Lien release

What You Need to Know About Conditional Waiver and Release Upon Final Payment

In the U.S., contractors have the right to file a mechanic’s lien against a property if the project or property owner fails to promptly and adequately pay them in accordance with their contractual agreement. Since it is extremely challenging to sell a property with a lien placed on it, this legal device serves as a protection to the contractors, providing them with leverage when negotiating payment release with irresponsible or ill-willed project owners. On the other hand, project owners have the right to ask contractors to relinquish their rights to file a mechanic’s lien once the payment has actually been made. A contractor can officially waive the right to place a lien and sue the owner by signing a lien release waiver form.

Waiver and release forms come in two basic types – unconditional and conditional. Signing unconditional waiver and release means that the contractor immediately renounces all rights to file a mechanic’s lien or makes a binding commitment to promptly remove any existing liens. Conditional waiver and release, however, makes the final release of a lien dependent, or conditioned, on the payment coming through. In other words, a conditional waiver and release won’t come into effect until and unless the payment has actually been cleared.

If you are a contractor in the construction industry and you feel there are valid reasons to anticipate payment-related issues at the end of a construction project, signing a conditional waiver and release form can provide you with more financial security in protection. However, there are important factors to take into consideration related to conditional waiver and release forms that we will discuss in the remainder of this article.

Release Upon Final Payment vs Progress Payment

Waiver and release forms can be requested at different stages of the construction project. A release issued upon progress payment pertains to a specific part of the project that has been completed and includes a specific date the release applies to. Most waiver and release forms pertaining to progress payments will contain language that the form doesn’t apply to any other payment retained before or after the release date. Lien release forms issued upon final payment are signed at the end of a construction project when once the owner has completely settled their financial obligation towards the contractor.

State-Regulated Lien Waiver Forms

There are 12 states where lien laws precisely regulate the content of lien waiver and release forms. These states include:

  • California
  • Nevada
  • Arizona
  • Utah
  • Wyoming
  • Texas
  • Missouri
  • Mississippi
  • Michigan
  • Georgia
  • Florida
  • Massachusetts

If you are a contractor in one of these states, you must strictly comply with the regulations related to lien waiver and release forms since using a form that doesn’t substantially conform to the appropriate laws will automatically invalidate the document. Therefore, you should refrain from adding additional language or trying to make any substantial changes to the legally approved content of the document. In some states – for example, in California – even as simple an action as notarizing the form may render it null and void as well.

In 38 other states, there are no statutory or state-regulated forms which means that contractors and property owners have considerable freedom with regards to what language and provisions may appear in the document. This freedom is often abused by the party drafting the form to ensure that it provides them with more legal privileges and leverage. Since it’s easy to overlook wording that can put you at a disadvantage, it’s best to consult a skilled mechanic’s lien attorney and ask him or her to review the form before signing it.

Conditional Waivers – Beneficial Yet Not Without Risks

Undoubtedly, conditional waiver and lien release forms provide contractors and subcontractors with a strategic advantage. Unless the contractual payment has been cleared in full, the contractor or subcontractor retains the right to file a mechanic’s lien against the property or project. This means that if you signed a conditional waiver and release form, your invoice will be prioritized over others because it is in the owner’s best interest to offset the possibility of a lien being placed as soon as possible.

However, conditional waivers are not completely free of risk. If a check you’ve been paid with bounced or if the credit card charge is being disputed, it is still possible that you will still have to defend your right to file a mechanic’s lien in the court. Litigation may also be necessary if the amount you’ve been paid is lower than the one mentioned in the lien release form. In order to be able to successfully defend your rights in a lawsuit, you need to keep good records pertaining to waiver release and payment.

If you are experiencing issues related to waiver and release forms or late payments, you may need the professional help coming from an experienced lawyer. National Lien & Bond attorneys offer comprehensive legal assistance in contract review and lien litigation matters. Please contact us our online contact form to schedule a free initial consultation on your case.

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This blog is for educational purposes only and not intended for legal advice.

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