I RELEASED WHAT? WORDS MATTER, BE CAREFUL WHAT YOU SIGN
By: Michael E. Stearns, Esq., Stearns, Roberts & Guttentag, LLC
There is perhaps nothing more common in Florida’s construction industry than the concept of providing a release in exchange for payment. Every day, contractors, subcontractors and suppliers execute releases in exchange for payment or in anticipation of payment. Understanding what you are signing and the legal effect it has on your rights is critical to preserving your right to payment.
As a starting point, it should be noted that lien or bond rights are cumulative. These rights can be thought as one stick (albeit a very important stick) in the bundle of sticks (or rights) which you gain from the performance of your work. Other sticks include your contractual right to payment and your equitable right to payment.
Florida’s construction lien law, Chapter 713, contains forms of lien and bond releases for both progress payments and final payment. Under the lien law, these are the only forms that a contractor can require you to sign. If you otherwise agree that a broader form of release will be used then a contractor can insist on the broader form. This most often happens when there is a release form included in your contract. The statutory progress payment form provides:
WAIVER AND RELEASE OF LIEN
UPON PROGRESS PAYMENT
The undersigned lienor, in consideration of the sum of $_____, hereby waives and releases its lien and right to claim a lien for labor, services, or materials furnished through (insert date) to (insert name of your customer) on the job of (insert the name of the owner) to the following property:
(description of property)
This waiver and release doe not cover any retention or labor, services, or materials furnished after the date specified.
DATED ON ________ By: (lienor)
This form has several distinctive features. First, note that retainage (or retention) is not released. Second, note that the only thing that is being released by virtue of this document is your “lien and right to claim a lien”. This release therefore does not release contract rights or equitable rights. Compare other common and far broader release language such as:
“The undersigned, for and in consideration of payment of $______, hereby release all liens, lien rights,claims and demands of every kind whatsoever, which the lienor now has or might have against the property, contractor and/or arising out of the project identified as ______________”
In reviewing this language it is readily apparent that the person executing this release is releasing his entire bundle of sticks (or rights) and not just his lien rights as is the case with the statutory form.
Another distinctive feature of the statutory form which is also commonly used in other forms is the concept of a “through date.” By executing a form that states that you are releasing your claims through a date certain that is precisely what you are doing. You can’t come back later and argue that you did not intend to release your claim for change order work or delay damages, for example, that were incurred prior to the “though date”. It is not uncommon for a subcontractor to perform change order work that is not immediately memorialized in a change order and so not immediately paid. If you execute a release with a through date after you perform that work you give the other party the argument that you released your rights to payment as to that work, be it your lien rights via the statutory form or all of your rights via a broader form. To avoid doing so you need to add an exclusion to the release. It does not have to be fanciful. It can be hand written. Language such as, “this release excludes and does not release lienor’s claim for extras due to delays” or “this release excludes and does not release lienor’s right to payment for change order work relating to ( describe the work performed)” are perfectly effective to preserve your rights.
A far more favorable release (for the party executing the release anyway) is one that does not have a through date but rather simply states that the lienor is releasing his lien rights “to the extent of the payment made”. Compare:
The undersigned lienor, in consideration of the sum of $100.00, hereby waives and releases its lien and right to claim a lien for labor, services, or materials furnished through June 12, 2010.
The undersigned lienor, in consideration of the sum of $100.00, hereby waives and releases its lien and right to claim a lien for labor, services, or materials furnished to the extent of the payment received.
In the first example, the lienor has waived its lien rights for all work performed prior to the date of the release. In the second example, the lienor has only waived his lien rights to the extent of the payment made, in this case one hundred dollars.
Another important release issue is the concept of the “conditional release”. There are also statutory forms for conditional releases in Florida’s construction lien law. By use of the word “conditional” you are alerting those “upstream” from your customer to whom you are providing the release that you have not yet been paid and that the release is not valid unless and until you do get paid. This language is not so much necessary as between you and your customer, however, it is critical in preserving your lien or bond rights. For example, if you were a subcontractor of mine and I gave you a check in exchange for standard, unconditional release and my check was dishonored (something that never happened by the way during my years as a contractor), the release would be ineffective as to me. I could not claim that you had no further right to payment based on the release. This is because the consideration I gave you for the release, the check, failed when the check was dishonored. As between you and those upstream from your customer who rely on your unconditional release and make payment to another, the result in just the opposite.
Considering the following example. A supplier to a subcontractor executes a standard unconditional lien release but is, in fact, not paid. It is explained to the supplier by his customer that the release is necessary so that the owner will pay the contractor who will in turn pay the subcontractor who will then pay the supplier. If the subcontractor provides the supplier’s release to the contractor who then pays the subcontractor in reliance on that release then the supplier has no rights against the contractor’s payment bond if its customer, the subcontractor, never pays him. Using this same example, and assuming there is no payment bond, if the contractor gives the supplier’s release to the owner who then pays the contractor in reliance on that release then the supplier’s lien rights as to the owner’s property are lost whether or not the supplier ever gets paid. On the other hand, if a conditional release is used, you do not give up your lien rights or bond rights unless you are in fact paid.
Another common question is whether a faxed release is effective or whether an original document is required. Most often, a faxed release is effective and an original document is not required. An exception could occur if there was a course of dealing between, for example, a subcontractor and a contractor whereby the subcontractor would fax its release to the contractor and would only provide the original release upon payment. Note, however, that this exception would only occur if the owner were aware of this course of dealing between the contractor and subcontractor. If the owner where aware of this course of dealing then the owner would have no right to rely on the faxed copy of the release. If the owner were not aware of this course of dealing on the other hand (as would most often be the case) then as between the owner and the subcontractor the faxed release is effective.
Under Florida law, a lienor is entitled to use a conditional release of lien (or bond claim) in exchange for payment. This is a right that every lienor should exercise. Lien and/or bond rights can be the difference between getting paid and not getting paid if your customer stiffs you. Understanding what you are signing is critical to getting paid.
About the Author Michael E. Stearns has practiced exclusively in the area of Construction Law since 1996 and was designated as a Board Certified expert in construction law by the Florida Bar in 2005, the first year this designation was available. Mr. Stearns is “AV” rated by Martindale Hubble – the highest professional peer rating for legal ability and ethical standards. He is listed among the “Best Lawyers In America”, “Florida Super Lawyers” and “South Florida’s Top Lawyers”. Mr. Stearns got his start in the construction industry working as a carpenter while attending the University of Florida’s M.E. Rinker College of Building Construction where he earned a Bachelor’s Degree in Building Construction. He has held a Florida State Certified Building Contractor’s license since 1989 and directed multi-million dollar construction projects as a project manager before attending law school and embarking on his legal career.