Disputes between contractors and property owners are common. They often revolve around issues such as defective construction, project delays, or change orders. When both agree to resolve these disputes before heading to court, the resolution typically involves some form of settlement where the property owner agrees to pay part or all of the remaining contract balance. In exchange, the contractor provides a release of claims for payment.
However, there’s a prevalent misconception that property owners should also provide a broad release of their claims against the contractor. This is typically not warranted, and for property owners, is usually not a good idea.
The Role of Releases in Settlements
When a property owner agrees to pay a contractor, the contractor usually provides a lien release. This is a legal document that waives the contractor’s right to file a mechanic’s lien against the property for the amount paid. Sometimes, a property owner may also demand a general release, where the contractor waives claims for payment under the contract. This ensures that once the payment is made, the contractor cannot come back later demanding more money.
The Property Owner’s Perspective
From the property owner’s standpoint, agreeing to pay money under a settlement does not mean relinquishing all their rights, especially concerning the quality and integrity of the work performed. It is important for property owners to maintain their warranty rights and other protections for the work they are paying for. This means expecting the contractor to stand behind their work, even if both parties settle an existing dispute.
Customary Practices in Construction Law
In construction, it is uncommon for property owners to provide a comprehensive release of claims against contractors for work that has been paid for. The primary reasons are:
- Warranty Rights Continue: Property owners typically retain their warranty rights, ensuring that the contractor remains accountable for the quality and durability of the work that is paid for. A broad release could void these protections, leaving the property owner vulnerable to unresolved defects.
- Known Defects are Waived: If a property owner provides any release, it is usually limited to specific issues that are being directly addressed by the settlement. For instance, if there is a known defect and the settlement includes rectifying that issue, the property owner might release claims for that specific defect.
- Unknown Defects are Not Waived: A blanket release should not be used to prevent property owners from pursuing future claims for defects or issues that were not apparent at the time of settlement.
Tips for Property Owners
Given these considerations, property owners should be cautious about signing broad releases. Here are a few tips:
- Consult Legal Counsel: Always consult with a construction attorney before agreeing to sign a release. Legal counsel can help ensure that your rights are protected and that you are not inadvertently waiving important protections.
- Specificity in Releases: If a release is necessary, make sure it is narrowly tailored to cover only specific issues that are being resolved by the settlement. Avoid broad language that could be interpreted as waiving all claims.
- Documentation: Keep detailed records of all communications, agreements, and work performed. This can be invaluable if disputes arise later on.
While settling disputes out of court is often beneficial for both property owners and contractors, it is crucial to understand the implications of releases in these settlements. Property owners should be wary of providing broad releases and should strive to maintain their rights and protections regarding the quality and warranty of the work.
DISCLAIMER: The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only.
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