What is a release clause in contracts?
What is the legal definition of release provisions?
How does it work in real-life?
In this article, we will break down the notion of “release clause” in contracts, so you know all there is to know about it!
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Let’s define a release clause!
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A release clause (sometimes called a waiver clause or release and discharge clause) can be used in many situations in order to release a person or entity from a contract, legal obligation or other binding commitments.
For example, you may find a release clause in:
- Mortgage contracts
- Real estate transactions
- Business transactions
- Employment relationships
- High-risk activities
- Organized sports or physical activities
In essence, a party agreeing to a release clause in favour of another is freeing up the other party from either past, present or future obligations.
A mortgage lender may release a borrower from any possible claims to the extent of sums paid back by the borrower further to a release provision.
There are many instances when a party may request a release from another, such as:
- You may sign a release clause when signing a gym membership agreement to release the gym of any future physical injuries you may suffer
- You may sign a release clause before you go bungee jumping
- You may sign a release clause before skydiving
- You may be required to provide a release when going to a spa
- A safari tour guide may impose a release clause to bring you to a safari
Types of release clauses
You may come across different types of release clauses in your personal and business life.
Let’s look at the release provisions typically seen:
- Real estate release clause
- Partial release clause
- Release contract
A real estate transaction release clause (or transaction release clause) is a contractual provision where a property seller is allowed to accept the best offer to purchase received within a short period of time from the moment an initial offer is received.
Typically, the transaction release clause allows the seller a 72-hour window to accept multiple offers on his or her property.
A partial release clause is a type of release granted by a creditor on a portion of the creditor’s entire claim.
For instance, if a borrower had pledged several collateral properties to secure a loan, the lender can provide a partial release discharging one of the properties given in collateral.
A release contract is when the parties commit to releasing one another from legal obligations (mutual release contract) or one party releases the other (unilateral release contract) in a standalone document.
A release clause, by definition, is a contractual provision found within another broader contract.
For example, you can have a release clause within a mortgage deed.
On the other hand, a release can also be presented as a standalone contract or agreement.
You may find a release agreement in the following situations:
- Parties to a lawsuit settle a matter and enter into a full release and discharge contract
- An employer and employee may terminate their relationship and enter into a release agreement waiving any future claims
When the release or waiver is presented as a full and standalone contract, the objective is to outline the waiver’s particulars so that it is clear as to its scope and legal ramifications.
A partial release is a legal provision whereby a party is partially released from a legal obligation or duty.
The most common example is partial releases granted in mortgage contracts.
Some mortgages have a partial release provision whereby the lender is required to release or discharge pledged collateral to the extent of partial satisfaction of the mortgage obligations.
An express waiver is generally very easy to identify.
Essentially, it is a legal release provided in writing (expressly) by one party to another or all parties in favour of one another.
The obligations in an express release have the same legally binding effect as an express contract.
A release of legal obligations can be provided through an implied waiver.
An implied waiver is a release that is deduced or assumed based on the circumstances or in light of someone’s conduct.
When you purchase tickets to go snowboarding, it is implied that you are embarking on an activity that may cause you physical injuries.
As a result, the fact that you purchased the ticket, you wore snowboarding gear and went up the mountain implies that you understood the risks associated with this activity and agreed to assume them.
As a result, your implied acceptance is an implied waiver of the resort’s responsibility in case you get injured.
Release clause enforceability
A release clause or release contract is legally enforceable.
Just like any other legally binding contract, the parties involved in the discharge agreement must respect contract formation laws.
A release clause is valid when:
- The parties entered into a mutual agreement (there was offer and acceptance)
- The parties had the legal capacity to enter into a contract
- The scope of the release or contract is legal or does not violate public policy
However, if release clauses do not respect contract law formation rules or applicable statutory requirements, they may be nullified.
As an example, in the following scenarios, release provisions will not be legally enforceable:
- A party was pressured into granting a full release
- A party exercised undue influence over another or abused its bargaining power
- The terms and conditions of the release are ambiguous and vague
- A party signed a release based on misrepresentation of another
In other instances, a party may not be legally released of its obligations when the injuries suffered were outside of the scope of the release or caused by events entirely unrelated.
Release clause example
Let’s look at an example of a release clause in the context of a commercial bank line of credit.
Imagine that a business has a $1,000,000 line of credit where it has provided five real estate properties as collateral to secure the payment of any money used from the line of credit.
Over the years, the business improves its credit score with the bank and the bank feels comfortable to keep only four properties as collateral instead of five.
As a result, the bank can use the release clause in the line of credit agreement to grant a release on one of the business’s properties.
With the release, the company’s title to the released property will no longer be encumbered (it will become free and clear).
How do you define a release clause?
What is it used for in our personal and business dealings?
Release clause definition