The Legal Significance of a Lien Release
First, we will discuss the significance of a lien release, why these documents are so important, and why you have to keep signing them over and over again.
a. What does a lien release do?
A lien release releases your rights to any claim for a lien that you may have in the property through a period of time. All of it is subject to the terms and conditions that are in that document. That is why understanding the document itself is so critically important.
b. Why is a lien release important?
You have a certain amount of rights because you have performed work on a construction project. That bundle of rights belongs to you and when you sign that release, legally, you are giving up some, most, or all of those rights. If you sign a lien release form and you have bond rights on a project, your lien release acts as a release against the bond claim.
Some people perceive that when they give a lien release form that their claim against the bond is still in place. But that is not true. There is one line in the lien statute that says when you give a lien release, that automatically constitutes a release against any related payment bond that may be on the project.
c. Can it release rights other than just construction lien rights?
Now you have lots of rights when you perform work on a project. One of those rights is your lien right, but there are other rights. So a right to contract damages, a right to delay damages, and other right is important to know because you want to make sure that when you are giving up and you are signing this document, you are giving up the rights that you want to give up.
We will have a look at some release forms where it becomes very apparent that you are giving up lots of rights, maybe even more than you think you are giving up. So some of those examples relate to delays, change orders, and claims.
d. Your perspective should be different when you are giving vs. getting releases
Whether you are giving a release and getting a check, your perspective on what that release should say is going to be different than in the reverse when you are getting a release and getting a check. Your perspective on what that release should say is going to be different than in the reverse when you are getting a release and giving a check.
For example, general contractors typically do both but with respect to their subcontractors they are giving a check and getting a release. So it is important to understand what those release forms need to look like because they are not the same in those two situations.
Negotiate the Form of Release at the Time of Contract
The first thing you need to do is negotiate the release at the time the construction contract starts. That is the best time to release to negotiate your release.
a. What form of release is required by Florida law?
Florida state law has certain release forms that are considered standard. But you may sign a contract and that contract may say that you are going to use a certain release form and if you agree to that release form, well that is the form you have to use.
b. What if my contract says to use a specific form?
So if you want to use a specific form or you object to the form that is in your contract, then you need to negotiate that at the time of the construction contract.
Where these releases are typically seen if you are a subcontractor is in the multi-page contract that you receive from the general contractor. For example, maybe some of the exhibit pages. It can be overwhelming to have to review all these pages, and these subcontract forms can be 20/30/50 or 100 pages with all their exhibits.
But looking at all those exhibits and understanding those release forms is absolutely critical.
c. My contract is silent on it, but the contractor demands I use his form. What do I do?
If your contract does not say anything about the release forms, then generally the lien law says that you need to use the form that is found in Chapter 713.
d. How can I avoid this in the future?
The best way to deal with this issue in the future is to include a statement in your contract. If you want to be specific that the forms of the release that you are going to use are the Chapter 713, include it as you are negotiating the contract. The statement should read as follows:
So even if there is a form of release attached to the subcontract or the subcontract says something like you agree to use the form that the general contractor or owner demands, if you include a statement like that, notwithstanding anything here to the contrary, the progress and final release forms in Florida statute Chapter 713, can be used by the subcontractor in exchange for payment.
A statement like that should be able to give you the legal right to argue that you are not going to sign someone else’s release like the general contractor’s or owner’s. You should indicate that you are going to sign the forms that are found in Chapter 713 because that is what you agreed to.
Use the Correct through Date
Using the correct through date is critical.
a. Why is the through date important?
The through date in the simple example below is the date that the release is effective through. So if you sign it today, to receive a payment from September, which is several months ago, the day of that payment is through the period in September. If you are getting paid for all of September, then the through date should be the last day of September.
b. Does the through date match the dollar amount?
Here is where you find people make mistakes. Let us assume that for the month of September, you need a $50,000 check to pay you for all the work you did in September. But they are only going to give you a $30,000 check.
So you have two choices – Option 1 is to change the through date. You can think that if $50,000 gets you to the end of the month in September, and they are only going to pay you $30,000, does that work until the 7th of the month, the 10th of the month, or the 26th of the month?
Whatever it is that represents those dollars that you are getting, that is what the through date should be because here is the problem - If you sign a release and you receive less money than you are expecting. But you give a through date through the end of the month. The through date is going to control.
In other words, when you have a through date and a release. The through date is going to control, not the amount of money that you are receiving. So even if you submit a pay request that says you are entitled to $50,000, you show up and they give you a $30,000 check, and you sign a release that has a through date through the end of the month, you have given up all of your legal rights through that through date for $30,000.
So you have to be very careful. Option 1 is to change the through date. Option 2 is the harder decision which is to refuse to accept that check and say that you cannot sign that release because the through date and the amount of money you are receiving do not match up.
c. What if there is no through date?
Now what if there is no through date? What if there is only the date that you signed the document? So in the example above if you are signing it today, but you are expecting a check through the end of September, if there is no through date, then the date that you sign the document is the effective date.
So you have to be very careful. Because if you sign a release with no through date today, you are releasing all of your rights from today back. So be very careful about that.
d. Is the through date really the through date?
The other thing to keep in mind is whether the through date is really a through date and the reason that is because sometimes you may read the document quickly and it says through the last day in September. So, you think that there is a through date but the document itself may use that through date to apply to something else.
For example, there are some general contractor release forms that release all of your rights effective as of the day you sign the document. But the through date is a representation that you have paid all your bills through that date. So they are using the through date for a different purpose, but if you are not reading the document then you have a problem.
You have created a legal problem of yourself so be very careful that the through date is in fact the through date.
Use Conditional Release Language
Let us now talk about conditional release language.
a. What is a conditional release?
A conditional release is a release that is effective pursuant to its terms. Whatever it says with a specific expressed condition, that it is conditioned on you receiving funds in a certain amount of money. So where this is seen all the time is if you are going to give someone a release today for the promise of the check later.
When you are told to send your release in exchange for a check, you should be using a conditional release. The language you should use are words to the effect of:
So any time that you are going to give someone a release today for the promise of a check tomorrow, you should use conditional releases. The other time you may want to use a conditional release is if you are giving someone a release now for a check and you have a concern that that check may not be good. So if someone gives you a check and it turns out to be bad, NSF or they put a stock payment on it having that conditional language will protect you from that situation.
b. Avoid the use of $10; Always state the amount to be received
You have probably seen $10 releases, and you cannot have a $10 release. So in the language mentioned above, where you are going to put in the amount of the funds you are receiving, it cannot be $10. So you need to specifically say if you are expecting an $8,000 check, the release has to be for $8,000.
c. But I kept the original, isn’t that enough?
Sometimes people will say that they will send a scan or fax copy because they are holding the original. Understand that copies are valid pursuant to their terms. Most people believe incorrectly that a lien release must be notarized while it typically is notarized. It is still a legal document that if it is signed even if it is not notarized, and even if it is just a copy it is still an effective legal document.
So if you think that by holding the original release means that the other side has no legal rights, you would be sorely mistaken so the only way you are going to protect yourself is to add conditional language.
d. Creating a conditional stamp
One of the things you can do is if you find yourself constantly adding this conditional language is create a stamp you can go to a company on the internet, create a stamp with that conditional language.
Create Exceptions to the Release
Now sometimes you have other things you want to carve out of your release.
a. How do I preserve other claims when I sign a release?
Maybe you have delay claims or unexecuted change orders, and you want to protect yourself. By not giving up those rights when you sign a release, some releases that you will see include lines for you to write in exceptions, you should do that, but if not, you can add in your own exception.
Below is an example:
Notwithstanding the foregoing, this waiver and release specifically excludes _____ which is reserved by the undersigned.
So maybe it is an RCO (Responsible Contractor Ordinances) or 9, 12, 14, and 18. Maybe those currently negotiated or pending RCOs which are reserved by the undersigned. So notwithstanding they are foregoing the above release and waiver specifically excluding blank which are reserved by the undersigned.
So if you have a delay claim, maybe if you submitted a delay notice, and you did that with a letter or an email, you want to reference that. Maybe you turned it into an RCO or a PCO. You should reference that but any of those claims you need to want to reserve. You need to specifically include a reservation in your release.
b. Do I have to do it month after month
One of the things you have to be aware of is you have to do it month after month. For example, let us say you are asked to do change order work, it is a disputed change order, and you are asked to do it today. You are at the end of October, and you have to sign a release at the end of the month. You want to preserve that right and create an exception, let us call it RC01 for this claim.
Now next month, which is November, you still have not resolved the issue. You need to make sure that in October you include an exception. To preserve it now, November comes around and you still have not resolved the issue. It is still not an approved change order.
The exception in November is still RC01. December comes around and you still have not resolved it. You need to include the exception RC01, in your December release until it is fully resolved. You have to make sure that you reserve it every month because if you look at the language of most releases to the extent you do not reserve it, you are waving it.
So if you miss a month, you may give up that right, so be careful.
c. But they won’t accept modified releases?
One of the things heard about a lot is that the other side will not accept a modified release from you, and they won’t accept the language. You will have to make a business decision. Obviously, the best thing to do is negotiate early on.
The form of release should be done at the beginning so that you do not have to deal with it later, but if they will not accept the modifications in your release, you are going to have to make a business decision on how hard you want to push to try to protect your rights versus getting money.
Releases and Their Various Forms
Now we will discuss the various forms of releases.
a. It depends if you are a general contractor or a subcontractor
As discussed above, it depends on whether you are the general contractor or the subcontractor on how all of this works. Generally speaking, you want to give the narrowest release when you get a check.
b. Give narrow release when you get a check and get a broad release when you give a check
So if you are a subcontractor and you are picking up a check, you want to give up the fewest number of rights possible. But you want to get a broad release when you give a check. If you are a general contractor and you are giving your subcontractor a check, you want them to release everything under the sun when you give them a check so that you do not have to worry about them coming back.
Now remember that everyone is typically in both positions. In both positions, as a general contractor you may want a broad release from your subcontractors but when you are picking up a check from the owner, you want to get your check and give them a narrow release.
So you can preserve any rights you have against the owner. The same applies to a subcontractor. If you are a subcontractor, you may have a sub-subcontractor that you are paying, or labor, or a rental company. You want to try to get them to give you a broad release when you give them a check.
Even though you may typically think of yourself as a subcontractor and only want to give narrow releases to your general contractor. You also have to be aware that you want to get broad releases from your sub-subcontractors.
Now we will take a look at the forms of release that are found in Chapter 713:
The above is a standard release that is found in Chapter 713. It is the progress payment release form, and it is very simple. It releases one thing and one thing only – your lien rights. So, other rights you may have are not released by this form of release.
It has several blanks, the most important are the dollar amount and the through date. The dollar amount could be let us say $10,000 and the through date, let us say, September 30th. It is a very simple form.
Now let us take a look at the 713 final release form and you will see why it is a little different.
Notice that it still has the blank for the amount of money you are going to receive. However, it has no through date. Rember that if it has no through date then it is effective as of the date that you signed it. This is a final release in exchange for a certain amount of money effective the day that it is executed. So if you execute it today, you are giving up all your lien rights from today back.
Let us take a look at another form. This form should jump out at you already as very different. The main reason is because it has lots of words.
Because it has lots of words in it, you should already recognize that you are probably giving up more with this release than the prior releases and you would be correct. This release releases all claims, change orders, works, materials, delays, fees, costs, losses, expenses, damages, or sums for labor, services, and materials furnished.
So this effectively is a general release. All the rights that you have are being released with this release. They all go away so understand that there are likely no rights that you are preserving when you sign this release, like the other release. Because it is a partial, it has a through date, but this release also has other rights or other statements that ask it asks you to verify. This is seen commonly in releases that are given.
The next line after this, ‘the undersigned warrants and represents...’ means that in addition to releasing your rights, you are making an affirmative representation that you have paid all your bills. Is that a true statement? It better be because if you are signing this document, sometimes under oath you want to make sure that statement is correct.
The waiver and release goes on to say ‘the undersigned further warns that all work...’ comply with the applicable contract documents. So this is what it means to be very careful about the releases that you are signing. They are legally significant and many of them include lots of things that are unrelated to just releasing your lien rights, which is what you are thinking.
To summarize, if you are a general contractor wanting your subcontractors to sign a release, you would want them to sign the one above – this broad release with a lot of language. If you are a subcontractor, you would like to not sign this release and only sign the Chapter 713 short form releases. So that gives you some context of the different types of releases based on the perspective that you have.
Now we will do a quick recap.
a. Negotiate the form of release in your contract
The first thing is to negotiate the form of release in your contract. Do not wait until the job is ongoing to realize that you have this problem.
b. Watch out for the correct ‘through date’
When it comes time to sign the release, watch out for the correct through date. Make sure that the through date and the dollar amount you are receiving are correct.
c. Use conditional language
Always use conditional language, when possible.
d. Create other exemptions as appropriate
When you are giving a release in exchange for the promise of a check later and create other exemptions as appropriate to protect other rights that you may have.