Don’t Sign a Release Unless it Says This 1 Thing - Alabama Webinar

In this blog, presented by SunRay Construction Solutions and Adam Jarvis, Attorney, Jarvis Law Firm P.C., construction professionals in Alabama can learn how to use their release forms, key items to look out for within the releases forms, and when to finally go ahead and sign them.

Understanding Your Contract

When handling releases, your first step should be to thoroughly review your contract. Overlooked details can later become problematic. Remember that you shouldn’t give up your rights before you have been paid the first dollar.

• Many commercial business owners now include lien releases in the constructionge contract itself, causing contractors and subcontractors to waive their lien rights even before starting the project.

• Now one thing to bear in mind is that waiving off your lien rights before you have performed the work is not enforceable in Alabama.  

• However, the issue arises in getting the judge to agree that waiving off the lien rights is not enforceable. It is a tiresome process, and both the parties can end up spending a lot of money on lawyers in their fight to prove whether it is enforceable or not.  

• The ideal option is to negotiate with the party to omit the lien waiver section from the contract. But if they do not agree and if the project is not worth all the hassle, then the best option is to back off from it.

What are Partial and Final Lien Waivers in Alabama? How to deal with them?

When working with partial and final lien waivers, if you are using standard forms and practices, then there is not much risk involved. Couple of things that you should be doing are:

• Make sure that the amount of money being released matches the amount of money being paid.

• Your payment applications will typically have the complete breakdown of what you have earned, what you have completed, how much is the retainage, etc. The release on the other hand should have the exact amount that you have bene paid and the total amount earned so that you don’t end up waiving your lien rights for the amounts that you haven’t received yet.

• It is also a good practice to use the standard American Institute of Architecture (AIA) forms.

• If you have been presented with releases and waiver documents that are not familiar or as per the standard forms, it is recommended that you ask your attorney to go through them just to make sure that there is nothing unusual in it.  

The key action item is to make sure that the release does not contain the amounts for which you have not received the payment yet.  

What are General Releases?

General releases are usually the type of releases that are created when there's been a threat of litigation or litigation has already started. Some of the common issues that may arise in such situations include:

• Failure of owner to pay general contractor or home builder.

• Failure of general contractor or home builder to pay subcontractors.

• Construction defect.

In most cases, somebody files a lien because they haven’t been paid and the owner, as a defense, starts alleging construction defects that they did not complain about prior to the filing of the lien. This is why there are a couple of factors that you need to pay attention to, such as who is releasing whom, what are the payments and timing conditions, and what are the release terms.

Who is Releasing Whom?

Ideally, you shouldn’t be giving up your rights while the other party is still holding on to their rights. There should be mutual releases.

• If a litigation has been threatened or filed, the releases should be mutual so that everybody agrees not to sue everybody else. This means that all the parties to the contract should be parties to the release.  

• All the parties should sign the release.  

• You also need to ensure that the person who is signing the release for each legal entity, whether it is a corporation, LLC, or partnership, has the authority to sign the document. You need to print the name and identify the job title of the person who is signing.

• Finally, it is a good practice to get the signatures notarized, so that there is no confusion that those were the actual persons who signed the release.  

What are the Payments and Timings?

With respect to payments and timings, you need to as specific as possible about couple of things, such as:

• The amount of the payment that will be made.  

• How is the payment going to be made? Will it be a wire transfer, cash, certified funds, etc.

• Finally, when will the payment be made? You need to try and get the payments made on the same day as you sign the documents.  

It will be beneficial for you if you can be as specific as possible about how and when the payments will be made. Do not try to stick to any assumptions in this regard.

What are the Release Terms?

In terms of release terms, you need to make sure that a general release, i.e., the type of release that is used to resolve threatened or filed litigation includes everything. So, you need to check for what’ being released:

• The release should include claims of all types including contract, tort, and equity. Equity includes all legal claims which are typically known as quantum meruit or unjust enrichment. Your complaint should also include all claims related to breach of contract, negligence, warranty claims, etc.

• Next, the release should include all known and unknown claims.  

• It should include claims arising any time before and up until signing the release.

Sometimes there are things that may survive a release. So, if there are items that are still the obligations of you or another contractor, you need to be as specific as possible.

• You need to clearly mention if there are any punch list items and warranty work. Make it as specific as possible in terms of when that work has been completed or whether it hasn’t been completed yet.

• You need to identify who is going to perform that work. If it is not you, then you should mention it clearly so that later somebody doesn’t come and puts a claim against you, and you end up with additional expenses.

• You also need to be specific about when will that punch list item be finished or the warranty work be completed.  

If a litigation has been filed, the release will want to include certain provisions, such as:

• Dismissal of all litigation and you might also want to come to an agreement about who will prepare it and who will file it. So, you need to check if you are paying your lawyer to do it or if there is a third party being paid by an insurance company, then can you make that party to cover it.

• It is also good practice to include confidentiality and non-disparagement clauses in the releases.  

• When you include the confidentiality clause, it means that all the parties agreeing to the releases state that the settlement of issues has occurred because of the time and expense that would be required to fight it, but not because we admit that we've done anything wrong.

• You also want to keep the agreement confidential so that the parties promise not to share it with anyone other than typically legal counsel or as required by law.

• The non-disparagement clause means that the parties should not talk badly and ruin the other party’s reputation after the agreement has been signed. This is important because you may not have signed the release if you had known that there is a risk that the other party is going to say negative things about you after the release and payment were executed.  

• The release of claims should also include attorney fees except as to enforcement. This is related to the confidentiality and non-disparagement clauses. If another party to the agreement breaches the agreement to keep its terms confidential or disparages your company, you should be able to recover your attorney's fees that had to be extended to enforce that agreement.

So, these are some of the key items that you need to pay attention to while dealing with releases. Make sure that you sign the release agreement only after thoroughly reading it and only if you are satisfied with its terms.  

If you find yourself facing payment delay issues, don't hesitate to reach out for guidance and support. SunRay can provide valuable assistance and expertise to help you navigate the complexities of construction payment disputes. Call 800-403-7660 today and get paid what you deserve.

Common Questions Contractors Ask

Why is it important to review the terms of a release before signing?

It is crucial to review the terms of a release to ensure that you are not giving up more rights than necessary. The release should clearly specify the scope of what rights or claims are being waived, the conditions for the release, and any exceptions that protect your interests.

What are the Preliminary notices in Alabama?

Alabama requires two crucial preliminary notices: the Notice to Owner and the Notice of Unpaid Lien. The filing of these notices plays a pivotal role in determining eligibility to file a mechanics lien. It is important to highlight that those in direct contracts with the owner, such as general contractors, are exempt from the obligation to serve either of these Alabama preliminary notices.

Who can file a mechanics lien in Alabama?

The Full Price Lien in Alabama may be filed by the following parties:

• General Contractors

• Parties who supplied materials to a project and submitted a Notice to Owner.

The Unpaid Balance Lien, meanwhile, may be filed by the following parties:

• Parties who don’t have a direct contract with the property owner (subcontractors and material suppliers).

• Parties who didn’t serve a Notice of Owner but supplied materials to a project.

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