In this blog, presented by SunRay Construction Solutions and Joshua Quinter, Principal, Offit Kurman, Attorneys at Law, learn in detail about how to deal with lien releases in New Jersey and what are the key things to watch out for in a release before signing it.
Waivers v. Releases
As mentioned above, lien waivers and lien releases are two different types of documents, and it is important to understand the differences so that you can deal with them accordingly.
- Waivers are an agreement not to file a lien before the right to do so materializes. Typically, how you deal with a waiver is you would sign a contract and you would agree to waive your lien rights before the project has even started.
- Waivers typically do not require any kind of consideration.
- Releases are a promise not to file a lien after the labor and material has been provided and the right to payment and/or a lien claim materializes. So, in the cases of releases, the event that would trigger the lien has already occurred.
- Releases usually require some form of consideration.
- As a general practice, it is recommended that you don’t waive or release your lien right unless consideration is provided.
- In the case of a waiver, require some form of security for payment to be in place; and
- In the case of a release, ensure that the payment serves as the consideration.
Different states have different regulations in place. For example, in Pennsylvania, you can sign a waiver; however, as per the mechanic's lien statute, you can ask the contractor, subcontractor, or supplier to waive their lien rights only by putting a bond on the project.
For releases, the general consideration is that you will release your lien rights in exchange for the payment due.
Things to Watch Out For
Here are a couple of things that you need to watch out for in your release documents.
A) “Waiver and Release of Lien”
- Every document will typically have titles on them, right at the top of the page, in the middle. Now, typically, the proper title for a release document would be ‘Release of Construction Lien’. However, nowadays, these documents have the title as “Waiver and Release of Lien”.
- As a rule, if you have the term waiver only in the title, and the concept of waivers is nowhere else, then you are mostly going to be okay.
- But the recommended practice is if it is just a release, then you should strike off the term waiver. This is because such superfluous language will only cause confusion later.
- With just the term release in there, it becomes easier to have the conversation that in order to release your lien rights, you need to get paid; and unless you don’t get paid, you are not going to release anything.
B) General Release Language
- Another key thing that you should be on the lookout for is the inclusion of general release clauses in your release documents. These are clauses that you would typically see at the end of a lawsuit on a case that is settled or cases where you are not just releasing things related to payment.
- What these general release clauses basically state is that once you receive the check, then you release any claim that you ever had on them, right from the beginning of the time till the tile you sign the release.
- So, what it means is that, not only are you releasing your right to file a lien, but you are also release all other claims, like delay claim, etc.
- The recommended practice is to consult a professional to take a look at your release documents, and if there are any general release clauses, make sure to strike them off.
C) Affirmative Certifications that you Paid Everyone
- The last thing that you want to look out for in your release document is the language that requires you to make an affirmative certification that you have paid everyone.
- In many cases, a release document will not only require your signature, but you may also have to get it notarized which means that you are stating under oath that you have paid everyone.
- Majority of the contractors can make a payment to the people below them only if they have received the payment. So, how can you make an affirmative certification that you have paid everyone if you yourself have not been paid yet?
- So, if you do see such language, make sure you tweak them to suit your purpose.
No General Releases
Here are some red flags related to general releases that you should watch out for:
- Don’t release claims for delay and other damages you have suffered – You do not want to sign a lien release which includes general release language because sometimes you may have a delay claim, or an acceleration claim, or even a change order claim. When you sign a release which has general release language, you are potentially giving up your right on all these other claims as well.
- Don’t release protections on personal injury claims – Let’s say somebody falls at the worksite during a pay period, and a claim comes along, and you get sued; but when you look into it, you find out that the person got injured because of a party upstream that had nothing to do with you. In such a situation, if you sign a release which includes a general release language, they have a defense against you. Even though there are workarounds for such situations, the best course of action is to just avoid signing a general release.
- Don’t release claim and defenses relating to defective work – As mentioned earlier, you do not want to sign any release wherein you are losing out your right to claim for any defective work.
The One Thing to Have in Your Release
So, what’s that one thing that you should have in your release?
- Make sure that your release includes the term “conditional”. The best way to do so is to ensure that the title of the document reads as Conditional Release of Liens.
- You also need to include a sentence in the body of the document, that the release is limited to the extent of the payment that you are about to receive. So, this makes your release effective only once you actually receive the payment.
- Many owners and GC’s will want you to provide the release document before they make the payment, and by adding the word ‘conditional’, you can ensure that your rights are protected, and you are also providing an assurance to the other party that you will be releasing your lien rights once the payment is received.
- If you are concerned about the entity who is paying you, and you are not sure if they have the funds to pay you, you can tweak the language a little and state that the release will be effective on actual receipt and deposit of the amount owed.
Lien releases are great leverages for ensuring that you receive what is owed to you; however, before signing any lien release, you must read the document carefully to make sure that the language included is favorable to you and there are no general release statements.
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