Pennsylvania Mechanics’ Lien “Waivers” and “Releases”: What’s the Difference?
In the world of Pennsylvania mechanics’ liens there is much confusion about the interchangeable use of the words mechanics lien “waiver” and mechanics’ lien “release.” Many who work in the world of real estate in Pennsylvania, be they contractors, subcontractors, developers, lenders, or attorneys, use these terms interchangeably without understanding that there is a meaningful difference. Failure to understand the difference creates confusion when discussing issues and drafting documents regarding mechanics’ liens.
In Pennsylvania a mechanics’ lien “waiver” is the pre-construction waiver of liens that was historically executed by a general contractor and an owner and filed with the Prothonotary in the county in which construction is located. These pre-construction lien “waivers,” assuming they were properly prepared, signed by the contractor and owner and filed in accordance with applicable law, negated the ability of that contractor and its subcontractors to file a mechanics’ lien on the subject property. These pre-construction lien “waivers” were part of every construction loan closing up through the amendments to the Pennsylvania Mechanics’ Lien Act that went into effect in 2007. Since 2007, the Mechanics’ Lien Act has been amended twice to further address those circumstances in which pre-construction lien waivers still have vitality. Except with respect to those narrow situations specifically provided for in the statute, pre-construction lien “waivers” are against public policy in Pennsylvania.
A mechanics’ lien “release” is a different beast altogether. A “release” is a document signed by either a contractor or a subcontractor which terminates (that is, “releases”) that entity’s lien rights against the project as work progresses and they receive payments. These generally take two forms. The first form is an interim lien release, which is given during the course of construction (often monthly) in exchange for periodic contract payments to the potential lien claimant contractor or subcontractor. The second form is the final lien release which is executed by the contractor and subcontractors at the completion of the project in exchange for their final payments. The purpose of the lien “releases” is to extinguish the existing lien rights that a contractor or subcontractor may have against the project. The 2007 and subsequent amendments to the Mechanics’ Lien Act recognize releases of liens for work performed to the extent that payment has actually been received.
The troubling on-going issue in Pennsylvania regarding lien “releases” is determining from whom they should be obtained as work progresses or is completed. Unfortunately, the 2007 amendments extended mechanics’ lien rights to sub-subcontractors (that is, subs of subcontractors). It is often difficult, if not impossible, for the owner/developer or even its general contractor to identify all of the sub-subcontractors and even if they could it is often burdensome, especially in a large project, to obtain interim and final lien “releases” from every entity which could potentially file a lien claim. For that reason, this becomes a point to carefully negotiate in any loan agreement, lease, mortgage or other document that requires the production of mechanics’ lien releases.
For more information, please contact Tom Rogers at 215.864.7190 or firstname.lastname@example.org.