receive a lien waiver that does not follow the statutory form?

If a general contractor, owner, or customer sends you a lien waiver that does not match one of the four statutory forms, be cautious. Texas law prohibits owners and GCs from requiring lien waivers that substantially differ from the statutory forms for private projects. If you receive a waiver that does not look right, simply replace it with the correct statutory form and send that back instead.

Many non-statutory waivers contain overly broad language, releasing you from "any and all claims" against the owner and GC. Some even include indemnity clauses that require you to defend and hold harmless the owner or GC. This type of language goes far beyond a standard lien waiver and could cause problems later. For example, if a serious injury occurs on the job site and a lawsuit follows, the injured party may sue multiple construction participants. If you signed a broad waiver, you may have unintentionally waived your right to defend yourself or seek claims against the responsible party.

The reason Texas created statutory forms was to prevent these unfair practices. If you receive a waiver with unfamiliar or concerning language, do not assume you have to use it just because it was sent to you. Instead, use the statutory form that applies to your situation and submit that instead.

Best Practices for Completing Lien Waivers

Regardless of the form being used, the "to the following extent" section must be carefully completed. This section defines what is being waived, and vague language can result in waiving rights unintentionally. It is always best to reference specific invoice numbers or pay applications rather than general time periods.

In addition, ensure that supporting documentation, such as invoices or statements of account, is attached when submitting a waiver. This helps prevent misunderstandings about which payments the waiver applies to.

Key Takeaways

1. Use conditional waivers when payment has not yet been received or when exchanging for a check.

2. Use unconditional waivers only when the funds have cleared and are in your company's bank account.

3. Do not sign an unconditional waiver in exchange for a check—wait until the money is confirmed in your account.

4. Clearly specify the invoices or pay applications being waived to avoid unintended consequences.

5. Always attach supporting documentation, such as invoices, to ensure clarity.

By following these best practices and using the appropriate statutory forms, you can protect your lien rights while ensuring compliance with Texas lien laws.

Common Questions Contractors Ask

On Public Bonded Projects

1. Is the subcontractor required to send the 2nd month bond claim notice before they send the 3rd month bond claim notice, or did the laws change in 2022?

The law that eliminated the second month notice or the preliminary notice only applies to private projects. Government jobs, specifically state or local government jobs governed by Texas Government Code 2253, still require the second month notice. Yes, please send it, or you won't have a valid bond claim.

2. Is there a time difference between 1st tier and 2nd tier subcontractors or suppliers in sending 2nd month bond claim notices or 3rd month notices?

No. The deadlines for sending notices under Chapter 2253 bond claims run from the date you provide labor, supply materials, or perform work on the job—not from your invoice or pay application date. Notices must be sent by counting months from the work date.

Example: If you did work in January, the preliminary notice must go out on or before March 15th. The bond claim must go out on or before April 15th. These deadlines apply to each month separately, so if you keep working without payment, you must continue sending notices and may need to make multiple bond claims. Unlike mechanics liens, which can be filed once at the end of a project, bond claims require ongoing notices.

3. Are there retainage notice requirements for public bonded projects?

Yes, Chapter 2253 contains specific provisions for retainage notices, including required language.

On Private Bonded Projects

4. Is there a difference between 1st tier and 2nd tier subcontractors or suppliers in sending 2nd month bond claim notices or 3rd month notices?

The forms and deadlines differ. Private projects with a Chapter 53, Subchapter I payment bond follow lien claim deadlines. No second month notice is required. The third month notice (fund trapping notice letter) must be sent to the surety and other parties in the construction chain.

5. Should you still send 3rd month fund trapping notices in addition to a 3rd month bond claim notice?

If it's a private bonded project, the bond claim notice is the fund trapping notice letter. There's no need for two separate notices. You simply send the statutory fund trapping notice letter to the bond company and the relevant construction chain parties.

6. Are there retainage notice requirements for private bonded projects?

Yes. Chapter 53 contains a separate statutory form for retainage notices. If you check the statute, you will find the specific form required for contractual retainage notices.

Additional Questions (Regarding Releases and Waivers)

7. Should there be a through date listed on the releases, not a "down date"?

A "through date" and a "down date" mean the same thing. They refer to the date up to which the waiver is effective for all work supplied. Whether to include one is up to you. The risk of using a through/down date instead of specifying the exact pay application or invoices covered is that if you accidentally omit work you intended to bill for, you may waive your right to claim payment later. The safest approach is to tie the waiver to a specific pay application or invoice.  

For general contractors and owners, a down date helps shift the risk to the subcontractor or supplier by ensuring they cannot claim unpaid amounts later.

8. Is a statement required for waivers on the 3rd month fund trapping notices?

No, a statement is not required for Texas private project statutory fund trapping notice letters. While our office typically attaches copies of invoices, Texas law does not mandate a statement, nor is there a required form.