by Mark A. Cobb

For an update on the status of the 2020 proposed amendments to Georgia’s Lien Laws, please click here.

Recently, the Georgia Court of Appeals handed down a case which seriously impacts everyone on a construction project including general contractors, subcontractors, sub-subcontractors and material suppliers. The case involves Georgia’s statutory form lien waivers, and the lien waiver may prevent a contractor or supplier from recovering any of the money which they are owed for their work (or materials) on a project.

That’s right, Georgia’s Court of Appeals held that a lien waiver, in facts, waives all rights to payment; it doesn’t just waive the ability to file a lien in Georgia.

Lawsuit Background: The matter styled ALA Construction Services, LLC v. Controlled Access, Inc. (351 Ga. App. 841, 833 S.E.2d 570) involved a subcontractor’s attempt to collect payment from the general contractor after the project had been completed.

ALA Construction Services is a general contractor (“ALA Construction”) which engaged the services of Controlled Access, a subcontractor. As a part of ALA Construction’s payment process, Controlled Access signed two documents called “Interim Waiver and Release Upon Payment” which, incidentally, is a form dictated by Georgia’s lien statutes and is the only enforceable lien waiver form in Georgia. The Waiver required Controlled Access to file an affidavit of nonpayment or a claim of lien within a 60-day period or else the amount due would be considered paid-in-full. Although ALA Construction failed to pay Controlled Access for its work, Controlled Access did not file an Affidavit of Nonpayment nor did it file a lien within 60 days of the date of the unpaid lien waiver.

We see this scenario almost daily.  Contractors or suppliers either fail to calendar their Lien Waiver 60-day period or they voluntarily allow them to lapse.  Traditionally, however, these clients have relied upon other theories of recover to obtain the money which they are owed rather than filing a Georgia materialman’s lien.

Court’s Holding: ALA Construction failed to pay Controlled Access; thus, Controlled Access filed suit against ALA Construction under a breach of contract claim (and not a lien claim). The case was sent to the Georgia Court of Appeals which dissected Georgia’s lien waiver statute, and they determined that the lien waiver language does waive lien rights, but it also waives all rights to payments.

The Court’s Reasoning: In making this determination, the Georgia Court of Appeals looked at (i) the language contained in the Georgia statutory form lien waiver and (ii) the language contained in O.C.G.A. § 44-14-366 which governs Georgia lien waivers.  In considering their holding, the Court first reviewed the language contained in the lien waiver–which is the only enforceable lien waiver.  By statute the valid lien waiver must include the following language:

NOTICE: When you execute and submit this document, you shall be conclusively deemed to have been paid in full the amount stated above, even if you have not actually received such payment, 60 days after the date stated above unless you file either an affidavit of nonpayment or a claim of lien prior to the expiration of such 60 day period. The failure to include this notice language on the face of the form shall render the form unenforceable and invalid as a waiver and release under [OCGA §} 44-14-366. [Emphasis added].

Thus, since the lien waiver’s language specifically refers to itself as a “waiver and release under O.C.G.A. § 44-14-366, the Court reviewed that section of the Georgia code and found the following two sections from the Code useful for interpreting it’s holding:

• O.C.G.A. § 44-14-366(f) (1) states that “When a waiver and release provided for in this Code section is executed by the claimant, it shall be binding against the claimant for all purposes, subject only to payment in full of the amount set forth in the waiver and release,” [Emphasis added] and
• O.C.G.A. § 44-14-366(f) (2) states that “Such amounts shall conclusively be deemed paid in full upon the earliest to occur of: (A) Actual receipt of funds; (B) Execution by the claimant of a separate written acknowledgment of payment in full; or (C) Sixty days after the date of the execution of the waiver and release, unless prior to the expiration of said 60 day period the claimant files a claim of lien or files in the county in which the property is located an affidavit of nonpayment.” [Emphasis added]

Looking at the language, then, the Georgia Court of Appeals held as follows:

We conclude that the plain and unambiguous language of OCGA § 44-14-366 (f) (1) clearly provides that the General Assembly intended the Waiver to be binding against the parties for “all purposes,” not just for the purposes of preserving the right to file a lien on the property. OCGA § 44-14-366 (f) (1) (the execution of a waiver and release under this Code section “shall be binding against [*844] the claimant for all purposes”) (emphasis supplied). Further, the statute clearly and unambiguously provides that upon signing the Waivers, Controlled Access had a statutorily imposed responsibility to file either a claim of lien or an affidavit of nonpayment if it wished to keep the debt alive beyond 60 days. Controlled Access did neither and the debt is extinguished. See OCGA § 44-14-366 © (by executing the waiver release form, “you shall be conclusively deemed to have been paid in full the amount stated above, even if you have not actually received such payment, 60 days after the date stated” unless an affidavit of nonpayment or claim of lien has been filed).

Conclusion: Although this has been very a very disturbing holding, the attorneys at the Cobb Law Group have warned against this possible interpretation. Although we believe that lien waivers should only waive lien rights, we recognized the language cited by the court. For the past ten years, we have been warning clients of this possibility; however, now this interpretation is a reality, so it is imperative that every contractor, subcontractor and supplier monitor the 60 day period for each and every lien waiver, and timely file an Affidavit of Nonpayment (or a lien, if appropriate) to prevent losing all rights to payments.

Coda: ALA Construction took a similar stance with other subcontractors working on their projects, and there are at least two other companion cases with which we are familiar. This case (and one companion case) has been sent to the Georgia Supreme Court for consideration. In addition, there is an active lobby to amend the Georgia statutes governing our lien waivers. In fact, our senior construction attorney Mark Cobb, along with 2 other prominent Georgia construction attorneys and a GC representative and a subcontractor representative have been appointed to a committee to address the industries concerns. Hopefully, when the Georgia legislature convenes in 2020, this matter will get resolved legislatively.