California made several changes to statutory release forms and notice requirements in 2012. It is important to know when to file these forms to comply with the law.
Notices of Completion
Owners have 15 days to record a Notice of Completion and can record separate notices for work performed by multiple direct contractors. (See Civil Code § 8186.) On public projects, completion occurs on acceptance, so if a public agency delays “acceptance,” the time for serving a Stop Payment Notice and/or a Payment Bond Claim will be extended.
Progress Releases
Progress releases are utilized on larger projects with completion milestones. They can be either conditional or unconditional releases.
A conditional progress release will release a property owner from all stop payment notices, lien rights and bond claim rights through the date of the release. Pending change orders and retention are not released.
An unconditional progress release will release rights with no conditions even if not paid.
Final Releases
Final releases can be used on both large and small projects at the point of completion. Like progress releases, a final release can be either conditional or unconditional.
A conditional final release will release a property owner from all stop payment notices, lien rights and bond claims pending any outstanding amounts due. When combined with evidence of payment, a conditional release becomes an unconditional release.
An unconditional final release, just like it sounds, releases a property owner from all stop payment notices, lien rights and bond claims.
Note that this document waives rights unconditionally and states that you have been paid for giving up those rights. This document is enforceable against you if you sign it, even if you have not been paid. If you have not been paid, use a conditional waiver form.
Tesco Controls, Inc. v. Monterey Mechanical Co. (2004)
Conditional progress payment releases with the wrong date can cost you.
Tesco Controls, Inc. filed suit to enforce a stop payment notice and payment bond claim on a public project for $194,762.00 and lost because it submitted a conditional progress payment release for $50,000.00 when, based upon the materials it had supplied to the project through the date on the release, it was owed $244,762.00. The court ruled that the $50,000 payment wiped out Tesco’s stop payment notice and bond claim rights through the date on the release.
In the Tesco case, the court ruled that a claimant who executes a conditional waiver and release on a progress payment waives all lien, stop payment notice, or bond claim rights for labor, services, equipment, or materials furnished before the “through” date stated in the waiver, if the claimant is paid the amount specified in the waiver.
This means that the date you use on a conditional or unconditional progress payment release must match the date on which the amount being paid was earned so you don’t inadvertently provide someone with a release for more than what is being paid.
For example, if you give your client a progress payment release for work performed and/or materials delivered through March 15 in the amount of $100,000, and your client can only pay you $50,000 and asks you to provide them with a new release reflecting the partial payment, you must backdate the release to when your billing or job records reflect that $50,000 was due instead of $100,000.
If you don’t backdate the release for the lesser amount then the release will operate to release your lien, stop payment notice and bond rights through the date on the release even if you have not been paid in full for the work performed through that date.
If you have any questions or comments regarding this article, please do not hesitate to contact Scott Green at The Green Law Group, LLP.
Please note that this article is only intended to provide some general educational information. For your particular legal questions, be sure and consult with an attorney.
Scott Green
(805) 306-1100 ext. 114
scott@thegreenlawgroup.com