How do I go about explaining condition waiver and release on progress payment

2 weeks ago

I work for a construction company and I’m new to lien waivers. So, one of our project manager needed warehouse space for one of his project and we got an space from a company. There was a lease agreement and 3months and security deposit needed to be paid upfront. I sent payment that was required with the lien waiver. Our lien are condition waiver and release on progress payment. Fast forward, our payment has clear the bank but we still haven’t received the lien waiver sent back. The company that we sent payment got their legal team involve and said since there was already a lease agreement before the lien waiver and also the lien waiver was not part of the lease agreement. It was not required. How do I go about why we required the lien waiver and explaining it?

Senior Legal Associate Levelset

I’m not sure I totally understand the situation described above, but I can provide some background information that might be helpful here.

Proof that payment was made, as required, can be just as effective as a lien waiver

First and foremost – when payment has been made, as required, the recipient of that payment will not be entitled to mechanics lien rights. This is true regardless of whether a waiver is actually exchanged – mechanics liens can only be filed when payment is owed but unpaid.

So, any mechanics lien filed when a debt is not actually owed would be invalid, unenforceable, and potentially even fraudulent. Plus, a potential claimant can actually have their lien filed with the recorder even in a situation where a lien waiver has been exchanged. Sure, having a mechanics lien waiver is the best defense against a lien – and having that document on hand will be invaluable if a lien is ultimately filed. But, having proof that payment was made is yet another defense against a lien claim – just like a lien waiver would be.

Lien waivers should only be required when lien rights would exist

It’s also worth mentioning that mechanics lien waivers should typically only be required in situations where the party submitting the waiver would actually be entitled to file a mechanics lien. And, mechanics lien rights will generally only exist when labor, materials, or equipment are provided for the improvement of real property.

Leasing warehouse space that’s not located on the project property would presumably not qualify for mechanics lien rights since that doesn’t provide a service, materials, or equipment that directly improve the project property – so, obtaining a waiver from someone who’s merely renting space might not be particularly necessary.

Explaining lien waivers

When explaining lien waivers to another party, the best way to think about it may be as a receipt. When payment is made, a lien waiver acts as a sort-of receipt for that payment, indicating that payment is in hand and that a lien cannot and will not be filed since payment was made.

Further, conditional lien waivers aren’t even effective unless payment is actually received. So, while there may be some risk in submitting an unconditional mechanics lien waiver, a conditional lien waiver is typically pretty risk-free. This is especially true when payment has already been made and cleared the bank.

If payment has been made, and if the contract doesn’t explicitly require lien waivers, it can be hard to force someone to submit a waiver

Often, mechanics lien waivers are used as leverage for payment. A party who’s making payment will often require a lien waiver before payment is actually made – for better or for worse. And, once a claimant is actually paid, they’ll often have little incentive to listen to a request for lien waivers.

Further, if lien waivers aren’t actually required by the contract, a party providing services, labor, or material generally won’t be required to provide a waiver. But, in a situation where payment has already been exchanged and where a lien waiver merely waives the rights to that payment, which has already been exchanged, most people are pretty reasonable and often willing to submit a waiver.

I hope this was all helpful! As a final note, Levelset has some great content on mechanics lien waivers that I think will be helpful:

(1) The Ultimate Guide to Lien Waivers in Construction (Meaning & Examples)
(2) How To Handle Requesting & Tracking Lien Waivers
(3) Minnesota Lien Waivers Guide and FAQs

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