In most real estate transactions, credits of some nature are provided to the Buyer or, in some instances, to the Seller. Those credits may simply be an amount paid to the Buyer for removal of contingencies or in lieu of a request for repair. However, in some instances, compensation is paid to a Buyer (sometimes, although not common, to a Seller), in a significant amount for a particular issue. For example, during an inspection period, a Buyer finds a roof leak and the cost to repair the roof leak is $5,000. The Seller and the agents agree to contribute toward a credit to the Buyer, so the Buyer can pay to repair the roof leak after the close of escrow. In these instances, where sizable credits are provided to a Buyer or a particular defect or issue, it is recommended that a release of liability be prepared.
A release of liability can cover many different issues and can be broad or narrow. In other words, a release can cover a specific issue, multiple issues, or any issues relating to the property at issue. The releases can be drafted so that they pertain to existing issues or also include future issues. In the example regarding the roof leak, a release could be drafted to cover the roof leak, but also all future issues relating to the roof leak such as mold, mildew and dry rot.
To be enforceable, a release must have adequate consideration. For example, if a Seller is crediting a Buyer $500.00, the Seller cannot expect to obtain a release for all future liability for any issue relating to or arising out of the property. Therefore, the amount of the credit being paid must correlate to the breadth of the release.
Agents should consult with their managers regarding obtaining a release of liability for any amounts being considered to be paid by Sellers or agents as credits. Releases should also be utilized if amounts are being paid to any party in a real estate transaction after the close of escrow. It is important that if an agent or brokerage is paying money, they ensure that the issue being resolved by the payment of money is included in a release so that the person receiving the money does not continue to ask for more.
PRACTICE TIPS:
- Agents should never prepare releases for themselves, their brokerage or clients. Releases are complicated documents to prepare, given the consideration, evaluation of the scope of the release and drafting appropriate language to ensure that the goals of the parties are accomplished.
- Only qualified California legal counsel can and should prepare releases.
- When releases are provided by brokerages, drafted by their counsel, clients must be advised IN WRITING to review the release with their own qualified California real estate attorney before signing those releases.
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