In this blog, presented by SunRay Construction Solutions and R. Russell O’Rourke, Founder and Director, O’Rourke Law Co., LPA, we will explore the essential elements and language you must carefully consider when dealing with release forms. Paying attention to these key pieces of information will help you preserve your ability to be paid successfully.
How do you know you’re not getting paid?
Here are some of the things that you will hear when not getting paid:
- You signed waivers releasing us.
- Contract requires you to sign our choice of waiver.
- Contract requires you to sign THIS waiver.
- If you file a lien (or don’t release the lien you filed), you will never get another job.
What is the Solution?
Now, in order to have a fair contract, which also includes getting a good waiver, you have to condition your bid as well as negotiate your contract. When you are conditioning your bid, one of the most important steps is to include specific lien waiver forms.
What are Waiver Forms?
A waiver form is a legal document used to facilitate the exchange of payments between contractors, subcontractors, suppliers, and property owners. There are typically four different waiver forms. Although, they may sound similar, they are all different from each other:
- Conditional Partial
- Unconditional Partial
- Conditional Final
- Unconditional Final
What is a Conditional Partial Waiver Form?
This waiver is used when a contractor, subcontractor, or supplier receives a partial payment for their work, but the payment is still subject to clearance or verification, typically in the form of a check or electronic transfer. By signing this conditional partial waiver, the party acknowledges that they have received the payment, but they do not waive their lien rights until the payment is confirmed or clears.
What is an Unconditional Partial Waiver Form?
This form is used when a contractor, subcontractor, or supplier has received a partial payment, and they waive their right to place a lien on the property for the specific amount they have been paid. Unlike the conditional partial waiver, this waiver is unconditional and takes immediate effect upon signing, regardless of whether the payment has cleared or not.
What is a Conditional Final Waiver?
When a contractor, subcontractor, or supplier receives the final payment for their work, they may sign this conditional final waiver. Like the conditional partial waiver, the conditional final waiver acknowledges receipt of payment but does not waive lien rights until the payment is verified or cleared.
What is an Unconditional Final Waiver Form?
This is the most comprehensive waiver and is used when a contractor, subcontractor, or supplier has received the final payment and confirms that all outstanding dues have been settled. By signing the unconditional final waiver, they waive their right to place any further liens on the property for the project in question.
It's important for construction professionals in Ohio to use the appropriate waiver form depending on the payment status and ensure that they fully understand the implications of each type before signing. These waiver forms help facilitate transparent financial transactions and protect the interests of both parties involved in a construction project.
Best Practices to deal with Release Forms
- Never solely rely on the title of a release form in the construction industry.
- Some release forms may have misleading titles, indicating a certain type of waiver (e.g., Conditional Partial) while the actual language inside the form makes it an unconditional waiver.
- Always read the content and language of the release form carefully to understand its true nature and implications.
- Misinterpreting a waiver form could lead to unintended consequences, such as forfeiting lien rights prematurely or misunderstanding the payment status.
- Properly identifying and understanding the type of release form is crucial to protect your interests and rights in a construction project.
- When submitting bids or dealing with payment releases, ensure that the language of the waiver aligns with the intended conditions and payment milestones.
- If in doubt or uncertain about a release form, seek legal advice or consult with industry experts to avoid potential disputes or financial risks.
There is a very popular case in Ohio – Complete General Construction v. Kard Welding -
- Kard sent in their bid with various conditions included, and one of the major conditions was that the bid is good for 90 days.
- However, their estimator came back with the remaining bid after the initial bid was sent. The revised bid was worth about $100,000.
- So, Kard immediately amended their bid and sent it in. However, Complete said that they only saw the first bid and gave Kard the job based on the first bid.
- What happened was that Kard did not do the job, and Complete found somebody else to do it, and they also sued Kard for the difference. This is the usual remedy where if you have bid on a job and don’t do it, then contractor then hires someone else to do it. You then must pay them, or you are liable to pay them the difference between your bid and their price.
- Kard and Complete got into a lawsuit wherein Kard defended themselves saying that Complete did not accept their terms, which was to accept the bid in 90 days.
- The Court agreed and ruled that Complete breached the terms of the bid, and hence they cannot hold Kard to the bid.
The bottom line here is that if you bid without restriction, you can be held liable as per the terms that are common in the construction industry. So, if you don’t want a pay-if-paid clause in your contract, then you need to specifically mention that in your bid. This is also where your negotiation part comes into the picture. There may be certain things that you absolutely want to do and some things where you may have to give up the job. In the end, it comes down to your negotiation skills.
What are Unconditional Waivers?
Let’s discuss unconditional waivers. You need to look at a couple of things:
- Whether or not you have finished the work?
- Are you going to have a partial or final waiver?
- Have you been paid?
It is possible for you to have an unconditional partial waiver. Ideally, the procedure is that you get paid and give an unconditional waiver to the contractor, who in turn sends it to the project owner, who then pays the contractor. However, this is not the case in most of the scenarios.
Typically, what happens is that the contractor does not pay you until you provide them with the waiver, which they then provide to the owner who pays them, and then the contractor pays you. You must remember that if you give an unconditional waiver before you get paid, the owner can defend themselves against any Mechanics lien that you file.
This is what an unconditional waiver release form will include:
In consideration of the sum of $XXXX.XX, the receipt and sufficiency of which hereby acknowledged, the undersigned does hereby waive….
Let’s say that you are letting the owner through the contractor that you have been paid. The owner can rely on the waiver that you have been paid. In such a situation, you can defend the waiver to that contractor because they haven’t paid you; however, you cannot defend against the owner unless they know that you have not been paid.
What are Conditional Waivers?
A conditional waiver comes into the picture when you are still waiting for the check or if you have received a check, then waiting for it to clear. A conditional release waiver form will have the below language:
Upon the receipt of payment of the sum of $XXXX.XX, and when the check clears the bank on which it was drawn…
There are two situations here – one is that you have not received a check and second is you don’t know if the bank is going to clear the check. Typically, how it works is you give them an unconditional waiver and in return they pay you and as soon as you get the check or the bank clears the check, you give the unconditional waiver back.
This goes back and forth till the end of the job wherein you have received all the money owed to you, and you finally give them an unconditional final waiver release form.
What are Partial Waivers?
Let’s say you are still owed some money, such as the project is not finished yet, or there’s a retainer, or there are unresolved change orders. In such cases, you can either give a partial or a final waiver. However, you must call out the money that you are owed, such as everything except change order 1, 2, and 3 which are unresolved.
If you fail to call out the money that you are owed, then you can end up waiving those amounts to both the contractor and the owner.
What are Final Waivers?
If you have been paid in full, including retainage, and all issues are resolved with no conditions, then you can go ahead use the final wavier release form. It will include the language:
The undersigned certifies, represents and warrants that the undersigned has been paid in full … and hereby waives and releases any right to a mechanics lien, stop notice, claim, choses in action or any right against a labor or material bond on the project.
What are Overbroad Waivers?
When you sign the final waiver, it releases everything through the date thereof. If it is truly the last waiver, then you should go ahead and sign it. However, if it is not, or if there is an interim block, then you may get stuck with an overbroad waiver – something that you should never want.
For example, as per the procedures, once you put in your pay application and if everything goes well, then the owner needs to pay the contractor within 30 days and the contractor pays you within an additional 10 days. Now, what happens if you give a waiver that says through the date thereof?
- For example, you started work on 1st of July and worked for 25 days.
- You have put your pay app and you will get paid as per the procedural timelines.
- Now, if you give them the waiver on that day and sign it on the day you receive the check, you have just waived off almost a month and a half of your lien rights and anything that has happened there. This is an overbroad waiver, and it contains the language:
Waivers and releases any and all liens, claims or claims of lien it has upon the foregoing described property through the date of this waiver.
What date should be mentioned in your waiver?
The most common form is “… effective through the date hereof.” The only time it is okay to deal with an overbroad waiver is if it is your final waiver after the payment.
Note: If you have been paid in full but the retainage is not included, then don’t ever waive your lien rights away!
How to avoid Overbroad Waivers?
There is possible relief for overbroad waivers. Here are ways to avoid overbroad waivers:
- Always, always read and understand everything before you sign the waiver.
- If you are unsure about anything, always consult an experienced construction lawyer.
- You can either modify the waiver, remove stuff, or add a footnote.
Finally, if you haven’t been paid, then the one thing that you really want to see in your waiver is:
Upon the receipt of payment and when that check clears the bank on which it is drawn.
So, the key takeaway is to ensure that you thoroughly read the waiver forms, not just the title, understand the language, and ensure that you are using the right lien waiver form at the right time.