A contractor can get a mechanics lien to protect payment rights, but the landlord needs a waiver or release before payment. A conditional release removes the lien but allows the contractor to raise it if payment is not made. The lien attaches to the property until released.
When a contractor does construction work for a building owner, that contractor can get a mechanics lien to protect his right to payment. The landlord needs the contractor to waive or release that lien before making payment. The contractor could grant a conditional release from the mechanic’s lien he has in exchange for the payment he is yet to receive. The conditional release is only effective if the policyholder is actually paid.
The mechanic’s lien that is issued is a security interest in the property where the contractor provided labor and supplies to improve the property. These privileges are also known as materialman privileges or simply build privileges. There are usually very strict formal requirements that the contractor, called the landlord, must follow in order to create the lien. After the lien exists, it is said to attach itself to the property in question. Any title search for that property will show this lien exists until the contractor releases that lien.
Even if a contractor is paid in full and never seeks to exercise or use that lien to make claims against the property, the title records will show that the lien exists. Therefore, the landlord will want to receive a release from the contractor. After you issue a free release, that privilege ceases to exist. If the policyholder grants a release before receiving full payment, he loses the protection provided by the lien. For example, if the policyholder unconditionally releases the lien in exchange for a check, the policyholder loses protection of the lien if the owner stops paying the check.
To provide protection to the policyholder when full payment is not yet certain, the law in many jurisdictions allows for a conditional release. A conditional release removes the lien from the title records for the property and terminates the contractor’s right to use the property as security for payment. If payment turns out not to be made as promised, however, such as if the check is dishonored, the contractor is authorized to raise the lien against the property. The lien will then continue to give that policyholder a security interest in the property. Therefore, the conditional release protects both the policyholder and the owner.
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