Some Thoughts on Lien Releases
Does the Lien Release in your hand “tell a story”?
Is there a tale that you need to hear? Is there trouble brewing?
Depending upon the viewer’s perspective, a Lien Release is seen as a receipt of payment, a protection from a lien, or a defense against a payment claim. A properly executed Lien Release is all of these things.
The party executing the release is acknowledging the receipt of payment and stating that the payment was credited to the contractor’s obligations on the project which is identified on the Lien Release. This is basic.
When I evaluate a Lien Release, I demand that it function as intended, but I expect much more than basic.
At a bare minimum, a Lien Release must satisfy the interests of the Contractor, the Surety and Lender, but a well-crafted release is also a valuable communication vehicle. As a professional funds administrator, I utilize a Lien Release that identifies the “Name of Project”, the “Name of Subcontractor/Supplier” and the “Name of Project”, as is common with standard (i.e., basic) Lien Releases. However, my release form tells me much more.
On my release form, the subcontractor attests that it has satisfied its obligations to all parties that have provided the subcontractor with labor, material or equipment on the project (“2nd Tier”). It also identifies the contract amount, the amount paid and the balance remaining on the contract. It also specifies the amount to be paid at the time the release is executed. By executing my Lien Release, on which this information is provided, the subcontractor is attesting that they are in agreement with the contractor as to any open obligations, or lack of same.
By executing my release form, the subcontractor is confirming the contract amount and balance remaining. With this information, I can verify the contractor’s budgets, as well as their cost to complete.
My release form may tell another story. Why won’t the subcontractor execute my release form? Probably not because they haven’t received payment, or haven’t applied that payment to our project. It could be that they owe 2nd Tier parties. Or, possibly they don’t agree with the contract amount and/or the balance left on that contract. This is an indicator of possible trouble coming. That is also a story you need to hear.
So, what is your Lien Release telling you?