by Mark A. Cobb

A recent Georgia Court of Appeals holding may give some subcontractors and suppliers reason to rejoice.  In Pinnacle Props. V, LLC v. Mainline Supply of Atlanta, LLC, 735 S.E.2d 166 (Ga. Ct. App. 2012), the court held that a materialmen’s lien placed against a construction project on a development corporation’s real estate was valid and could be enforced.

Background: Mainline Supply of Atlanta, LLC, a construction material supplier, provided pipes, valves and similar materials for use on a construction project in Cobb County, Georgia.  This project was an office building being constructed by Pinnacle Properties on real estate owned by the Kennesaw Georgia Development Authority.  Originally, the real estate had been owned by Pinnacle Properties, but it was deeded to the Development Authority and leased back to Pinnacle Properties.  After the general contractor failed to pay Mainline Supply for its building materials, Mainline Supply filed a Georgia Mechanics and Materialmen’s Lien against the Pinnacle Properties project and the Kennesaw Development Authority.

The Development Authority’s Argument: Although the materialmen sued the development authority (along with Pinnacle Properties), the trial court found that the documents which the parties had signed transferring ownership of the real estate between them severed the ownership of the land and ownership in the building. Thus, the lower court determined that the local development corporation had no ownership interest in the building, but it held that the development authority held a fee simple interest in the land; conversely, the lower court held that Pinnacle Properties  held a usufruct (a license to use) in the land, but had “title” to the improvements.  Consequently, the Kennesaw Development Corporation was dismissed as a party.

The Material Supplier’s Argument:  It is well established that a materialman’s lien may attach to the interests of a “true owner,” that is, someone who has an estate or property interest in realty; but it will not attach to a usufruct, which does not convey an ownership interest and is not subject to levy and sale.  Thus, while Pinnacle Properties argued that its rights were a mere usufruct and not subject to a lien, the material supplier argued that Pinnacle Properties had title to the building.  Construction lawyers for the material supplier argued that the documents executed between Pinnacle Properties and the development authority severed ownership of the building from ownership of the land.

All of the parties conceded that, typically, any buildings placed upon the land of another–even if they are placed on the property by someone entitled to use the real estate–become part of the realty, and the title to the buildings becomes vested in the owner of the land.  However, the supplier argued, this rule may be altered by agreement, and, by looking at the land-exchange documents, the supplier argued that the parties clearly intended to create a special agreement wherein Pinnacle Properties would have a fee-simple interest in the improvements.

The Georgia Court of Appeals Holding: The Georgia Court of Appeals rejected both Pinnacle’s argument that its interest was a mere usufruct and Mainline Supply’s argument that Pinnacle retained a fee-simple interest in the improvements.  Nonetheless, the Court opined that an estate for years carries with it the right to use the property in as absolute a manner, and an estate for years may be subjected to the lien.  Thus, the Court held that, “Even if Pinnacle does not have title to the building on which the lien is claimed and title is in a third party not subject to the suit, this “will not bar an action for foreclosing the statutory lien of a materialman because if the defendant has any interest in the premises upon which the lien can take effect, that interest is bound. Every legal interest in real and personal property can be seized and sold.  Here, Pinnacle had an estate for years in the leased premises, and a materialman’s lien could attach to and be enforced against such interest, subject to the conditions of the lease.”

Summary:  Even if the building owner did not have title to the building on which the lien was claimed and title was in a third party not subject to the suit, this would not bar an action for foreclosing the statutory lien of a materialman because if the defendant had any interest in the premises upon which the lien can take effect, that interest was bound.

Georgia Claim of Lien Laws:  If you need to file a construction lien anywhere in the state of Georgia, it is vital that it be filed against the proper parties and that all of the deadlines and statutory requirements be met; thus, we encourage you to contact a qualified Georgia Materialmen’s Lien Attorney to help you with your claim of lien.  If you have any questions or have any lien claims or bond claims in Georgia, please feel free to contact us or leave your comments below!