I have a final unconditional lien waiver from my vendor but my subcontractor on the same project has defaulted payment am I (the GC) or the property covered from a lien from this unpaid vendor? Is there additional precautions I can take so this doesn’t escalate? The vendor is after us to go after them for payment or they threaten to go to the property owner and Marriott. Can they do that?

Answered 2 weeks ago

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Alex Benarroche

Legal Associate Levelset

Good question. Lien waivers can tend to be more complicated than they should be. That's because the type of waiver and the timing of the exchange is crucial. Since Indiana is one of the states that don't regulate the content of lien waiver forms, the answer may ultimately depend on the language of the waiver itself.

Generally speaking, an unconditional lien waiver is just that, unconditional. If the final, unconditional lien waiver was properly executed, the party relinquishes any right to file a mechanics lien on the property. The act of signing an unconditional waiver acknowledges that payment has been received, and takes effect immediately. But, as mentioned above, the text of the waiver itself is important. If the waiver states that it will only take effect upon receipt of payment, the waiver may (a) not be unconditional and (b) the party may still have the ability to file a lien. In any case, without lien rights, the claimant may be limited to actions against the party with whom they contracted with, such as breach of contract or unjust enrichment.

However, many construction contracts state that the party keep the property "clear of liens or other encumbrances" and may require that the party (the developer, GC, or even subcontractors) defend the lien claim. If such a provision exists and a lien is eventually filed, they may find themselves in breach of contract. In that case, if the dispute can't be resolved, one option is to bond off the lien claim. This clears the property of the lien by substituting the bond for the property itself. This can keep the party in compliance with their contract, keep the project moving, and buy more time to pursue any contractor who failed to pass on payment. This doesn't cancel out the lien, but it allows the property to be clear while the issue is resolved.

If you have any additional concerns feel free to post another question here, or you can check out some of these resources: (1) The Ultimate Guide to Lien Waivers, (2) Indiana Lien Waiver Overview and FAQs, and (3) A Primer on Bonding Off a Mechanics Lien.

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