KNOW THE DIFFERENCE: CONDITIONAL VS. UNCONDITIONAL WAIVER AND RELEASE UPON FINAL PAYMENT
When working in construction, you regularly sign lien release forms before receiving payment. In some states, these forms are standard. from experience, you’ll probably know exactly what it says and what it means. In states where the forms are not standardized, you must scrutinize all lien release forms to make sure you are not giving up lien or other rights unnecessarily. Lien release forms generally come in two types, conditional and unconditional waivers.
CONDITIONAL WAIVER AND RELEASE
The lien release you sign is sometimes considered a conditional release. This means that you agree to release the lien once the payment clears. Because of this, a conditional lien release protects the grantor. If there is an issue with the payment, or it is not issued as anticipated, then you haven’t released your right to file a mechanics lien. Similarly, if you’ve already filed a mechanics lien, then you’re not required to remove the lien until the payment clears the bank.
Conditional lien waivers are effective when the details on the form match reality. This means the waiver is valid once payment has cleared, but the payment amount must match the amount listed on the waiver. Similarly, other details must align. If a conditional lien waiver is brought up as a defense to a mechanics lien, then you will need to document where the form differed from reality by showing that a check bounced or that the amount of the check was different from what was written on the form. Good documentation processes are important.
UNCONDITIONAL WAIVER AND RELEASE UPON PAYMENT
An unconditional release is different from a conditional release because once you sign the document, you’ve immediately removed your right to file a mechanics lien or you’re required to promptly remove an existing lien. An unconditional release means that there are no restrictions on the release of the lien. This type of lien release is often used in final project documents to confirm that the project is complete, payment has occurred, and you release all future rights to file liens on the project.
Because an unconditional waiver is fully effective once signed, it is important to ensure that you’re aware of the type of lien release form you’re signing. If you’re working in a jurisdiction that does not statutorily set lien waivers, then you want to check the form each time you sign it to be clear on what, exactly, you’re releasing.
read your lien forms closely before signing
You need to review your unconditional lien waiver forms closely before signing to make sure you aren’t giving away rights you don’t intend to. As indicated by the name, you should only be giving up your right to file a mechanics lien. Despite the name, the form you receive may waive and release “any and all claims” or have similar language that states you are giving up your right to file any claim arising from the work. This type of language would effectively extinguish any personal injury or property damage claim you have pending with or you can claim in the future against, the GC you contract with. A proper unconditional lien release and waiver form should be clear that it waives and releases only lien, lien related, and payment related claims. The key is to make sure the sentence stating what you are waiving is limited to your right to make a claim against owner’s property for money earned but not received. Unless you intend to waive all personal, property and lien claim rights, read your lien forms closely before signing.
USING LIEN RELEASE FORMS FOR PHASE AND FINAL PAYMENTS
In some cases, you’ll complete a phase of a project and do a partial lien release where you release a portion of your right to file a lien, either conditionally upon receipt of payment for that phase or unconditionally. Review the lien form closely to make sure it only applies that phase of the project that is complete. If a lien already exists and a payment satisfies a portion of that lien, then you can partially release the lien, lowering the value of the lien placed against the property.
If you’re uncertain about a lien release you’ve been asked to sign, or want to draft documents for your subcontractors to ensure they’re removing their mechanics liens, reach out to the team at National Lien & Bond. Before we start helping you with your liens and other construction contracts, our team offers a complementary lien seminar for the senior managers in your company. We work through the different types of liens your specific business may encounter, how to set up the business processes necessary to stay on top of documentation, and what to do when faced with difficult situations. Reach out today to request a seminar for your company.
This blog is for educational purposes only and not intended for legal advice.