New Georgia Case Allows GC’s Some Leeway with Notices of Commencement

We are always on the lookout for cases which affect our clients’ right to file materialmen’s liens; last week, the Georgia Court of Appeals handed down a decision that allows general contractors a little leeway with getting their Notices of Commencement correct.

Basically, the fact of the case are very common:  a supplier to a subcontractor was not paid on a construction project so the supplier filed a Georgia Materialmen’s Lien for the amount due.  They sued the subcontractor and prevailed; however, the subcontractor was unable to pay the debt, so the supplier looked to the supplier’s lien which it had filed to pay the debt.

The Real Property Owner’s Argument: Unfortunately, the supplier had not sent out it’s Notice to Owner or Notice to Contractor (hereinafter “NTO”) which, as we know from other blog entries, is essential for all third tier subcontractors and suppliers.  Thus, the owner of the property showed the court that (i) it had timely filed a Notice of Commencement, (ii) the supplier failed to send an NTO, and (iii) consequently, the supplier’s lien was invalid.

The Supplier’s Argument: The supplier acknowledged that when a Notice of Commencement is filed, all third tier suppliers and subcontractors must send an NTO within 30 days of beginning to work on the project in order to preserve their lien rights.  However, as the supplier pointed out there is an exception to this requirement for an NTO:  if the Notice of Commencement was not proper, then there is no obligation to send an NTO.  In this particular case, the supplier argued that the Notice of Commencement failed to include the general contractor’s telephone number (which is statutorily required).

The Court’s Decision: The Georgia Court of Appeals noted a fundamental principal of Georgia’s mechanic’s and materialmen’s lien laws–that  lien statutes in derogation of the common law must be strictly construed in favor of the property owner and against the materialman. The court then discussed the difference between absolute compliance and “substantial” compliance.  The court, thus, comes to the conclusion that the Notice of Commencement which contained all the necessary information except for the general contractor’s telephone number substantially complied with the lien statutes.  Therefore, the court reasoned, the Notice of Commencement was valid, and the supplier’s failure to send the Notice to Owner invalidated the mechanic’s lien.

Some good news for suppliers in Georgia: On a brighter note, the court underscored the difference between information which was vital to the success of the Notice of Commencement such as the owner’s information or the real property description and the missing telephone number.

Please let us know your opinion regarding the Georgia’s Court of Appeal’s interpretation of the Georgia lien statutes!

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