Last time I started to talk about the pitfalls that may arise from not reading lien releases more carefully. You can read it here: Lien Release – Part 1. This time I continue to expand on more issues that might arise from lien releases.
Prohibiting yourself from collecting on additional work performed was one of the concerns raised in the Addicks case disussed last time due to a release or waiver with broad language. Another concern can be other disputes that you may have regarding a project. For example, I represented a client who contracted to remove stone veneer from an apartment complex and install new stone veneer. Problems arose and my client was terminated from the project and believed that he was entitled to breach of contract damages including lost profits. However, in an effort to mitigate his damages, he sold the stone and installation materials to the subsequent contractor that was hired to perform such work. At the end of the job, the owner requested that the subsequent contractor obtain a waiver for final payment from my client and provided the subsequent contractor with the waiver. The waiver was presented to my client as simply a waiver of liens in exchange for final payment for the material my client had provided to the subsequent contractor. However, after reading the waiver closely, my client realized that such waiver stated that he was agreeing to release any and all claims that he had against the owner and the property. Such waiver may have barred my client’s claims for lost profits against the owner. It is likely that the owner intended to sneak this waiver by my client to protect itself from the claims which it expected my client to file.
It is also important to consider whether the waiver or release is conditional or unconditional. A conditional waiver or release means the waiver or release is conditioned upon some additional requirement being met before the waiver or release is effective to waive or release a contractor’s rights. Typically, the “condition” in a conditional release is payment. For instance, the waiver from the Addicks case, quoted above, is a conditional release because it states, “This waiver constitutes a representation by [Contractor] that the payment referenced above, once received, constitutes full and complete payment…”. The document does not constitute a representation of full payment until payment is received. This is an important distinction. An unconditional release does not contain a condition and, therefore, is effective upon execution. If a contractor were to execute an unconditional release with a payment application and then never receive payment (or the payment bounced), the contractor may be stopped from later trying to collect on the payment because he unconditionally released his or her rights. Another scenario in which an unconditional release can create problems is when additional work, not contemplated by the original contract, has not been billed or paid. However, this can also be a problem with a conditional lien as discussed above.
It is extremely important that you understand any waivers or releases that you execute. Make sure that that you understand exactly what is being waived or released. The best rule of thumb is that if there is any work which has been performed or goods which have been provided which are not a part of a particular payment, make sure that you specify in writing on the same document (and on each and every waiver that you subsequently sign) that the waiver or release does not cover such goods or services. If you are in doubt, consult an attorney regarding the language of the waiver or release. The short time that it takes to discuss the waiver or release may pale in comparison to the costs of claims you may inadvertently waive or release.