3 Release Mistakes You Must Avoid

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3Release Mistakes You Must Avoid

Construction lawyers are often asked about releases, specifically these three mistakes.

1. USING THE WRONG

FORM OF RELEASE WHEN

EXCHANGING MONEY FOR

A RELEASE

The form of partial and final waiver of release that you should use depends primarily on where you are in the chain of contracts.

Try to give the narrowest release possible when you are the one being paid. That is, giving away the fewest amount of rights when you are receiving a check. If the role is reversed and you are giving a check, you should try to get the broadest release that you can possibly obtain when you hand over that check.

2. NOT USING A

CONDITIONAL RELEASE

What happens when you are given a release that says you have been paid when you haven’t been paid? That release goes from you as the sub-subcontractor to the subcontractor who hands it to the contractor who then hands it to the owner. If the release is not conditioned on you actually receiving the money and the owner hands the check to the contractor and the contractor pays the subcontractor who never pays you, you would have no lien rights.

This means that you need to make sure that if you are not getting a check at the time you are giving your release, your release must be conditional.

How can you make your release conditioned upon getting paid? You can add language to make your release conditional: “Notwithstanding anything to the contrary, this waiver and release is conditioned upon and not effective until the undersigned receives payment funds of $ _________ .”

Watch out for releases that are titled conditional but are not. Some say they are, but when you read them, they’re actually not at all. Also, you need to indicate the amount of money to satisfy the conditions. If you’re expecting a $25,000 check, it has to say that it’s expressly conditioned upon your receipt of the $25,000.

As a general contractor if you receive a conditional release from a sub-subcontractor or supply house that you are not actually paying directly, you have to be careful. If you pay the contractor and he doesn’t pay the supply house, this conditional release that you received as the GC from the supply house is now no good because the supply house never got the money.

You can deal with this by requesting an unconditional release or by issuing a joint check. A joint check is a check payable to two parties. This check requires the endorsement of both parties and you will know that the condition of the conditional release has been satisfied.

3. USING THE WRONG

THROUGH DATE

The through date is the effective date of the release. Every release is different, and it may have a through date written in different places and slightly different ways. The through date is the end date that the release is effective. The most important thing you need to remember is that the through date will have control over the payment amount.

If you pick up a check that is a reduced amount and your release for that payment has a through date later than you’ve actually been paid, you have a problem. Make sure that the through date and the payment match.

A $10 RELEASE?

There are two common reasons why a contractor may demand a $10 release.

When you gave a notice to owner but you are not owed dur-

ing the period. Let’s assume that as a subcontractor on a project you have issued a notice to owner, but you are not actually going to start work for another three months. At the end of the first month, the general contractor may demand a $10 release. The law requires that once you issue that notice to the owner, then the contractor and the owner need to obtain a release from everyone that issued a notice to owner, whether or not they did any work that period. If you haven’t done any work that period, it is common that the amount of money recited in the release will be $10.

When the contractor does not want to disclose to the owner how much the subs and the ven-

dors are being paid. Sometimes, contractors want to shield how much information is given to the owner. This is another common reason why contractors request a $10 release. The $10 is valid if you receive any type or amount of consideration even if that consideration is not exclusively money. If you are receiving money, try to include how much you are receiving. If you are giving money, try to make the release ‘$10.’

Never condition a release on $10. If you want to issue a conditional release, always state the actual amount you are expecting during that period.

Alex Barthet is a principal attorney at The Barthet Firm and writes articles for The Lien Zone.

Article originally appeared on thelienzone.com. Adapted fromForConstructionPros.

com/21109938.

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