Release Clause

Release Clause Defined

Release clauses, also called buyout clauses, definitively free one party from breach of contract, bad faith, or negligence liabilities. The idea is to protect an individual from absorbing someone else’s liability in specific situations.

Here is another article that defines a release clause in relationship contracts.

Release Clause Explained

It’s easier to understand release clauses with a real-life example. FIFA football player Lionel Messi disputed the terms of his buyout clause with Barcelona. He thought he could leave his contract without penalty but later reversed his decision when negotiations revealed otherwise.

For more info about a release clause in football, see this article.

Purpose of a Release Clause

Who does release clause benefit? The purpose of a release clause is to limit risk assumptions on behalf of contract parties. However, these protections generally extend to one party and not the other.

Learn more about buyout clauses by checking out this web page.

Release Clause Examples

Examples of release clauses include:

• Example 1: Releasing mortgage lenders from collateral liability
• Example 2: Preventing football players from leaving the team
• Example 3: Releasing an agency after hiring one of their temps in-house
• Example 4: Selling a turnkey business to someone else when retiring
• Example 5: Controlling interests on a board of directors
• Example 6: Selling and transferring land from one owner to the other
• Example 7: Mitigating tenant claims against landlords

This article will help you learn about a release clause in real estate.

Release Clause Samples

Sample 1 - Employment Agreement:

Release of Claims. In exchange for the Company’s providing Employee with the Separation Pay described in Section 2, above, by signing this Agreement, Employee hereby releases and forever discharges the Company, as well as its parent companies, affiliates, subsidiaries, divisions, officers, directors, stockholders, employees, agents, representatives, attorneys, lessors, lessees, licensors and licensees, and their respective successors, assigns, heirs, executors and administrators (collectively, the “Company Parties”), from any and all claims, demands, and causes of action of every kind and nature, whether known or unknown, direct or indirect, accrued, contingent or potential, which Employee ever had or now has, including but not limited to any claims arising out of or related to Employee’s employment with the Company and the termination thereof (except where and to the extent that such a release is expressly prohibited or made void by law). This release includes, without limitation, Employee’s release of the Company and the Company Parties from any claims by Employee for lost wages or benefits, stock options, restricted stock, compensatory damages, punitive damages, attorneys’ fees and costs, equitable relief or any other form of damages or relief. In addition, this release is meant to release the Company and the Company Parties from all common law claims, including claims in contract or tort, including, without limitation, claims for breach of contract, wrongful or constructive discharge, intentional or negligent infliction of emotional distress, misrepresentation, tortious interference with contract or prospective economic advantage, invasion of privacy, defamation, negligence or breach of any covenant of good faith and fair dealing. Employee also specifically and forever releases the Company and the Company Parties (except where and to the extent that such a release is expressly prohibited or made void by law) from any claims based on unlawful employment discrimination or harassment , including, but not limited to, the Federal Age Discrimination in Employment Act (29 U.S.C. § 621 et. seq.). This release does not include Employee’s right to indemnification, and related insurance coverage, under Section 7.1.4 of the Employment Agreement, his right to equity awards, or continued exercise, pursuant to the terms of any specific equity award (or similar) agreement between Employee and the Company nor to Employee’s right to benefits under any Company plan or program in which Employee participated and is due a benefit in accordance with the terms of the plan or program as of the date hereof.

Reference:

Security Exchange Commission - Edgar Database, EX-10.281 4 d226725dex10281.htm EMPLOYMENT AGREEMENT, Viewed April 1, 2021, < https://www.sec.gov/Archives/edgar/data/1003124/000119312511292827/d226725dex10281.htm >.

Sample 2 - Mortgage Contract:

Mortgage Releases. The terms of the related Mortgage or related Mortgage Loan documents do not provide for release of any material portion of the Mortgaged Property from the lien of the Mortgage except (a) a partial release, accompanied by principal repayment, or partial Defeasance (as defined in paragraph (32) below), of not less than a specified percentage at least equal to the lesser of (i) 110% of the related allocated loan amount of such portion of the Mortgaged Property and (ii) the outstanding principal balance of the Mortgage Loan or Whole Loan, as applicable, (b) upon payment in full of such Mortgage Loan or Whole Loan, as applicable, (c) upon a Defeasance (as defined in paragraph (32) below), (d) releases of out-parcels that are unimproved or other portions of the Mortgaged Property which will not have a material adverse effect on the underwritten value of the Mortgaged Property and which were not afforded any material value in the appraisal obtained at the origination of the Mortgage Loan and are not necessary for physical access to the Mortgaged Property or compliance with zoning requirements, or (e) as required pursuant to an order of condemnation. With respect to any partial release under the preceding clauses (a) or (d), either: (x) such release of collateral (i) would not constitute a “significant modification” of the subject Mortgage Loan within the meaning of Section 1.860G-2(b)(2) of the Treasury Regulations and (ii) would not cause the subject Mortgage Loan to fail to be a “qualified mortgage” within the meaning of Section 860G(a)(3)(A) of the Code; or (y) the Mortgagee or servicer can, in accordance with the related Mortgage Loan documents, condition such release of collateral on the related Mortgagor’s delivery of an opinion of tax counsel to the effect specified in the immediately preceding clause (x). For purposes of the preceding clause (x), if the fair market value of the real property constituting such Mortgaged Property (reduced by (1) the amount of any lien on the real property that is senior to the Mortgage Loan and (2) a proportionate amount of any lien on real property that is in parity with the Mortgage Loan) after the release is not equal to at least 80% of the principal balance of the Mortgage Loan or Whole Loan, as applicable, outstanding after the release, the Mortgagor is required to make a payment of principal in an amount not less than the amount required by the REMIC Provisions.

In the case of any Mortgage Loan, in the event of a taking of any portion of a Mortgaged Property by a State or any political subdivision or authority thereof, whether by legal proceeding or by agreement, the Mortgagor can be required to pay down the principal balance of the Mortgage Loan or Whole Loan, as applicable, in an amount not less than the amount required by the loan-to-value ratio and other requirements of the REMIC Provisions and, to such extent, condemnation awards may not be required to be applied to the restoration of the Mortgaged Property or released to the Mortgagor, if, immediately after the release of such portion of the Mortgaged Property from the lien of the Mortgage (but taking into account the planned restoration) the fair market value of the real property constituting the remaining Mortgaged Property (reduced by (1) the amount of any lien on the real property that is senior to the Mortgage Loan and (2) a proportionate amount of any lien on real property that is in parity with the Mortgage Loan) is not equal to at least 80% of the remaining principal balance of the Mortgage Loan or Whole Loan, as applicable.

No Mortgage Loan that is secured by more than one Mortgaged Property or that is a Crossed Mortgage Loan permits the release of cross-collateralization of the related Mortgaged Properties or a portion thereof, including due to a partial condemnation, other than in compliance with loan-to-value ratio and other requirements of the REMIC Provisions.

Reference:

Security Exchange Commission - Edgar Database, EX-99.2 22 exh99-2msmch.htm MORTGAGE LOAN PURCHASE AGREEMENT, Viewed April 1, 2021, < https://www.sec.gov/Archives/edgar/data/1715846/000153949717001818/exh99-2msmch.htm >.

Sample 3 - Franchise Contract:

General Release. You, each Principal Owner and each guarantor must sign a general release of all claims arising out of or relating to this Agreement, your Restaurant or the parties’ business relationship, in the form we designate, releasing us and our affiliates.

Reference:

Security Exchange Commission - Edgar Database, EX-10.11 2 dex1011.htm FORM OF FRANCHISE AGREEMENT, Viewed April 1, 2021, < https://www.sec.gov/Archives/edgar/data/1062449/000119312505062076/dex1011.htm >.

Sample 4 – Master Franchise Contract:

You shall execute a general release, in a form prescribed by us, of any and all claims which you may have or believe to have against us and/or our affiliates and our respective officers, directors, agents and employees, whether the claims are known or unknown, which are based on, arise from or relate to this Agreement or the Franchised Business, as well as claims, known or unknown, which are not based on, do not arise from or do not relate to this Agreement or the Franchised Business, but which relate to other franchise agreements, Franchised Businesses and other agreements between us or our affiliates and you which arose on or before the date of the general release, including, without limitation, all obligations, liabilities, demands, costs, expenses, damages, claims, actions and causes of action, of whatever nature, character or description, arising under federal, state and local laws, rules and ordinances (provided, however, that all rights enjoyed by you and any causes of action arising in your favor from the provisions of Article 33 of the New York General Business Law (“GBL”) and the regulations issued thereunder shall remain in force; it being the intent of this provision that the non-waiver provisions of GBL Sections 687.4 and 687.5 be satisfied).

Reference:

Security Exchange Commission - Edgar Database, EX-10.1 2 soup_ex10z1.htm FORM OF MASTER FRANCHISE AGREEMENT, Viewed April 1, 2021, < https://www.sec.gov/Archives/edgar/data/1475273/000155335015000867/soup_ex10z1.htm >.

Common Contracts with Release Clauses

Common contracts with release clauses include:

• Franchise tag contracts
• Mortgage notes
• Employment contracts
• Business contracts
• Executive contracts
• Sales contracts
• Lending agreements

Release Clause FAQs

If you have additional questions about release clauses, check out the release clause FAQs below:

What is the difference between limitation of liability and indemnification?

Limitation of liability refers to the liability assignments for a given transaction or relationship. Indemnification identifies the individuals responsible for paying attorneys’ and legal fees in case of a damages claim.

What is a normal liability cap?

A normal liability cap limits one party’s responsibility in the event of negligence or breach of contract action. It allows some liability but can’t exceed a specific point, such as a dollar amount, activity, or time limit. Contract lawyers can help you understand which normal liability caps apply to your situation.