Stop! Don’t accept your contractor’s release
Before you provide your contractor a check and accept your contractor’s release, here are the four things you need to keep in mind.
The statutory release form does not release all claims
The statutory release is a form that is found in chapter 713.20 of Florida Statutes. In essence, it is a form for both a partial and a final release through the time shown on the release. What do you need to know about the statutory 713.20 release? The most important thing you need to know is that this release form only releases the contractor’s lien rights. It releases no other rights that the contractor may have against you or the property. For example, let’s say the contractor has a claim for a delay on the job or extra work that they performed. Those types of claims are not released just because they give you a 713.20 statutory release. So, you need to keep that in mind if you accept a release, and provide a check based solely on a 713.20 release. You may be leaving claims on the table.
The through date of the release is absolutely critical
Understand that a release, irrespective of its language, typically has a through date. This date is the date through which the release rights are effective. For example, if a contractor gives you a release and its effective through May 25th, then all of the contractor’s lien rights are released before May 25th. So, if you are given this release through May 25th but you are paying through the end of August, you need to be aware that you are issuing a payment for a period of time beyond the release period. To prevent this, you need to make sure that when you issue a payment to your contractor, you are receiving releases from both the contractor and all of its subs and suppliers with the same through dates as of the period of time you are paying.
Conditional Releases can be dangerous
Conditional releases are dangerous for you as an owner because you typically do not have the ability to control the conditions. If you obtain a conditional release from your contractor – the person you are actually handing the check to- that’s much less of a concern. This is because once you hand a check to the contractor, the condition, which is receipt of that amount of money, is actually being satisfied. But when it involves supply houses this could be dangerous. Let me give you an example. You hire a contractor – the contractor hires an electrician – the electrician buys supplies from an electrical supply house – that supply house is expecting to be paid, so they provide a conditional release, conditioned upon receipt of payment. Let’s say they are owed $20,000. They may give a release that expressly says ‘this release is only good upon our receipt of $20,000.’ Now you have the release, but you don’t have the ability to issue a direct payment to the supply house. If you pay the contractor and for whatever reason the contractor doesn’t pay the electrician or the electrician doesn’t pay the supply house, your release from the supply house is no good because it has a condition and that condition is that they need to be paid their $20,000. If you receive releases as you are paying your contractor you need to ensure that none of those releases are conditional. If they are conditional releases, you need to let the contractor know that you will not pay the amount until you are able to obtain an unconditional release.
Have your own form of release
Finally, when it comes to exchanging your check to the contractor for a release from the contractor, consider having your own form of release. That release form should not only release the contractor’s lien rights, have a proper through date and be un-conditional, but also release the other rights that the contractor may have. Those rights include claims for extra work, delays, time imbalance and any other claims that the contract or the law may give them. You want to know that when you pay that contractor, all those rights have been released. We strongly encourage clients to include as part of their contract, a form of release that they are expecting the contractor and the subcontractors to sign. This release form should also have some representation by the party that is receiving the check and giving you the release that they have paid all of their bills and that they’ll indemnify you and hold you harmless for any claim that arises for them not paying their bills.
Things like this will make a big difference when it comes to closing out a job and ensuring that during the course of the job, everyone is paid.