Article originally appeared on thelienzone.com
As construction lawyers here in Florida, we are often asked about releases, specifically about these three release mistakes.
1. Using the wrong form of release when exchanging money for a release
The form of partial and final waiver of release that you should use depends primarily on where you are in the chain of contracts. Are you the general contractor? Are you a subcontractor? Are you a sub-subcontractor or a supplier?
The general rule is this: Try to give the narrowest release possible when you are the one being paid. That is, giving away the fewest amount of rights when you are receiving a check. If the role is reversed and you are giving a check, you should try to get the broadest release that you can possibly obtain when you hand over that check.
Let’s look at some forms of releases so that you can understand the language that distinguishes a narrow release from a broad release.
i. The Statutory Chapter 713 Releases
These releases are contained in the lien statute chapter 713. The forms that exist in this statute are issued either upon progress payment or final payment. Let’s take a look at the language that differentiates the two forms.
a. Upon progress payment
WAIVER AND RELEASE OF LIEN UPON PROGRESS PAYMENT
The undersigned lienor, in consideration of the sum of $ _________, hereby waives and releases its lien and right to claim a lien for labor, services, or materials furnished through (insert date) to (insert the name of your customer) on the job of (insert the name of the owner) to the following property:
(description of property)
This waiver and release does not cover any retention or labor, services, or materials furnished after the date specified
In this form, you will fill in the amount that is being paid and the through date the amount covered. This release basically gives away your lien right in exchange for partial payment.
b. Upon final payment
WAIVER AND RELEASE OF LIEN UPON FINAL PAYMENT
The undersigned lienor, in consideration of the final payment in the amount of $ _________, hereby waives and releases its lien and right to claim a lien for labor, services, or materials furnished to (insert the name of your customer) on the job of (insert the name of the owner) to the following property:
(description of property)
The language is almost identical to the release issued upon a progress payment, with a space where you can fill in the amount of money being paid. The only thing that’s missing is the through date. It has no date which this amount of money represents as to the work done.
The reason is that it’s effective as of the day you give it. So, the only date on this document is the date you sign it. What that means is that you are giving away your lien rights from today back. It’s illegal and unenforceable in the state of Florida to give away lien rights in advance.
Statutory releases are referred to as narrow releases because they only release the lien rights.
ii. Custom Form of Release
These releases are not found anywhere in the statute. They are very different because they generally have more verbiage than the previous releases we have considered.
WAIVER AND RELEASE
The undersigned, in consideration of the sum of $10 and other good and valuable consideration does hereby waive and release its lien and rights to claim a lien as well as any and all claims, change orders, works, materials, delays, fees costs, losses, expenses, damages or sum for the labor, services, and materials furnished to and for improvements to the following described property:
(description of property)
Through and including the date of________ (“Through Date”) as well as releases any and all claims against (insert your company here) or owner of the property. The undersigned warrants and represents that it has paid all bills and sums due to any and all suppliers, persons, employees, agents, and contractors working under or through the undersigned through and including the date listed above. The undersigned further warrants that all work and materials supplied by, through or under it fully comply with the applicable contract documents. This release does not release rights to contractual retainage, if any, or lien/bond rights after the Through Date.
Let’s break down each of the component parts. The first part says $10 (I will shed more light on this later in this article). Notice the rights that are being given away in this release. In exchange for some amount of money you are releasing any and all claims, change orders, works, materials, delays, fees costs, losses, expenses or damages.
This is effectively a very broad release. It releases any and all rights that you may have. If you are the party that is presenting a check in exchange for a release, you’ll want to obtain a release that releases all rights. This ensures that even if the job went long, a claim for extended general conditions could not be filed against you.
Conversely, if you have claims against the contractor, make sure that when you receive the check (and you want to preserve those rights), you are not giving them away.
This release has a through date as well. So, just like the release issued upon progress payment, the amount of money and the through date have to match. It also has some language at the bottom about certain representations, warranties and about people being paid for the work being done. This comes in handy for contractors.
As a contractor, you would like to ensure your subs have paid all their bills. The same is true in reverse; if you are signing this release as a sub and you haven’t paid all your bills, then you have to be careful about representing that you have when the release has language to the contrary. We generally find that most sophisticated contractors, (and most contractors are pretty sophisticated these days), have broad releases like this that they expect you to sign.
If you agree to a form of release in your contract — let’s say your contract with the contractor says you would agree to provide a form that is acceptable to the contractor — then you may be bound to that form. That means when you are negotiating your contract with the contractor, or if you are a sub-sub and you are negotiating with the subcontractor, you need to make sure that you look at those exhibits.
What form of release is the contractor expecting you to sign? If you have any issue, you need to deal with it before you sign the contract. Don’t wait until after you sign the contract or agree to the form to object.
2. Not using a conditional release
What happens when you are given a release that says you have been paid when you haven’t been paid? That release goes from you as the sub-subcontractor to the subcontractor who hands it to the contractor who then hands it to the owner. If the release is not conditioned on you actually receiving the money and the owner hands the check to the contractor and the contractor pays the subcontractor who never pays you, you would have no lien rights.
This means that you need to make sure that if you are not getting a check at the time you are giving your release, your release must be conditional.
How can you make your release conditioned upon getting paid? You can add language to make your release conditional. Here is a simple sentence that you can add. “Notwithstanding anything to the contrary, this waiver and release is conditioned upon and not effective until the undersigned receives payment funds of $________.”
Watch out for releases that are titled conditional but are not. Some say they are conditional, but when you read them, they’re actually not conditional at all. Also, you need to indicate the amount of money to satisfy the conditions. If you’re expecting a $25,000 check, it has to say that it’s expressly conditioned upon your receipt of the $25,000.
As a general contractor if you receive a conditional release from a sub-subcontractor or supply house that you are not actually paying directly, you have to be careful. If you pay the contractor and he doesn’t pay the supply house, this conditional release that you received as the GC from the supply house is now no good because the supply house never got the money.
You can deal with this by requesting an unconditional release or by issuing a joint check. A joint check is a check payable to two parties. This check requires the endorsement of both parties, and with this, you will know that the condition of the conditional release has been satisfied.
3. Using the wrong through date
The through date is the effective date of the release. Every release is different, and it may have a through date written in different places and slightly different ways. The through date is the end date that the release is effective.
For example, I can sign a release in February for the work that I did through the end of January. That case, the through date would be the last day in January. The most important thing you need to remember is that the through date will have control over the payment amount.
If you pick up a check that is a reduced amount and your release for that payment has a through date later than you’ve actually been paid, then you have a problem. You need to make sure that the through date and the payment match.
For example, if you are expecting $100,000 which gets you to the end of the month, but you are only receiving $75,000, then you need to change the through date to whatever date matches the $75,000. Maybe that’s the 13th of the month or 28th of the month. It depends on the situation in that month and the work or the materials you supplied.
Just make sure that whatever amount you are receiving matches and represents the through date in the document. If they don’t, you have to change them to match.
Why does the release say $10?
There are typically two very common reasons why a contractor may demand a $10 release.
1. When you gave a notice to owner but you are not owed during the period
Let’s assume that as a subcontractor on a project you have issued a notice to owner, but you are not actually going to start work for another three months. At the end of the first month, the general contractor may demand a $10 release. The law requires that once you issue that notice to the owner, then the contractor and the owner need to obtain a release from everyone that issued a notice to owner, whether or not they did any work that period. If you haven’t done any work that period, it is common that the amount of money recited in the release will be $10.
2. When the contractor does not want to disclose to the owner how much the subs and the vendors are being paid
Sometimes, contractors want to shield how much information is given to the owner. This is another common reason why contractors request a $10 release.
The $10 is valid if you receive any type or amount of consideration even if that consideration is not exclusively money. If you are receiving money, try to include how much you are receiving. On the contrary, if you are giving money, try to make the release ‘$10.’
Never condition a release on $10. If you want to issue a conditional release, always state the actual amount you are expecting during that period.