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I Signed What? Take Care to Understand the Releases You Sign!

I Signed What? Take Care To Understand the Releases You Sign!

By: Ian T. Kravitz, Esquire

You have all been there. You are due monies on a project, cash flow is tight, and finally a check is ready. You are handed a release to sign, and do so without much concern. It is not until later that you learn the effect of that release. Although you have executed hundreds or thousands of releases under the same circumstances without a hitch, do not assume that this release will bring the same result. As we have written here before, release language can prove tricky to analyze.

First and foremost, you can never be forced to provide a release of lien prior to the work covered under that release being completed. Florida Statute 713.20, lien rights cannot be waived in advance. this is not always so straight forward. All too often, you are given a release to execute that releases your lien rights for all work furnished through the date on the release. Many times, the date inserted is the date that you are receiving payment. While this makes sense, WAIT! Ask yourself if the payment you are receiving covers all work furnished by you through the date of that release. If the answer is no, DO NOT EXECUTE THE RELEASE! As long as you receive some payment or consideration in exchange for that release, that release will be binding upon you through the date listed on the release. Even though you are only being paid for work furnished through an earlier date. This is the most common mistake we see made in releasing more than you ever intended. Once you execute that release and cash that check, you are without rights as to the value of work furnished through the date of that release. BE CAREFUL! If at all concerned, it is better to have the release reference the amount of the payment, and not the date through which rights are being released.

Another issue arises where you are asked to provide a release prior to being paid. You think you are protecting yourself by furnishing a conditional release, only to find out that your contract requires unconditional releases instead. This is the proverbial rock and a hard place. If you do not provide the unconditional release, you do not get paid. If you provide the release, you may never get paid. While this is something to resolve through a careful contract review prior to executing your contract, here is how you can handle this situation.

If you truly have no choice but to tender an unconditional release prior to payment, try this creative method we have come up with. Prior to tendering the release to your customer, tender a letter to all interested parties on the subject project that you think should know that you have not been paid in exchange for that release. These parties will include all contractors above you on the food chain, the owner, any persons designated to receive notice in the Notice of Commencement, and bonding surety, and lender, and any insurer. Send them a letter via overnight traceable delivery that states that you have executed a release, list the date of that release, and make clear that contrary to the language of the release, that you have not received payment in consideration for that release, and they should in no way rely upon that release in making payment to anyone unless notified by you in writing that you have in fact been paid. While this may cause a rub between you and your customer (whom you should not send such letter), this will prevent those other parties from legally relying upon that release to your detriment.

The next issue involves retainage, and other work that may have been furnished, but for which payment is not yet due. If you execute a release through a date after when such work was furnished, you may be waiving your rights to payment for that work. The way to protect yourself from such a loss is thorough the specification of exclusions on your release. For instance, if retainage is being withheld from your payment, the release may state that “retainage withheld for work furnished through the date of this release is specifically excluded from this release.” If for example you furnished materials to the project site that you are not yet entitled to payment for, you can have your release clearly spell out that “payment for materials in the amount of $ x,xxx.xx, which have been delivered to the project, is specifically excluded from this release.” The same goes for any change order work furnished that may not have been invoiced or for which you are not being paid at that time. Make sure the payment for such work is specifically excluded from the release. The more clear you are in the language of your release, the more likely you are to protect yourself from a hard lesson learned.

As a final note, although I can go on forever as to lessons our client’s have learned regarding releases, it is imperative that these issues be analyzed when you first sign your contract, and whenever a release is presented to you. Relying upon skilled construction law counsel at Your Construction Law Firm TM is of course recommended. Having us involved from the early stages before problems arise may make the difference between getting paid, and getting burned.