When a contractor performs construction work for the owner of a building, that contractor can get a mechanics' lien to protect his or her right to payment. The owner needs the contractor to waive or release that lien before making the payment. The contractor might give a conditional lien release from the mechanic's lien he or she has in exchange for payment he or she is yet to receive. The conditional lien release is effective only if the contractor is actually paid.
The mechanic's lien being released is a security interest in the property where the contractor supplied labor and supplies to improve the property. These liens also are known as materialman's liens or simply construction liens. There usually are very strict formal requirements that the contractor, called the lienor, must follow in order to create the lien. After the lien exists, it is said to attach to the property in question. Any title search for that property will show that 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 a claim against the property, the title records will show that the lien exists. Therefore, the owner will want to receive a lien release from the contractor. After the contractor gives an unconditional lien release, that lien ceases to exist. If the contractor gives a lien release before receiving full payment, he or she loses the protection that the lien gives. For example, if the contractor unconditionally releases the lien in return for a check, the contractor has lost the lien's protection if the owner then stops payment on the check.
To provide the contractor protection when full payment is not yet certain, the law in many jurisdictions allows a conditional lien release. A conditional lien release removes the lien from the title records for the property and ends the contractor's right to use the property as security for payment. If the payment turns out not to be made as promised, however, such as if the check is dishonored, the contractor is allowed to revive the lien against the property. The lien will then continue to give that contractor a security interest in the property. Therefore, the conditional lien release protects both the contractor and the owner.
