If we have received payment for everything but retainage, do we still keep the lien in place? In our business, it is not abnormal to receive retainage months after finishing our scope of work, but our client is asking us to lift the lien now…..

8 months ago

We sent a lien to our client which prompted payment for everything but retainage. They want us to lift that lien, but I don’t want to if we then cannot force payment for retainage. It is very common for us to receive retainage months after we have completed our scope of work, so I’m not sure the best way to proceed.

Senior Legal Associate Levelset

That’s a good question, and this is a situation many construction businesses find themselves in. When it comes to retainage laws and mechanics lien laws, there’s a natural tension. Mechanics lien requirements and deadlines aren’t particularly tailored to industry retainage practices, and retainage recovery via means outside of a mechanics lien can be a pain in the rear. Ultimately, how to proceed will be a business decision by the party who filed their mechanics lien. If the risk of going unpaid retainage – coupled with the fact that there have already been payment issues on the job – is too great to bear without a mechanics lien in place, then a claimant might decide to leave their lien intact (to some degree). Or, if there’s little fear that retainage will later be recovered, then a claimant might decide to release their lien in its entirety. One option could be to attempt to partially release a filed mechanics lien, leaving amounts that represent retainage intact. If a partial release were effective, it could be made clear that payment was made for all but retainage. But, partial mechanics lien releases aren’t provided for in the Texas Property Code, so a claimant might still run the risk of the document serving as a full release of lien. Another option, if a contractor is requesting a sub-tier lien claimant release a lien that hasn’t been fully paid, might be to execute some other document that guarantees the payment of retainage by a specific date. Executing a document like a promissory note or a personal guarantee could provide payment security while also allowing for the release of lien. But, ultimately, it all comes down to a business decision of the lien claimant, as well as how payment talks go with the claimant’s customer. If the party requesting the lien be released refuses to assure the claimant’s ability to recover retainage, that might be a sign that retainage recovery will be hard to come by. But, if the promise to pay retainage can be secured in some official way, it might be less risky to release a filed lien. For more information on Texas lien laws, this resource should be valuable: Texas Lien & Notice Overview. For more on Texas retainage laws, this page should help: Texas Retainage Overview. Finally, this article discusses creative solutions for situations where a claimant may not want to fully leverage a lien claim (such as promissory notes, joint checks, and personal guarantees): Don’t Want to File a Mechanics Lien? Here Are 5 Other Options.

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