A lien release is also known as release of lien, cancellation of lien, or a lien cancellation. It is a document that is used to cancel a lien that has already been filed, and to remove the lien claim from public records.
This blog is taken from a webinar hosted by SunRay Construction Solutions and featuring Alex Barthet. Alex is a board-certified construction lawyer serving clients in the state of Florida. In it, we will talk about how to properly exchange a release for a check and vice-versa depending on if you are giving checks and getting releases.
Releases and Their Various Forms
Let us take a look at the various forms of releases that exist so that you can understand how they work. But before we do that, you need to understand where you are in the chain of command to understand what type of release you want to give that is in your best interest, and what type of release you may want to get. This depends on whether you are a general contractor or a sub.
1. Give a narrow release or broad release depending on whether you give or get a check
Generally, you want to give a narrow release when you get a check and get a broad release when you give a check. You want to give away the fewest of your rights possible when someone is giving you a check. And if you are giving someone a check and getting a release from them, you want them to release as many of the rights that they have as possible.
So, think about it like this; if you are a general contractor and you are giving a release to an owner and getting a check, you don’t want to give away more rights than you absolutely have to. But on the flip side, if you are a general contractor and you are giving a check to my sub. You want to make sure that that sub is releasing any and all of their rights that they may have so that they can’t come back later and make a claim for unexecuted change orders or delays. So, that gives you an example of why this distinction is important.
Sample Waivers and Releases
Now we will have a look at a few forms of releases, so that you can see them in action. We will start with the release forms that everyone is most accustomed to in Florida. Those are the ones that are found right in the Lien Statute Chapter 713. The chapter 713 release forms come in two variants: Progress Payment Release form and a Final Payment Release form. First, let us start by talking about the Progress Release Form:
In essence, it is a release of all your lien rights for a certain amount of money. So, the release form has a blank space in it where you are going to put in the amount of money. Maybe you are expecting an $87,000 check; you are going to write 87,000 there.
The next very important part of a Progress Payment Release form is that it has a through date. And that is where you are going to put in the date that the payment represents. Don’t enter the date as today, which is the day that you are signing. So, if you are getting paid through the end of January, the date you are going to put in, is the end of January.
Now let us take a look at the 713 Final Payment Release form.
It looks almost identical. It has a little spot where you will put in the amount of money that you are getting, but what is missing is the through date. And that is because it is effective any other day. If you sign a final payment of release on the statutory form, you are releasing all of your lien rights from today back. So, you have to be careful about that when you sign a Final versus a Progress Payment.
Now the two releases shared above are the basic releases. This is the form that usually gets exchanged when people want to give and get releases. But there are many other forms that exist.
Typically, we find the other forms in the contracts as exhibits. So, below is a sample release that is much longer, and this is what we would call a broad form release. Now this release releases not just lien rights but rights for lots of other things. So, let s step through this release
Here is a sample release that is much longer, and what is generally known as a broad form release. Now this release, releases not just lien rights but rights for lots of other things.
What it is releasing unlike the statutory form, is a lot more things, as seen in the first paragraph. Now it is important to understand that when you sign a broad form release like this, you are giving up any and all rights you may have prior to either the through date in the release or the day you sign it, depending on whether it is a progress release or a final release.
This is unlike a statutory release which is found in the Statute Chapter 713 and only releases lien rights. Meaning if you release your lien rights but you also have a claim for delay, then you may still be able to bring that later when you decide to make a claim. However, if you sign a broad form release, and that includes a release for anything and everything under the sun, you cannot later bring a claim for delay damages extended overhead. And the reason is that those types of claims are specifically recited as being waived in the release. Again, in this release, it says you are releasing any and all claims, change orders, works, delays, fees, etc.
This release is a progress release, so it has the through date. But if you look, this release also has other representations and warranties that it is asking you to make every time you sign the release. So, when you sign this, you are saying “I have paid all my bills.” And the reason that is important is if you sign it and you have not paid your bill, someone could bring a claim against you for making a material misrepresentation about what you said in this release.
What the second to last line says is a representation warranty that does not exist in the statutory form. But now it is something you are saying every month. If something is not built correctly or not built to code, there may be claims against you based on the contract. But now they are getting you to represent warrant that all of that is true every month.
So, you have to be very careful when you sign releases that have lots of words. The more words mean that you are much more likely to be releasing lots of rights that you have every month. Now as a contractor who hires subcontractors, you want a release like this. You want to know that your subs are releasing everything under the sun in order to get their check.
Please note that this also applies to subcontractors with respect to your sub-subcontractors. So, if you are a mechanical subcontractor and you hire a sheet metal sub-subcontractor, you would like your sheet metal sub-subcontractor to sign a waiver and release like this so that you know that you are getting a release from of all the rights that they have.
Now be aware that if you have claims like unexecuted change orders, or delay claims, and you want to preserve those claims for later, you cannot sign a release that has all of this language in it. Because you will be giving up those rights later. You will not be able to make those claims.
So how do you deal with this in the course of your negotiations? Well, the best time to do it is at the time you are reviewing the contract. Usually, the form of release that is going to be demanded upon you is an exhibit to the contract. When you review your contract, before you sign it, if you want to make changes to the release, that is the time to do it.
Sometimes it may not have an exhibit as a release, but it says that you agree to use any form of release that is acceptable to the contractor. Well if that is the case, then the contractor may present you with a release that you are going to be obligated to sign. So, sometimes people think that they do not have to sign any release but the release that is found in the lien statute. And that generally is true, except for when you sign a contract that says you will sign a specific form of release.
Always Do This One Thing with Every Release
Now we will talk about the one thing you absolutely need to make sure of every time you sign a release. This is a mistake that people make on a pretty regular basis.
1. Match the through date with the dollars
You need to make sure that the through date of the release matches the amount of money that you are getting for that month. For example, you submit a $100,000 pay request and that request is supposed to get you to the end of the month in January. You sign a release with the through date as of the last day in January. You go to pick up your check and that check is only $80,000, but you were expecting $100,000. Some perceive that it is okay because they submitted a $100,000 pay request and they only get an $80,000 check, so they were shorted. They think they are okay and that just because the numbers do not match now, that next month they will be paid the other $20,000.
2. The through date is the effective date of your release
The problem is that the through date of the release is what is going to govern the applicability of that release, not the amount of money.
So, if you sign a release irrespective of the amount and it still has a through date, if you go to court with that singular issue, the court is going to say that the through date controls.
The judge is going to say something like, “I’m sorry that you did not get all your money, but you agreed that whatever you got was going to be enough to get you released through that through date.” They are not going to second-guess that release.
3. The through date will control the payment amount
You need to make sure that the through date and the dollars match. If we go back to the example above, you are only getting $80,000 instead of $100,000. You need to backdate the through date (move the through date back) to a date that represents the $80,000. Maybe it is the 27th of the month or maybe it is the 14th of the month. You have to figure out what date that is so that you can match up the dollars and the date.
4. Match the through date and the payment
If you are asking someone to give you a release and you are going to pay them, you should have that release say $10. This is so that you do not even need to have the argument about whether the release is at $100,000 or $80,000 from the prior example. If it says $10, then the court is going to assume that you got enough, and they are not going to look to see whether it was $50,00, $80,000 or $100,000. If you are giving a release and getting a check, it is strongly encouraged that you try to always put in the amount of money that you are expecting. Not that it fixes every problem, but it at least helps to give you an argument later.
If you gave this release in exchange for $100,000 and you only got $80,000, you did not get all of the consideration to make this release valid. That is a much weaker argument than the fact that the through date says the end of the month. But at least you have something to argue about versus if it says $10. The court is not even going to consider any argument with respect to the amount.
What About Conditional Releases?
Conditional releases are an important thing you need to keep in mind.
A conditional release is expressly conditioned upon payment (use when you do not have the money in hand).
Here is a sample sentence that you can add to any release. There are different ways to write this, but this is just one example:
“Notwithstanding anything to the contrary, this waiver and release is conditioned upon and not effective until the undersigned receives paid funds of $___.”
If you put this in any release, that release then becomes conditional. You can handwrite it in, or you can type it in. You can even make a stamp that says this. So, if someone gives you a release that is not conditional, you can just hit the stamp on the release, and write in the amount. That release then becomes a conditional release.
1. Watch out for releases titled as “conditional” that are not
Sometimes you may see releases that are titled as conditional releases, but they do not have conditional release language in it. So, be careful with that. You may get a release thinking that you need that you need a conditional release and that it’s a conditional release, but in fact, legally, it is not. So, it has to have a specific condition in it like the one that we have shown above.
2. Indicate the amount of money to satisfy the condition (not $10)
You also need to include the amount of money that you are expecting to receive. So, you cannot have a $10 conditional release because the condition is just the receipt of $10.
3. As a general contractor, watch out for conditional releases from sub-subcontractors or suppliers to your subcontractors.
Watch out for conditional releases from people that you are not paying directly. That is typically sub-subcontractors or suppliers to your subcontractors. And the reason this is important, is because a conditional release is still a good release once the condition is satisfied.
But if you are the contractor and you pay the electrician, and the electrician gives you a conditional release, once you show that you gave him the money, then the condition is satisfied, and the release is effective. But if you take from the electrician, the conditional release as well as a conditional release from his supplier, you pay the electrician, and you satisfied the electrician’s condition, but the electrician does not pay the supplier, then what you are holding is worthless. Because that condition of the supplier getting their money has not been satisfied.
So, if you are getting conditional releases from people that you are not actually issuing the check to. You need to make a business decision. Can you trust them enough that you are going to send that release? That they are going to pay their bills? If not, you have two choices:
Option 1 is to tell (like in the above example), the electrician that you will accept the conditional release from them, but you will not accept the conditional release from the supplier. So, you will not pay until you get the unconditional release from the supplier.
Option 2 is to tell both the supplier and the electrician that you are going to issue joint checks and that you are going to control the conditions that will be put in place. You are going to give the electrician their money and give the supplier their money. If they accept the conditional release on those, then they know that you can satisfy those conditions because you are issuing the checks yourself.
Learn More About the SunRay Release System and How We Manage Client Releases
If you use our services, all you have to do is go online, access your portal, and all of your waivers can be handled there. All of your releases are also stored online and can be done for free at no additional cost. This can be done all through the SunRay application, and the releases can be personalized by adding your logo.
All the releases available on the SunRay application include:
- Conditional Waiver and Release on Final Payment
- Conditional Waiver and Release on Progress Payment
- Unconditional Waiver and Release on Final Payment
- Unconditional Waiver and Release on Progress Payment
The great thing about this is that if you have several people in your department, one person goes on vacation and you want to see if they did a release or not, you can. You can even download the forms in PDF or Word formats.
Making changes to the forms is not recommended but you still have it as an option.
Once the forms are notarized, you can upload and store all your waivers and releases of liens. So, in the event that you do have to go to court and the attorney asks you for all of your waivers and releases, all you have to do, is download them right from the management section of the waivers and releases page.