In this blog, presented by SunRay Construction Solutions, you will learn about all the key focus areas that you should focus on before signing any release forms. Adhering to this checklist will help you in getting paid correctly.
Checklist Point 1 - Settlement Amount
Before we get into the checklist, one of the first things that you should always do is consult your go-to attorney before signing any release. When dealing with a release, if there is money involved, i.e., a settlement money, then your release agreement should include:
- Form of payment (check, cashier’s check, wire, certified funds, etc.)
A release can come up in various situations. For example, maybe you are a general contractor being sued by your subcontractor for non-payment, or you are a project owner suing someone for some construction defect claim, or you are a contractor suing the owner for non-payment. Now if these disputes are resolved voluntarily without going to court, they will typically involve a settlement amount and a release.
So, make sure that your release clearly states the timing of the payment as well as the mode of payment.
Checklist Point 2 - Punch List/Warranty Work
When it comes to obtaining or giving a release, if there is any unfinished work or allegedly defective work, then a negotiated punch list or negotiated warranty work comes into the picture. It is very important to focus on the below items when dealing with these punch lists or warranty works:
- It is extremely important to be as detailed as possible about what work is going to be performed in exchange for the release. By being clear about the scope of work, you can avoid further disputes.
- You also need to be clear about who is going to perform the work. Will you as the general contractor or subcontractor perform the work or will it be carried out by a third-party?
- Once it is decided on who will perform the work, the next item to decide on is who will confirm if the work has been done and whether it has been done correctly. Again, this is something that will help avoid future disputes.
- Finally, you need to specify how much time that particular work will take – 1 month, 3 months, 6 months, etc.
Checklist Point 3 - Mechanics Lien
If the prime contractor or subcontractor is asserting a claim against the project owner for non-payment, it means that there is a mechanic's lien involved. A lien is probably already filed or there is an on-going litigation, a Notice of Lis Pendens, etc. When dealing with mechanic's lien, you must ensure that your release agreement addresses the below issues:
- Firstly, you need to identify all the outstanding liens on the real estate record.
- Next, you need to check how these outstanding liens are going to be handled. Typically, there will be an agreement that the lien will be released upon payment.
- Next, you need to check the timing of the release. You need to find out when the payment will be made which will in turn determine the timing of the release.
- Finally, if the intent of the agreement is a negotiated full payment, and if all the items are completed, then it would be a full and final release agreement, and not a partial release.
Checklist Point 4 - Dismissal of Any Pending Litigation
If there is a pending litigation, and the litigation is to be released or dismissed in connection with the settlement release agreement, then there are a couple of things that should be included in the agreement:
- Firstly, you need to decide who is responsible for filing the dismissal document. Ensure that the release agreement has the actual document as an exhibit which will be filed with the court.
- Next, you must get it reviewed by the Litigation Council to make sure that the language of the dismissal document satisfies all the conditions that are required as per the rules of whichever court you are filing it in.
- Finally, you also need to release the lis pendens. A lis pendens is a document that is filed against the real estate in the County Recorder’s office. It is a notice to the other parties who may have an interest or potential interest in the real estate that there is pending litigation that could affect the title to the real estate.
So, along with providing for a dismissal of a lawsuit, the release agreement should also provide for the time to release the lis pendens. This will ensure that the lis pendens is also released along with the lien, thus confirming that there is no encumbrance on the real estate.
For further reading, check out our article: A Contractor’s, Subcontractor’s & Supplier’s Step-By-Step Guide to Getting Paid
Checklist Point 5 - Release Language
The language of your release is one of the most crucial aspects. You must ensure that it covers the below topics:
- Mutual – Your release must typically be mutual in agreement. So, it is basically, I release you and you release me scenario, so that no one can sue one another after a settlement is negotiated.
- All Types of Claims – Your release should release all types of claims, such as contract claims, tort claims like negligence, equitable claims, etc. In short, it should be a comprehensive release of all the claims available.
- Known and Unknown Claims – The release should be for all known and unknown claims. The last thing you would want is to miss out on a release for unknown claims. Make sure that the release expressly says that it is a release of all known and unknown claims. You could also consult a lawyer to understand what your known and unknown claims are.
- Through Date of Agreement – The release should be through the effective date of the settlement agreement. So, for all the time, up to the date that the party signed a settlement agreement. If someone does something inappropriate after the specified date, then that would be a new claim.
- Sample Language – A typical release language would include the names of all the parties and their heirs, successors, affiliates, assigns, owners, etc., who are being released from all claims, demands, actions, suits, proceedings, complaints, liabilities, charges, damages, judgements, costs, and expenses of every kind and nature. It would also include claims for attorneys’ fees, costs in law, etc. Then you would also include the name of the contractor. This is a fairly broad language used in releases.
Checklist Point 6 - No Admission of Liability
Your settlement and release agreement should also typically include a ‘no admission of liability’ claim. It is basically a short provision in the agreement stating that by signing the agreement, you are not admitting that you are liable, only that you are trying to resolve a dispute.
Checklist Point 7 - Confidentiality and Non-Disparagement
One of the most important provisions that you should include in your settlement and release agreements is that of confidentiality and non-disparagement.
- Confidentiality – There are two major reasons why you should include the confidentiality provision in your agreements. Most construction professionals prefer to settle disputes rather than go for litigations. So, they prefer keeping things confidential. The other reason is that you get a good reputation from resolving your disputes.
So, when you include the confidentiality provision, it can help other clients avoid learning about what tactics and negotiation habits might work against you based on what they hear about settlements that you may have arrived at with other clients. Hence, it is important that each of your negotiation processes remains confidential so that it does not have an impact on future negotiations with other clients.
- Non-Disparagement – A non-disparagement provision will prevent people from settling with you on day one and putting up a bad review about you online the next day because they weren’t actually satisfied with the outcome. If you put in a non-disparagement provision, and they do post something online, you can always have your lawyer sending them a letter and asking them to pull the review down because it is a violation of the provision.
Checklist Point 8 - Attorney’s Fees and Costs
There should be a mutual waiver of attorney’s fees and costs. No one is paying the other side's fees, unless someone breaches the settlement agreement.
For example, if the client breaches the non-disparagement provision, pushing you to enforce the settlement agreement, and you win your claim that the settlement agreement was violated, then you can get your attorney’s fees for prosecuting that claim.
Apart from this, everybody is paying their own attorney’s fees.
Checklist Point 9 - Entire Agreement Clause
Finally, the agreement should include the entire agreement clause. What this means is that if there were any side deals or discussions which were not included in the written settlement agreement, then those discussions are not enforceable.
This is a common occurrence where the project owners may discuss something on the site or over a phone call, and it is brought up after the settlement agreement is signed. This typically happens with the scope of work. However, as per the entire agreement clause, only what is written down in the settlement agreement will be valid.
As you are aware, a release is one of the most important documents while working on construction projects, so make sure that you follow this 9-points checklist thoroughly and sign your releases only if all the terms and conditions are favorable for you.