This blog is taken from a webinar that was presented by SunRay Construction Solutions and features William L Porter, the Founder and President of the Porter Law Group. He chaired the committee of attorneys who rewrote all the laws that govern lien laws in California. The focus of this webinar is on the main release forms used in California constructions.
Releases are used in coordination with payments that you receive on the construction project from the beginning of the project to the very end. Some of them deal with when you have been paid partially, and some of them deal with when you have been paid in full.
More specifically there are four types of release forms that are used in construction in California. And these forms are going to depend on the circumstances. The four forms are as follows:
Using Construction Lien Release Forms
Two of the forms are conditional releases meaning basically that the check has been received or has been promised but it has not cleared the bank. And then two of the forms are unconditional releases meaning that you got a check, you put in the bank, and it cleared the bank. So this is unconditional, and you are not going back on it.
Then two are for progress payments and two are for final payments. We will go through all four of them.
a. The four forms are described in California Civil Codes 8132-8138
Specifically, if you want more information on the forms you can go to California Civil Code sections 8132 to 8138. What you should know about those statutes and if you read them, you will see that the law in California is very specific on what you have to have in these releases. They have to say these things, or they are not valid.
There are a lot of contractors and subcontractors as well who will use forms that don't comply with these code sections. And in the view of attorneys, they are not enforceable. That is not to their benefit, and it is not to yours either because it causes problems. What should happen is that everyone should use the forms as they are drafted and as they are used.
There are a lot of contractors and owners who will send out a promise payment or even a check to people and they will request that they sign an unconditional release. That is foolish because the check could bounce, and it is not the legal way that things are done.
b. Do not sign an unconditional release in exchange for a check
One main rule is that you should not sign an unconditional release merely in exchange for a check or a promise for a check. There are also some construction programs out there that are by companies who are sure that you are going to get paid. Sometimes they will request that you send them an unconditional release and they will send you a check.
Now that is not the proper way to do things but those companies honor what they say that they are doing to do. But it is not the legal way for things to be done. So you have to be cautious when you are doing it person to person and office to office, and not using one of those programs. The main rule is not to accept or do not go along with someone’s request or demand to you.
To give an unconditional release in exchange for a mere promise of payment or in exchange for a check that might bounce because if it bounces, you have still given an unconditional release. Then you are probably going to be able to put a mechanic’s lien, a Stop Payment Notice or a payment bond claim on the project.
Each of the statutes that you will see contains this language. It will say:
Then it goes on to describe the specific forms that have to be used and all the words that have to be used. Now in addition on the two unconditional releases, the following language should be added:
What this basically means, and if you read the statute, you will see that you must have this language in there and on the unconditional releases, you have to have the Notice to Claimant in a regular-sized type. For all of these, it should not be in any kind of form where anything is hidden or has added language in there with other types of release language that does not belong in the form.
So just make sure the four forms that you are given follow the law or else you are going to have to say you were given this form, this form is illegal in California, and that you will be happy to use your own legal form. These forms are also available in the SunRay application. You can do all of this online.
c. Look up statutes
Finally, you can look up the statutes that contain the language by going to www.ledgeinfo.legislature.ca.gov. You can always also Google California statutes and eventually you will get to the page where you can see these statutes. But the one you want to look up is Civil Code Sections 8132-8138.
Do not confuse this with the Code of Civil Procedure.
Basic Description of When to Use Each of the Four Release Forms
The first type of form we are going to look through is if a progress payment is only promised or has not yet cleared the bank.
a. If a progress payment is only promised or has not yet cleared the bank
This is going to be a conditional waiver and release on progress payment. That is the one that you would give in exchange for a check or a promise of a check. Then after the check clears, you would give the Unconditional Waiver and Release on Progress Payment.
b. If a progress payment has been paid in full (and the check has cleared the bank)
The next type of form is if a proper progress payment has been paid in full, and the check has cleared the bank. When this happens, you are going to use an Unconditional Waiver and Release on Progress Payment. And the code section is § 8134.
c. If final payment has only been promised or has not yet cleared the bank
Now we get to final payments. The third type of form is if a final payment has only been promised or it has not cleared the bank. Then you are going to want to use a Conditional Waiver and Release on Final Payment. If the check later clears, then you want to use the Unconditional waiver and Release on Final Payment.
The Conditional Waiver and Release on Final Payment can be found in Civil Code §8136.
d. If a lien claimant has been paid in full (and the check has cleared the bank)
The final form and the granddaddy of all forms is if you have been paid in full and check has cleared the bank. Then you are going to want to use an Unconditional Waiver and Release on Final Payment.
You should note when the forms are viewed below that even with this form, you can accept certain things if you have disputes and they do not want to pay you. You can get paid and release everything else while leaving some issue unresolved.
Statutory Waivers and Releases
This form is generally a one-page form.
a. Conditional Waiver and Release on Progress Payment
This is the conditional waiver and release on progress payment. Notice that this document waives the claimant’s lien, stop payment notice, and payment bond rights effective on receipt of payment. It is an important distinction to understand. You may mess up these forms and as a result, you are going to lose your lien, stop payment notice, and payment bond claims.
But note that it does not destroy your contract claim so you can still make a claim for Breach of Contract if you have to sue because someone has not paid you and it is a Breach of Contract. This would be evidence that you think something is released. But if you show that you have messed up while filling out this form or deceived into using a form then you are still going to be able to sue on your contract rights.
There are also some important issues here and there is this issue with the through date. So you fill this out and you are the claimant, you name the customer, the job location, and who the property owner is.
This through date is going to be very important because you are going to give up your lien, stop payment rights, and payment bond rights for all the work you did – all the materials that you furnished to that date.
Then the amount of the check which is down a little but further is going to be the amount of money excluding retention. So do not worry about the retention part of it, but the amount of money that you are going to get to release all your claims to that date.
Sometimes you have to push the date beyond the actual date that this is sent out because they want it to the end of the month and then you will have to estimate a little bit, but that seems to be okay in the construction industry.
You want to be sure that you know you are going to give up all your claims for all the work and all the materials that you supplied to the project through the through date for that amount of the check. You do not have to worry about things like retention, who it is payable to, etc.
The document does not affect any of the following as noted – retentions and extras here for which the claim has not received payment. That is vague but it gives you an out if other issues come up, which you can deem to be extras.
Then also, progress payments. Sometimes, a progress payment is received. Say you are owed $50,000 at the moment of filling this out but you already sent a progress payment or a conditional waiver and release the month before for $25,000.
The end result is technically you wrote $50,000 but this release will be for $25,000. Then under number three down in the release, you are going to write that on such and such date, you sent one of these in for another $25,000. So if you consider the amount that you are going to put in the amount of the check, plus this.
That would be $25,000 and then you are covered on the $50,000. Then as noted, it does not cover contract rights. You can still recover on contract, then you sign it, send it in, and you do not have to have it notarized. Some companies like to have it notarized but it is not required by California law.
It is recommended that if the other side insists, you should go along with it because after all, you are just stating that it is true, and you would put everything true in there anyway.
That is the first release.
b. Unconditional Waiver and Release on Progress Payment
The second one is very similar to the first except it is unconditional. That basically means that the check has cleared. This Unconditional Waiver and Release on Progress Payment is for a progress payment when the check has cleared. It is much like the one before.
c. Conditional Waiver and Release on Final Payment
The next release is pretty much the same, except for some of the language. This is filled out like the forms above, and you have an exception down at the end. That is where you get into the disputed claims in the amount of ‘$_____.’
You would mention the change order number in the amount of so and so amount, that way you release everything on final payment except for this disputed issue, and then you can resolve it later. You may have an arbitration clause or your contract clause. You just work it out but ultimately you have not released it.
For example, you can put a mechanic’s lien, a stop payment notice, or a payment bond claim on that disputed amount if you cannot get it worked out with the time period for filing a mechanic’s lien, stop payment notice, or payment bond claim.
If you get to that point, it is generally 30, 60, or 90 days after a project is completed, depending on the situation.
d. Unconditional Waiver and Release on Final Payment
Finally, is the Unconditional Waiver and Release on Final Payment. This is when you have been paid everything on the project and as you can see, it does not release any disputed claims. You could still have a disputed claim that is not released.
This is the final document, and it means that you have been paid in full, the check has cleared, and all that remains is this issue yet to be resolved.
These four forms are for payment. Now there is an actual release of mechanic’s lien. People often call these mechanic’s lien releases. They are not really mechanic’s lien releases though. They are waivers and releases on progress payment on final payment. These are most commonly known as statutory releases, and they are not the same as a mechanic’s lien release.
A release that releases an actual recorded mechanic’s lien and it is a document that you would record, or SunRay would record for you in the county recorder saying that you have fully or partially released your mechanic’s lien. So that is a different form.
You also have releases in settlement agreements. Those are different also, and they involve Civil Code §1642. They are different types of releases.
So those are the four releases. They are conditional and unconditional on progress payment, and conditional and unconditional on final payment. The conditional issue relates to whether the check has cleared the bank or not. You never want to give an unconditional release unless the check has cleared the bank.