This blog is from a webinar that was presented by SunRay Construction Solutions and Alex Barthet. Alex is a board-certified construction lawyer serving clients in Florida. In this blog we will discuss the one thing you should before signing your next lien release.
Lien Releases and Their Various Forms
We will now talk about the lien release forms that typically exist on a project. The forms that are floating around really depend on whom you are contracting with and where you fall in the construction process. If you are a general contractor, the forms that you are going to use with your subcontractors are going to be different than if you are a subcontractor wanting to give a form to your general contractor.
1. You want to give a narrow release
You want to give the narrowest release possible when you get a check, and you want to get a broad release when you give a check. We will explain later what the terms narrow and broad mean. But essentially, understand that you have lots of rights as you perform construction work. The release is just intended to release those rights, typically through a period of time.
Now you can release some of your rights, many of your rights, or all of your rights. When you release just a few of your rights, that would be considered a narrow release. When you release many of your rights or all of your rights, that is a broad release.
For example, if you are a contractor and you are giving a check to a subcontractor, you want to make sure that you get the broadest release possible. You do not want the subcontractor to come back later and say that they gave you a lien release or that they have delay claims and extended general condition claims that they never released every month.
So you want to make sure that when you give a check during that month that all those claims are released, and the converse is true for a subcontractor.
2. Different types of release forms
Now we will have a look at what is considered a default release which is the release that is found in Florida Statute 713:
The above form is a partial release and waiver form. Notice that it has two spots that are most important. Number one is the amount of money that you are expecting, and number two is the date that the release is effective through.
Now we will compare this to a final release form:
You will notice that this form is very similar to the previous form except that it does not have a through date. It only has the date where you are going to put in the amount of money that you are expecting. The reason is because it is effective on the day that you execute it. So, the final release is intended to be effective in releasing all of your rights for that amount of money through the date that you sign it.
Now 713 releases (the statutory release forms) are forms of release that only release lien rights. So, we will now take a look at another release. As you can already tell, it is a lot longer.
The biggest difference between the third form and the other two forms are that the last one says $10. Generally speaking, the fact that a release says $10 is fine. It is still an enforceable release. But as a contractor or anyone who is giving checks and giving releases, you want to make sure that you use $10 if you can.
If you are getting a check and giving a release, you would like to list the amount of money that you are getting. The reason for this is because you want to make sure no one can argue later that you gave up more rights for less money.
Now, the real crux of this release is in the additional items that are being released. So, if you look at what is getting released, it says in consideration of the amount above, that the undersigned releases its lien rights, as well as any claims, change orders, works, materials, delays, fees, costs, losses, expenses, damages, or sums for the labor, services, and materials furnished for the improvements.
So, notice that the string of items being released is much longer than in a statutory release. This means that if you sign a release that looks like this (most general contractor and owner releases are like this because they want you to give up all your rights), you are giving up any claims for additional fees for change orders that may not be executed for possible delays claims. And you may want to argue about these later.
So, understand that this broader release is giving up a lot more rights. Read the releases before you sign them, so you know what you are giving up.
3. If you agree to a form of release, you may be bound to use it
If you agree to a form of release in your contract, or the contract says that you agree to a form that you will be given later, and you agree to sign the form that is acceptable to them, then you may be bound to use that exact form later.
4. Negotiate the form of release as part of your contract negotiation
When you negotiate your contract with an owner or contractor, or even as a sub-subcontractor with a subcontractor, that the form of release that is attached as an exhibit to the contract, needs to be looked at by you as well. Do not just look at the terms, conditions, and the scope of work, but all of the exhibits, including the release forms.
And if you do not like the release forms that are part of the contract, you need to modify them at the time of the contract. Because if not, then you will not be able to change them later and argue that you have other claims you want to assert.
What is the one thing you should always do with every lien release?
One thing you need to do with every release no matter what, is match the “through date” with the dollars that you are getting. Every progress release has an amount of money that is being presented and a through date that the release is effective through. Also remember the following:
1. The through date is the effective date of the release
The through date is the effective date of the release, not the amount of money. There are lots of people who think it is okay. For example, if someone is expecting a $50,000 check, they get paid only $40,000 and they submit it with their payment that says $50,000, they think that if they sign the release through the end of the month that they are still entitled to the $10,000. But this is not true.
2. The through date matters most
The effective date of the release is what is going to govern between the amount of money and the date, but the through date is the through date. If you look at the release that you are being asked to sign, and you are expecting a $50,000 check to get you to the end of the month and they are only giving you a $40,000 check, you only have two options.
3. Change the through date, the payment amount, or both
Option 1 is to change the date of the release. If $50,000 gets you through the end of the month, then you look at your invoices and billings to figure out that $40,000 gets you to the 22nd of the month. So, you need to change the through date to the 22nd. Alternatively, if you are not going to change the through date, then you need to change everything else so that you get the $50,000.
Because if you are not going to get that amount to the end of the month and you sign a release with a through date through the end of the month, you will lose all of your rights and your lien rights through the through date.
A conditional release is any release that is conditioned in actually receiving the money that you are expecting.
A sample of the language that you can include in any release is given below. You can handwrite it, or you can type it in. The way it is included does not matter as long as it is there.
“Notwithstanding anything to the contrary, this waiver and release is conditioned upon and not effective until the undersigned receives paid funds of $___.”
As you can see, there is a blank. So, if you are expecting a $50,000 check and you provide a release in advance of getting the money, using this language and putting $50,000 into that blank, then until you get that amount, that release is not effective.
1. Watch out for releases titled “conditional,” that are not
Be careful with releases that are titled as conditional but when you read the document, they are in fact not. So, the title of the document by itself does not govern how it works. What matters is the content in the body of the document.
Many times, releases that are titled conditional releases, but when you read them, they are not conditional at all. So, read them first and make sure they have language that expressly conditions the release on you receiving the money that you are expecting.
2. Indicate the amount of money to satisfy the condition
Under no circumstances can you have a conditional release for $10 unless you are only expecting that much. But if you are expecting a $20,000 check and you have a conditional release, the condition of the release is that you get paid what is in the release. So if it only says $10, then that is not a good release because it is only conditioned on you getting $10.
3. As a general contractor, watch out for conditional releases from certain individuals
As a general contractor, you need to watch out for conditional releases from your sub-subcontractors and suppliers to your subcontractors. The reason for this is because, as a general contractor, you can accept a conditional release from your direct subcontractors and direct vendors because you are controlling the condition.
You are writing them a check and they are giving you a release so you know the condition is satisfied. But, if you are the general contractor, you hire an electrician, the electrician has an electrical supply house, they may give you a conditional release with the electrician’s release. Then if you give the electrician the money, and the electrician does not give the money to the supply house, you are holding a release that is conditioned on the supply house getting the money.
But you do not know that they ever got that money. You may find yourself in a position where you have given the money expecting it to get to the supply house. But it does not. So, you look at your release which is conditioned, so it has no force and effect in your favor. You may have to pay twice.
Now the project may get liened and the owner is going to expect you to bond it off. You may have a bond on the job. Because the supply house has all the rights to make a claim on your bond or lien the project until they get an effective release. A conditional release that does not have the condition satisfied by them getting the money is no good. So, be very careful.
The SunRay Release System
The SunRay release system is very helpful for subcontractors, sub-subcontractors, and material suppliers because all of the statutory forms are already in the system. You can store all of your releases online and all of the releases can be done for free.
All of the important language or statutory language that has been discussed above, including your final releases and conditional releases of lien.
For example, if you have a project that is going on for a year and a half, you can store all of your partial releases online, and they are already signed and notarized. So, you can go back and see what you were giving the general contractor, subcontractor, or even the owner of the property.
And if you are using the SunRay system, you can do all of your releases of lien for free. You just need to add an accurate through date and it will take you no more than two minutes to populate the forms. You will also have the ability to download the forms as Word or PDF documents and add your logo to personalize the forms.