What is a Release Agreement?
Release agreements are legal documents that relinquish a party’s right to a claim, whether it be an actual claim or one that is in dispute. A release is used to protect one party from being vicariously liable for another party’s negligence and therefore absolving them of any responsibility if the other party were to sue for damages. Alternatively, a release can be used to satisfy a claim.
In real estate , a release agreement can take place in a number of situations: when a mortgage is fully paid off and a mortgagee has no further claims against the mortgagor; when all obligations have been satisfied under a purchase and sale agreement; when a party is released from a prior lease agreement; or when a seller has completed obligations under a property disposition.
Release agreements help promote equitable treatment or the satisfactory completion of all terms in a real estate transaction. It essentially provides a release from the real estate agreement to eliminate the parties’ existing obligations to each other.
Key Components of a Real Estate Release Agreement
When formulating a release, parties to a real estate transaction should include the following:
Parties. A release must identify the parties to the agreement. Generally, these are the individuals who signed the real estate contract – or their proper successors or assigns.
Property. It is also necessary to sufficiently identify the underlying property- such as the street address and county in which the subject property is located.
Release Provisions. The release should identify the rights being released and provide a reference to the underlying document – the real estate contract – which contains the obligations to be released.
Advantages of Utilizing a Release Agreement
In any real estate transaction, there may be obligations that are nonetheless unfulfilled once the closing has occurred. These obligations can vary significantly; however, the potential for a dispute is not uncommon. A release agreement is used to remove the potentiality of a dispute and is the law’s way of memorializing all of the parties’ obligations specific to their transaction.
The benefits of using a release agreement include:
- (1) Formalizing the legal relationship of the parties. A release agreement can assist in avoiding disappointment or further dispute later down the road due to an unclear oral agreement among the parties following closing.
- (2) Clearly sets forth each party’s obligations in the manner agreed upon by the parties. For example, did the parties specifically agree as to the required actions of each prior to closing?
- (3) Each party is bound to the terms of the release agreement, so long as it is not unconscionable or contrary to public policy, whereas an oral agreement may be difficult to prove.
- (4) A release agreement can be easily amended or updated to reflect the repeatedly amended terms of an unsatisfactory deal, whereas an oral agreement may later create a dispute between the parties as to the clarity or finality of such agreement.
- (5) The other side can be prevented from pursuing claims related to issues that have already been agreed upon, including but not limited to specific provisions contained in the contract of sale or other related agreements.
Common Circumstances For a Release Agreement in Real Estate
There are several situations where a release agreement is applicable in a real estate transaction. As you might expect, release agreements come into play when either: Each situation above can be quite complex and involve extensive negotiations to arrive at an acceptable position for the parties. Regardless of the situation, it is important that the language of a release agreement is drafted precisely with the appropriate legalese to suit the particular circumstance.
Examples of when a release is appropriate include: Termination of contract: A release agreement follows from a mutual termination of purchase and sale contract. Often, earnest money deposits are the subject of a release where the parties need to agree on how that money is to be divided or if it is to be returned at all. This is a good opportunity to add terms to the release agreement such as a waiver of claims by one party against the earnest money deposit and/or the right to return the funds to a third party with a closing statement. Limiting contractual obligations: A release agreement is appropriate when both parties want to delete a specific obligation from their respective contracts. For example, one party may agree to release the other party from a specific contractual requirement, but in return expects concessions in the release agreement such as additional compensation for delaying the closing by several weeks. Settlement of a dispute: If a dispute arises during the performance of a contract, the parties may explore a resolution through a settlement agreement and a subsequent release agreement. The release agreement is appropriate in instances where the parties are satisfied with the terms of the settlement agreement and want to finalize the release of any and all claims arising out of performance of that contract.
Legal Considerations of Release Agreements
The legal implications of release agreements are significant. Because they represent not merely a handshake or mutual acceptance of an apology, but instead the formal severing of obligations, courts scrutinize them closely.
Enforceability
A release agreement is legally enforceable in North Carolina if it is supported by consideration (something of value) and is plainly worded and conspicuous. Agreement to a mutually-advantageous transaction constitutes consideration.
In commercial releases, the meaning of "conspicuous" is often left to contract interpretation. However, as noted by the Court of Appeals in Allen v. Castle & Cooke, there are certain language and formatting practices that can make a release "plainly worded and conspicuous" to satisfy enforceability requirements.
On the other hand, in Estate of Billie Tatum v. Inman Realty & Assoc., a release that referred to "any and all claims" arising out of an "alleged" accident was not conspicuous and was unenforceable because it was not apparent it applied to known and unknown claims.
Face of Written Release Must Reveal Release
A court cannot, for example, look beyond the face of the written release to determine that the intent of the release was to include all claims, unless the face of the contract reveals some agreement to resolve unknown claims. Friddle v. Indian Trail Apartments.
Release Agreements Are Discussed on Appeal Only When They Are Relevant
As a result , release agreements are only discussed on appeal when they matter: that is, when the court concludes that they did or did not entitle the parties to summary judgment or other favorable treatment.
In some cases, the court found that the release was enforceable as releasing claims of which the plaintiff was aware because the release’s language was sufficient in that case to encompass known and unknown claims.
Other cases have distinguished features of the releases, such as ambiguous language or a general references to unknown claims, to excuse their enforcement. In Jean v. Montgomery Mut. Ins. Co., for instance, the appeals court affirmed a 2011 decision holding that a release of "all claims, including all unknown claims" was ambiguous and therefore unenforceable because it did not provide the parties with a "sudden reawakening."
The Court Considered Release at Summary Judgment
In Friddle v. Indian Trail Apartments, the Court of Appeals last held that the trial court should have considered the release when addressing summary judgment.
What happens when a release agreement is not enforceable?
If a release agreement is not enforceable, personal injury defendants can simply assert it as an affirmative defense. A dismissal with prejudice for defendant may also be obtained with a defense motion for judgment on the pleadings, assuming the release agreement is referenced on plaintiff’s own complaint pleading.
However, the most likely enforcement will occur in the context of summary judgment.
Drafting a Release Agreement
The most common way to get your money out of a commercial real estate deal is to sell it. But sometimes, for various reasons, it is preferrable to buy yourself out of a deal with a release agreement. If you do find yourself in the situation where a release agreement makes sense, then you need to consider things like:
Engage Counsel Early in the Process
In the old days, we used to see a lot of instances when the parties were in conflict and, as part of the settlement negotiations, the parties developed a release agreement that freed one party from liability. In those days, there was a lot less formality in the negotiation and preparation of documents. However, in the last decade, we have seen quite a different environment. One of the principal parties to a dispute is typically no longer at the table when the attorneys resolve the dispute and you end up with an agreement drafted by one counsel. In that case, you sure do want your own counsel.
Drafting the Document
A release agreement is a sort of specialized contract that is written for a very specific purpose. The agreement should contain all the elements of a standard contract, but should also have release language and representations that are essential to the essence of the deal. The release language should include the operable words "forever, discharges, releases, acquits and holds harmless" associated the releasing with the releasor(s) and a clause that sets forth what is being released. Here is a sample:
[Releasor] forever, discharges, releases, acquits and holds harmless [Releasees] from any all claims, demands, liabilities, causes of action, suits, actions, judgments, indebtedness, obligations, damages or rights of any kind whatsoever, whether known or unknown to Releasor, arising from [describe what is being released].
Of course, one of the dangers of a release agreement is you may be giving away some rights and the release language should limit the release to only what you intend.
Representations
In addition to the release language, the release agreement typically has numerous representations by the releasing party as to what it knows, such as:
Representations alone do not prevent allegations of fraud. Mere knowledge of the falsity of the representation will not amount to a fraudulent concealment unless the other party can prove that it would not have entered into the contract without the false representation.
Negotiating a Release Agreement
Negotiating a release agreement in the context of a real estate transaction can be challenging, but with a clear focus on communication and understanding, an amicable resolution can often be reached. The following tips can provide a framework for effective negotiations in these situations.
First and foremost, open and honest communication between all parties involved is essential. Rather than rely on informal conversations, a formal meeting or telephonic discussion with the other party or parties may be necessary to discuss the terms of the release and determine what is acceptable. While it is tempting to simply send over a proposed written release agreement, this should be viewed as a last resort and generally reserved until the key terms have been agreed upon in principle. Once you have the other party engaged in discussions, it is important to listen to their concerns and carefully consider their positions before responding. This means being flexible and open to concessions that will further the discussions and ultimately result in an agreement. Finally, if the negotiation passes multiple exchanges of proposals and counter-proposals, keep a list of the key points as they are discussed and negotiated so that you do not lose track of them and get confused later on.
If possible , speak to the other party about their expectations and requirements up front so as to avoid any surprises later in the negotiation process. Always try to understand the other party’s position in order to expedite and shorten the negotiation process. When negotiating a release agreement, there may be terms that you do not understand, whether because the terminology is unique to the other party or because the requirement is simply out of the ordinary. In that case, seek clarification and do not enter into a negotiation without knowing exactly where you stand on a particular issue.
Establish a time frame for reaching an agreement so that all parties involved are aware of and agree with the time parameters. Having a clearly defined time frame can often prove to be the most critical factor in reaching a resolution and should always be a point of discussion with the other party.
Focus on the negotiation at hand and try to avoid introducing unrelated issues. Unless an issue is directly related to the matter being negotiated, it is important to keep the conversations on track. As tempting as it may be, focus on the matter at hand without adding in any ancillary issues that could stall the negotiations.
Finally, be prepared for the possibility that the negotiation will not result in a signed release agreement. If this happens, be sure to budget time and resources into your deal that account for the possibility of no release agreement and weigh this risk against the benefits of obtaining a signed release.