What is the Difference Between a Lien Waiver and a Lien Release?
A mechanic’s lien (also known as a materialman’s lien) is a very important tool that is used in the construction industry to secure the right to obtain payment for materials or labor provided on a construction project in the form of a lien against the property which the materials or labor were used to improve. The process of obtaining a lien can involve sending certain required notices, filing a verified statement of lien, all within an allotted timeframe.
Although they sound similar and the terms are sometimes used interchangeably, lien waivers and lien releases are completely different documents. Lien waivers are used before a mechanic’s lien is ever filed to waive the right to file one. Lien releases are used after a lien has already been filed to release or cancel the lien when it has been satisfied.
Lien Waiver Overview
A mechanic’s lien waiver is used to waive the right to file a lien. This type of document is usually executed during the course of a construction project in exchange for payment. A lien waiver is often requested by the owner or general contractor (on a project) before they release payment to a subcontractor, materialman, or another third-party provider. This protects them from the possibility that the provider might come back later and file a lien.
A lien waiver works similarly to a receipt for payment. For example, a provider receives a payment of $2,000 and subsequently signs a waiver that forfeits $2,000 worth of lien rights on the project. Because the waiver provides added assurance that the owner or contractor will not face an unexpected mechanic’s lien in the future for payments already made, these documents can be helpful in facilitating good business relationships and expediting the payment process.
It is important to note that lien waivers are not the same as so-called “no lien clauses”. A “no lien clause” is a clause that waives the rights of subcontractors and suppliers to file a mechanic’s lien before a project starts, while lien waivers are usually signed and executed after a payment has already been made.
Lien waivers can be used during various phases of a construction project. Progress payment waivers can be executed as various partial payments are made. These waivers forfeit the right to file a mechanic’s lien on the specific payments that have been received, but the party typically reserves the right to file a lien on future materials and services that may not yet have been provided/paid for.
Lien waivers can be conditional or unconditional. Conditional waivers are usually preferred by providers because the waiver is only valid if the payment has been received. Unconditional lien waivers go into effect as soon as they are signed, regardless of whether or not the provider has received payment. For this reason, subcontractors, materialmen, and other providers should not sign an unconditional waiver until the check is cleared and the money is in the bank.
About a dozen states have specific requirements about what must be on a lien waiver form, but Alabama is not one of them. The form and contents of lien waivers are not regulated in Alabama, so stakeholders should pay careful attention to the terms and conditions of the waiver. It is also a good idea to have the form drafted or reviewed by an experienced construction law attorney to ensure that your rights and interests are fully protected.
Lien Release Overview
As we touched on earlier, lien releases are used to cancel a mechanic’s lien that has already been filed against a contractor or owner. This document might also be referred to as a cancellation of lien, release of lien, or lien cancellation. Once a lien release is filed, property records are updated to show that the mechanic’s lien was satisfied.
Claimants may wonder why it is necessary to file a lien release when the lien eventually expires and becomes unenforceable anyway. The reason is that although the lien may expire, it doesn’t totally disappear. The owner will want the claim to be removed from the property title, and a lien release ensures that this is done.
Most states require that mechanic’s liens are released within a certain amount of time after the lien has been satisfied and/or the date the claimant receives a written request for release. In Alabama, claimants have 30 days from the date they receive a request to release (after the claim has been satisfied) to file the form. Failure to do so can make the claimant liable for actual damages caused, which shall be no less than $200 (Ala. Code §35-11-231).
Work with a Skilled and Knowledgeable Alabama Construction Law Attorney
A mechanic’s lien arises in favor of parties who furnish labor or material that is incorporated into the construction of a building or other improvement to the land. The purpose of a mechanic’s liens is to protect the rights of contractors, subcontractors, laborers, and material suppliers to be paid for their labor and/or materials by placing a lien against the owner’s property for the amount owed.
If all the steps required by statute are followed, a court can order the property be sold to pay the debt owed. The procedural and notice requirements contained in the statute are strictly enforced and must be complied with.
Lien releases and lien waivers are related documents that may be necessary at certain times when payment has been made or an existing lien has been satisfied.
When and how these documents should be used can get complicated and confusing, however, and this is why the assistance of a reputable commercial litigation attorney can be invaluable. For strong legal guidance with mechanic’s liens in Alabama, contact Stone Crosby, P.C. Message us online or call our Daphne, AL office at (251) 626-6696 to set up a consultation with one of our attorneys.
