Read The Release
While this advice seems obvious, the time and financial pressures inherent in the construction industry mean that releases are rarely read. The language in every lien release is different and can operate to waive different rights and remedies. Does the release waive all past, present and (sometimes) future claims, or is it limited to monies already paid? Is the release limited to claims against the contractor only, or are claims against the owner and surety included as well? Does the release include indemnity language and, if so, who is being indemnified, for what, and to what extent? All of these potential issues affect the contractor's future rights and obligations and can be easily identified by thoroughly reading and understanding the provisions of the release. An attorney who is experienced in construction law can assist in spotting these potential problems.
Revise The Release
When potential problems are identified in a lien release, the lien release should be revised to address the potential problems and to more equitably allocate the risks among the parties. All too often, contractors are anxious about revising lien releases for fear that they will not be paid. The fear of non-payment is not a reason to allow a higher-tier entity to unilaterally dictate the terms of the release which is to be provided. The contractor is entitled to payment because of the work performed--not because of the lien release that was signed. Here too, an attorney who is experienced in construction law can revise the release provisions so that the release will be fair to all and will be reasonable. In addition, when an experienced attorney revises the provisions, it demonstrates to the higher-tier entity that you are a sophisticated contractor, and will increase the chances of higher-tier entity ultimately accepting the revisions which you propose.
Limit The Scope Of The Release
As part of the lien release revision process, and in the event that the scope of the lien release is overbroad, limiting language should be inserted. The release should be limited to monies that have already been paid to the contractor and to claims that are known, have been asserted in accordance with the contract documents, and which have been satisfactorily resolved. Claims that are unknown or that are pending should be expressly excepted from the release. Finally, the operation of the release should be conditioned upon the contractor's receipt of the payment for which the release is being provided and the clearing of the payment through normal banking channels.
Specify Exceptions To The Release
Some lien releases allow the contractor to note any exceptions to the lien release, such as for pending change orders or claims. If change orders or claims are pending at the time that the lien release is executed, they must be listed on the lien release in order for the pending change orders or claims to be preserved.
Avoid Verbal Promises
Many times, a higher-tier entity will request that pending claims and change orders be left off of the lien release "to make the owner happy," and will assure the contractor that it will receive payment for the claims even though the claim is not preserved in the release. Don't fall into that trap. A verbal promise of payment will not be enforced in light of the documented release of the claim.
Use Your Own Release Form
When possible, use your own release form that was prepared by your attorney. You should be secure that, with your own release form, your rights are being protected while providing the higher-tier entity with the security and assurances it needs to provide payment and proceed with the construction of the project. An experienced construction law attorney can meet with you and determine your particular needs, concerns, and issues. The attorney can draft a release form that you can use on all of your future projects, and which will address your specific needs while balancing those needs with the needs of the other parties on the project. In this way, you can rest assured that, should a claim arise, you will not be confronted with a lien release in which you unintentionally waived your rights to assert that claim.