Critical Construction Release Mistakes to Avoid
There is no shortage of uncontrollable problems that can plague a construction project and cause a contractor to lose money. Savvy contractors understand this concept and proactively manage issues within their control, such as project releases in exchange for payment. The release gives away or “waives” the contractor’s right to payment, which means additional thought and caution must be used to avoid giving away more than what was intended. The following list provides important guidelines.
1. Use Local Statutory Releases that Protect Contractors.
Typically, the applicable law provides that a party may only require a contractor to sign releases that are substantially the same as the form releases in the statute, and also, that contractors may make the release contingent upon payment of the check. Here is an example of a contingent payment partial release to use:
WAIVER AND RELEASE OF LIEN UPON PROGRESS PAYMENT
STATE OF FLORIDA )
SS:
COUNTY OF PALM BEACH)
The undersigned, in consideration for a partial payment of the sum of $__________, receipt of which is hereby acknowledged by ______________ Check No.: _________, does waive, release and relinquish its right to claim a lien or liens for labor, services or materials furnished through _______________, 2017 to _____________________, on the following described property:
OWNER:
JOB ADDRESS:
LEGAL:
This Partial Release of Lien is given pursuant to §713.20(4), Fla. Stat. This Partial Release of Lien is conditioned upon payment (cleared funds) of said Check No.: _________, otherwise it is void.
Signed, sealed and delivered this ____ day of _______________, 20__.
_________________________________________
By: _______________________
Its: _______________________
2. Strategies to Manage Dangerous Releases.
But what happens when a general contractor or an owner demands that you use their form of release that goes beyond what the law requires? At a first option, if you have not already signed a contract that requires you to sign the release (see below), is to point out that under Florida law you are only required to sign the statutory form. But, experience tells us that the “legal” approach is not always so well received.
If it looks as though you will be forced to sign the onerous release to obtain payment, stop and determine how much risk is involved in signing the release and whether you can may other revisions. For example, where the release includes an affidavit that all subcontractors and suppliers have been paid through the date of the current payment application, one often accepted change is to revise the release to agree that all subcontractors and suppliers were paid through the last pay period, or to the same extent that owner has already paid the contractor (or contractor paid subcontractor).
3. Look for Dangerous Release Requirements Before Signing the Contract.
Protecting yourself from dangerous release language starts before you sign the contract. Many times the contract will include language that “contractor shall execute releases in the form provided, a copy of which is attached.” Obviously, this can be dangerous where the release does not follow the statutory form. You have now contracted to sign that form of release before you get paid.
These expanded releases include requirements that contractor affirm payment of all subcontractors and suppliers through the date of the release, but in advance of receiving payment for that pay period, regardless of whether contractor receives payment at all. One way to revise such language would be to add “to the same extent that contractor has been paid.” Another approach is to cross out the language and replace with: “Contractor has paid subcontractors to the same extent that owner has paid contractor.”
Another version requires the contractor to expressly waive any claims that it may have, regardless of whether contractor has knowledge of the claim, at the time of signing the release. We regularly revise contracts to include the following: “in exchange for payment, contractor shall provide releases in the form provided under applicable law.” The statutory form does not include additional onerous terms, which resolves the issue.
In addition, be sure to include language that the release is contingent upon payment and insist that contingent payment language be included. Push back and cite to applicable law that often provides that a person may not require a lienor to furnish a lien waiver or release of lien that is different from the forms in the statute.
4. Be Careful When Signing “Through Date” Releases (including the statutory form).
We see this far too often. Contractor incurs additional costs due to, for example, delay outside of its control, performance of additional work, acceleration or lost productivity. However, because the amount of the extra is not yet known, contractor fails to either: (a) bill for the additional cost; or (b) identify the cost as an exception on the release. Instead, contractor executes a partial release in exchange for payment which provides that contractor “waives and releases all liens, claims and demands in connection with the construction project through the date of execution of the release.”
The effect of signing a “through date” release is that any claims for delay, change orders, additional work or inefficiency that arose before the “through date” period are waived. Loss of revenue connected with a serious delay claim can be devastating. Remember to take the time to write in all exceptions in the release so they are not waived.
In addition, keep in mind that the statutory release form is a through date release. Although the form protects contractors from meeting onerous conditions, it also protects owners by waiving claims through the date of signing. When preparing payment applications, require project managers to verify that everything is billed, all delay notices have been sent and all change orders have been signed. If not, address in the payment application and note exceptions on the release.
It is easy to make a mistake with a release. Stop, take the time to analyze every release and consider exactly what you are giving away before you sign. If you are not sure what the language in the release means, don’t take a chance. Send the release to a knowledgeable construction lawyer.
Bruce Loren, Esq. and Michael St. Jacques, Esq. of the Loren & Kean Law Firm are based in Palm Beach Gardens and Fort Lauderdale, Florida, and devote their practices to construction law. Both Mr. Loren and Mr. St. Jacques have achieved the title of “Certified in Construction Law” by the Florida Bar, exemplifying the Bar’s recognition of this expertise. The firm’s construction clients include owners/developers, general contractors, specialty contractors in every trade, suppliers and professional architects and engineers. Mr. Loren and Mr. St. Jacques can be reached at [email protected] and [email protected] or by phone at 561-615-5701.