by Larry R. Leiby
We know that prudent practice dictates that when payment is made for construction work and/or materials, the party making payment1 (payor) should obtain a release of payment claims for the work and/or materials being paid.2 In addition, if payment is made to a contractor, subcontractor, or sub-subcontractor, releases from people furnishing labor or materials under the payee should also furnish releases to the extent of the payment being made, particularly if those people have served a notice to owner. Lienors are statutorily obliged to execute partial releases when receiving money.3 The form of the release and the timing of when the release is given relative to payment can lead to adventure, if not litigation. To no one’s great surprise, it has been held that a release of lien is generally enforceable.4
The key for the lienor getting paid is to release payment rights/claims only to the extent that payment is made and not more. The key for the party making payment is to obtain a release for everything for which the payor understands is being paid, not less. It has been stated by the Third District Court of Appeal that a homeowner is required to meet the same strict requirements of the (then) mechanics’ lien law as one engaged in a commercial business.5
There are several issues that arise under F.S. §713.20 with the payment/release scenario in addition to the concepts of “not releasing more” or “not obtaining a release for everything” than that for which payment is made.
Release Through Date Hereof
One issue relates to F.S. §713.20(2), which was changed in 1988 to effectively say that lien rights of any lienor may not be waived in advance of doing the work.6 This legislation was enacted as a result of what was seen as abuse by owners and contractors of requiring lien waivers in contracts and subcontracts so that the lienors signing these contracts and subcontracts had no lien rights for the work that they were going to do. Competition in the construction industry was and is so fierce that owners and contractors were often able to get these contracts signed with waiver of lien rights when the contractors, subcontractors, and sub-subcontractors really did not wish to waive their lien rights, but felt compelled to do so in the competitive environment to get the work. Prior to 1988, courts held that a waiver of prospective lien rights was enforceable and not against public policy.7 The lack of bargaining position forced the construction industry to go to Tallahassee to outlaw the ability to waive lien rights in advance of doing the work so as to not be forced to accept such waivers. Thus, F.S. §713.20(2) has effectively rendered waiver of lien clauses in contracts and subcontracts unenforceable (as to work not yet performed).
Understanding the anti-waiver provision is important. There is nothing in F.S. §713.20(2) that says a lienor may not waive lien rights in advance of being paid for the work. The statutory prohibition relates only to not waiving lien rights prior to performing the work. Thus, assume that a subcontractor in the same year performed work through April 30 and sought payment for that work. The payment process took longer than the subcontractor would have liked, but the contractor calls the subcontractor on June 15 and tells the subcontractor, “Your check is ready. You just need to sign a release.”
The amount being paid includes all regular contract billing from the subcontractor for work through April 30, but does not include: 1) change order for work done under a change directive prior to April 30, but not billed; 2) additional job site supervisory costs done as a result of delay for which claims and billing will be made, but have not yet been made; 3) retainage; 4) unbilled materials stored on site; 5) work done that is not billed because the contract requires certain stages to be complete before billing. The subcontractor looks at the release, which recites, “Subcontractor hereby releases all of its rights to claim payment and construction lien rights for all work performed through the date hereof.” The release is signed and dated by the subcontractor on the date that the check was picked up, June 15. Unless the subcontractor can convince a court in an action to reform the release that there was a mutual mistake or a unilateral mistake and misconduct by the payor so that the release could be reformed, the subcontractor just gave away lien rights and its rights to claim payment for work done between April 30 and June 15 and unbilled work performed prior to April 30, while not being paid for that work. Lien rights may be waived prior to receipt of payment, just not prior to performing work.
The proper way for the subcontractor to have dealt with that scenario was to modify the release. The release should have been modified to exclude retainage and the claims for work outside of the regular contract billing (e.g., the construction change directive work, the additional costs due to delay, work partially performed that is not ripe for billing pursuant to the contract, etc.). Whether the payment would have been made in exchange for the modified release is an open question, but the proper thing to do would have been to bring the discrepancy to the attention of the payor. Alternatively, the release could have been backdated to April 30 with an exception for retainage and any work done, but not billed (which the payor would have typically described specifically instead of the general statement “unbilled work”). Unless the payor is trying to pull a fast one, the payor should agree to one of the two suggested modifications.
In 1996, the Florida Legislature provided two forms for use with construction liens in F.S. §713.20(4): A “waiver and release of lien upon progress payment” and a “waiver and release of lien upon final payment.” There appear to be both good news and bad news about the forms.
In the good news column is the fact that statutory forms can be found, along with an admonition in F.S. §713.20(6) that a lienor may not be required to “furnish a lien waiver or release of lien that is different from the (statutory forms).” Also in the good news column is that the form for the release upon progress payment expressly excepts retainage and work done after the date specified in the release from being covered by the release. Finally, in the good news column is that F.S. §713.20(7) gives express authority for a conditional release8 in exchange for a check.
In the bad news column go the following items:
1) The statutory forms are in a statute that creates a remedy, which by definition is a cumulative remedy to all other remedies of the lienor to obtain payment.9 You might ask, “Is it prudent for me to obtain a release of lien and lien rights (only) from a contractor or other lienor that I am paying when that lienor has other rights to payment (e.g., breach of contract, open account, account stated, and equitable claims if supported)?” While the lien law says that a lien release may not be required other than in the statutory form, the prudent payor will want a release of all claims for payment in one document, or if the lienor insists that only the statutory form lien release can be required to be given (for lien rights), then the payor will want a statutory lien release properly filled out and a release of contract and other claims in another form.
2) The release upon progress payment form has a space to fill in the amount of the consideration. It could be filled in with “10 dollars,” “10 dollars and other valuable consideration,” the actual amount of the payment, or something else. It does not say that lien rights are released in the amount of the consideration. It says that lien rights are released through the (date) to be filled in. A release for lien rights through time, rather than for a specified amount, works to the advantage of the payor, unless the lienor takes the time to modify the release to fill in the appropriate other exceptions, such as unbilled claim or extra work.
3) How final is final? The form release upon final payment in F.S. §713.20(4) has never been in sync with the prohibition against liens for work not performed found in F.S. §713.20(2), which says that the right to waive a lien may not be waived in advance. There is no exception stated for the giving of a “final release upon final payment.” If the exception were put in the statute, then the unscrupulous owner or contractor would simply require a “final release upon final payment” much earlier than the last payment and, thus, eviscerate the inability to waive lien rights in advance of doing the work. Thus, if a contractor gives an owner a waiver and release of lien upon final payment dated June 15, but does more billable work as of June 18, then the lien rights for the work done after June 15 are not waived. A partial release of lien given where no further work is performed after the date of the partial release turns out to be a final release and a final release given when further work is performed thereafter may not be a final release. Taking comfort in the title “Final Release” or “Waiver and Release of Lien upon Final Payment” is not a safe harbor.
Given this conundrum, this author has added some language to the release upon final payment and titled it a “Final Release.” This final release is intended to resolve the issue of not being able to waive lien rights in advance, yet to get some certainty that the final payment is truly final.
The final release is a combination final release, warranty that no further work will be performed for which charges will be sought, an assignment of the lienor’s claims10 (noting that an assignment of prospective lien rights may be “at any time before its discharge”), and an indemnification from any future lien of the lienor.
Waiver and Release of Lien Upon Final Payment
The undersigned lienor, in consideration of the final payment in the amount of $________, hereby waives and releases its lien, right to claim a lien, bond claims, and right to claim payment under any legal or equitable theory, for labor, services, or materials furnished to ___________on the project known as ___________ being further described as: (project description).
The undersigned hereby assigns its rights to payment for work/materials furnished and to be furnished, if any, at subject project to ___________.
The undersigned affirmatively warrants and represents that it has been paid in full and will not perform further labor, materials, or services at subject project for which charge will be made (other than corrective or warranty work for which no charge will be made).
The undersigned agrees to indemnify and defend ___________ from any claims of lien recorded by the undersigned and/or claims against payment bond made by the undersigned, for work performed before or after the date hereof.
By:___________ Dated: _______, 20__
If the statute were amended to recite that a right to waive a lien may not be waived in advance unless a waiver and release upon final payment is given, then we would likely see those performing work asked to furnish such a waiver and release upon final payment prior to doing work. We would be back to square one; there is no true panacea.
One consequence of giving a statutory waiver and release of lien upon final payment is that the owner is not obliged to serve a notice of termination of notice of commencement on the lienor who has given the waiver and release of lien upon final payment.11 One could argue that this provision in pari materia supports the position that there are no lien rights once the statutory waiver and release of lien upon final payment is given. However, it has been held that the right to a (mechanics’) construction lien may be waived expressly or by implication, but before such right is deemed to have been waived by implication of one’s conduct, the implication should be clear and unambiguous.12 Here the implication of waiver of claims for work performed after the giving of a waiver and release of lien upon final payment is not by conduct, but by two statutory interpretations that conflict about whether a statutory waiver and release of lien upon final payment waives lien rights for work done thereafter. Since there is a statutory conflict, it could hardly be said that a waiver by giving the statutory waiver and release of lien upon final payment would be “clear and unambiguous” waiver of lien rights for work not yet performed.
1 This could be an owner, contractor, subcontractor, or sub-subcontractor as to materialmen furnishing to the sub-subcontractor.
2 It is common practice for the payor not to obtain a release from every laborer working on the site based on the practical facts that laborer liens are 1) infrequent (i.e., if they don’t get paid, they don’t keep working for months) and 2) comparatively small to other liens. A very prudent payor will require an affidavit from the payee that all lienors working under the payee (which would include laborers) are paid in full to the extent of the payment made. In some cases, the payor will seek such an affidavit only as to prior payments assuming that the payee is not going to pay those under him or her until the payee receives payment from the payor. This is a matter of practice, not a matter of law.
3 Fla. Stat. §713.06(3)(c)2 (2004).
4 In re Construction Contractors of Ocala, Inc., 196 B.R. 188 (M.D. Fla. 1996).
5 Climatrol Corp. v. Kent, 370 So. 2d 394 at 396 (Fla. 3d D.C.A. 1979).
6 Prior to 1988, only laborers were given the protection to not waive lien rights in advance.
7 See, e.g., Orlando Central Park, Inc. v. Master Door Co. of Orlando, Inc., 303 So. 2d 685 (Fla. 4th D.C.A. 1974).
8 However, this may be negated by the language of the lienor’s contract that says an unconditional release must be furnished prior to payment. See Team Land Dev., Inc. v. Anzac Contractors, Inc., 811 So. 2d 698 (Fla. 3rd D.C.A. 2002).
9 See Fla. Stat. §713.30 (1997); Mack Industries Div. of Hollywood Land Co., Inc. v. Frank J. Baker Gen. Contractor, Inc., 456 So. 2d 1326 (Fla. 4th D.C.A. 1984).
10 See Spectrum Interiors, Inc. v. Exterior Walls, Inc., 2 So. 3d 1093 (Fla. 5th D.C.A. 2009).
11 Fla. Stat. §713.132(1)(f) (1998).
12 Mills v. Robert W. Gottfried, Inc., 272 So. 2d 837 (Fla. 4th D.C.A. 1973).
Larry R. Leiby is of counsel to Malka & Kravitz, P.A., in Ft. Lauderdale. He is active as a mediator, arbitrator, special master, adjunct professor at Florida International University College of Law, and author. He founded and was the first chair of the Construction Law Committee of The Florida Bar Real Property Section (1976-94). He is one of nine members of the original Construction Law Certification Committee appointed in 2004, former chair of that committee, and was in the first class of board certified construction lawyers in 2005.
This column is submitted on behalf of the Real Property, Probate and Trust Law Section, George Joseph Meyer, chair, and William P. Sklar and Kristen Lynch, editors.