Lien releases are a safe way to ensure that liens are terminated, and payment is collected. However, lien releases that are conditional or unconditional function differently and have different risks. Lien releases in Colorado are unregulated, so a party signing a lien release should be aware of the difference in function and how that can affect payment. Where you fit in this transaction drives your preference on which type of release is best for you.
What is an Unconditional Lien Release?
An unconditional lien release states that the party furnishing labor or materials has been paid and releases the owner/general contractor from the lien. An unconditional lien release should only be executed after the subcontractor has been paid in full and the payment is in the subcontractor's bank account. If the check bounces or somehow does not go through and an unconditional lien release has been signed, the subcontractor has already released the owner/general contractor from the lien and therefore will be unable to secure payment. An unconditional lien release is not in the best interest of the party furnishing supplies or labor and should be avoided if possible.
What is a Conditional Lien Release?
A conditional lien release is an agreement that once something happens (typically the subcontractor being paid either a progress payment, in full, or both) the subcontractor will release the owner/general contractor from the lien. A conditional lien release protects the subcontractor from not collecting on labor or supplies furnished while guaranteeing that the lien will be released. This is the preferred option when entering into a lien release, from the subcontractor, material supplier or vendor perspective.
Best Practices When Signing a Lien Release.
It is important that the amount owed to the subcontractor and the amount on the lien release are identical. If the amount paid is less than the amount on the release, legally the subcontractor has been paid the amount on the release and the remaining difference does not have to be paid. This can be an issue in both unconditional and conditional lien releases.
It is equally important that the dates on the lien release match the dates that work was performed or supplies furnished. If the dates do not match, a subcontractor or supplier can be severely limited in its ability to collect on some or all of the payment.
Be on the lookout for lien releases that are titled “Conditional” but actually function as unconditional lien releases. It is crucial that the language of the release actually contains a condition (“the lien will be released if and when payment is received”). If there is no condition, then the release will function as an unconditional lien release and the subcontractor may be unable to collect. It is always important to read the lien release completely and look for anything that doesn't look “right”.
The information contained on this blog is intended to be general information only and not legal advice. Laws change frequently and the information on this website may not be up to date, nor is the information intended to be fully comprehensive. For these reasons, we suggest you seek a licensed attorney to help you review your lien releases and access the risks. If you have any questions about the contents of this blog or if you need legal advice as to lien releases, please contact the Beavers O'Connell Group at (720)538-0363, [email protected]or fill out a form under our Contact page.