Material Supplier Construction Lien Rights: Lien Releases
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One of a construction material supplier’s biggest concerns is making sure they will get paid. There are a few things a supplier can do to ensure they get paid on a construction project. One of the most important steps a supplier should take is preserve its lien rights under Florida’s Construction Lien Law, Section 713.001-.37, Florida Statutes. A critical component of that process is the “lien release.” This blog focuses on preserving your lien rights through the proper use of lien releases. Don’t give away more of your rights than you have to.
The Lien Law should become your best friend. You should know it well. If done right, a supplier can almost guarantee that it will get paid in full by using the Lien Law. However, strict compliance with the Lien Law is required and it is laced with traps for the unwary. Many suppliers fail to perfect their lien rights properly and find themselves unable to get paid. Don’t let that happen to you.
Only Use Statutory Forms
Lien releases are addressed in Section 713.20, Florida Statutes. You can only be required to provide a lien release in the forms provided in Section 713.20, unless your contract requires a different form of lien release. No other release form can be legally forced upon you against your will.
Contractors will often try to force you to sign their custom-drafted releases. These custom releases likely require more from you than Section 713.20 requires—they require you to give away more of your rights than you have to. Do not sign the contractor’s custom release form unless your contract requires you to. Tell the contractor you will only provide a statutory form release. Review your contract, before signing it, to verify that it doesn’t require a non-statutory form.
You should only sign a lien release that is similar to the following form, taken directly from the Statute:
Adding “Conditional” Language
You should always provide conditional lien releases if you can. A lienor may add to the statutory forms the provision that the release is conditioned upon clearance of the funds given in exchange therefor. Fla. Stat. § 713.20(7). In other words, you may provide conditional lien releases, rather than unconditional releases, unless your contract requires you to provide unconditional releases.
The unconditional release is effective the moment you furnish it. The conditional lien release, on the other hand, does not become effective until you have been paid. An unconditional lien release does not protect you from your customer not paying you after you have furnished the release; a conditional lien release does protect you from non-payment.
For example, if a supplier gives an unconditional release to the contractor in exchange for contractor’s check (the typical hand-off exchange), and that check bounces, the release is still binding on supplier if owner relied on the release in making payment to the contractor. However, the release would not be binding if owner did not make payment to the contractor (or otherwise rely to its detriment). See Klein Dev. v. Ellis K. Phelps & Co., 761 So. 2d 441, 443 (Fla. 2d DCA 2000).
You should work with your lawyer to craft clear enforceable “conditional” language to be used in your lien releases.
Cannot Waive Lien Rights in Advance
Be aware that your right to claim a lien may not be waived in advance. Fla. Stat. § 713.20(2). Lien rights may be waived only to the extent of materials actually furnished prior to signing the lien release. Any waiver of a right to claim a lien that is made in advance is unenforceable. You can release lien rights for material already furnished, but you cannot waive lien rights for materials you have not furnished yet.
Courts Enforce the Language of the Release
Courts will enforce the language of releases that is different from the release language provided in Section 713.20. Fla. Stat. § 713.20(8). Just like any contract, the language of the release determines its scope and claims relinquished. Therefore, you must pay close attention to the language in the release.
Retainage and Change Orders
You must be careful not to release claims for items which have not been paid yet such as retainage and change orders. The statutory progress-payment release form includes clarification that your claim for retainage is not being released. However, the statutory form does not address change orders. You must make sure that your payment amount includes all of the change order materials delivered during the time period of the release. If there are change orders being disputed, you must either refuse to furnish the release until the change orders are resolved, or add language to the release carving out the disputed change orders.
Only Release Your “Lien” Rights, and Not Your “Payment” Rights
Lien rights are merely collateral to a debt, similar to a mortgage on a loan. If you give up your collateral (i.e. release your lien), you can still pursue the debt (i.e. sue for payment). However, it is possible to give away your rights to pursue the debt. Releases can release other rights beyond merely lien rights.
Do not sign a release barring “claims” and “demands.” If you do, you lose your rights to just about everything. Courts will enforce a release that bars “claims” and “demands” in addition to lien rights. See e.g. Moss & Associates, LLC v. Concrete Service Solutions, LLC, No. 14-ca-010416, 2016 WL 4366927, (Fla. Cir. Ct. 13th Cir.). Suppliers should insist on a release that only releases “its lien and right to claim a lien.”
“Through Date Certain” or “For Sum Certain”
Progress payment releases may either be a “through date certain” release, or a “for sum certain” release. The statutory form is a “through date certain” release. It means that you are releasing all claims for materials furnished through the date you state on the release. It doesn’t matter whether you have been paid for the materials or not. If you furnished the materials prior to the stated date, and you do not get paid for those materials, you cannot lien for those materials. We often see suppliers lose their lien rights when using “through date certain” releases because of missed or delayed invoicing, disputes over prior months’ invoices, or disputed change orders.
Generally, you want to use “for sum certain” releases if you can. There is less risk of making a mistake and accidentally releasing claims you were not paid for. A “for sum certain” release does not mention a date. Rather, it only releases your right to claim a lien up to the dollar amount stated on the release. For example, if you submit an invoice for $100,000.00, you can provide a “for sum certain” release in the amount of $100,000.00. Only that invoice is released. If you have prior invoices that are not paid, you can still lien for those.
Criminal Liability for False Statements in Releases
Pursuant to Section 713.35, Florida Statutes, it is a criminal offense to furnish a release or other document containing any false statement. This becomes a problem for lienors who sign non-statutory form releases containing representations that all lienors working directly or indirectly have been paid in full. If in fact those lower tier lienors have not been paid retainage or some change order work, such a statement in a release may create criminal liability to the company and the individual who signed it.
A material supplier would be wise to utilize Florida’s Construction Lien Law on every project. But if it is not used correctly, it will not help you. There are many traps in Florida’s Construction Lien Law, we suggest you seek the advice of qualified counsel until you have mastered if for yourself. Don’t furnish a lien release unless you are certain that you are doing it correctly. Don’t be one of the suppliers that does not get paid.