Update on Georgia’s 2020 Amendments to Lien Laws

As you may be aware, a September 2019 Georgia Court of Appeals case shook the foundation of Georgia’s Lien Laws by taking away contractors’ contract rights through lien waivers. After learning about this legal “disaster”, our attorneys have been actively trying to amend the Georgia Lien Law Statutes legislatively. Since the shelter-in-place orders began popping up in March, we wanted to provide an update to the 2020 Proposed Revisions to Georgia’s Mechanics and Materialmen’s Lien Act.

Status of Pending Legislation: As one of the members of the AGC Georgia’s Legislative Committee, Mark Cobb participated in the 5-member, drafting sub-committee to propose changes to the Georgia legislature for consideration during the 2020 term. The bill, Senate Bill 315, was sponsored by Sen. Lindsey Tippins of Marietta, Georgia. And, he was able to secure 47 co-sponsors for this bill (this is a phenomenal feat considering that Georgia only has 56 senators!) On February 5, 2020, the AGC’s drafting committee appeared before the Senate Legislative Committee, and on February 20, the Senate unanimously passed the bill.

The drafting committee and the sponsoring senator worked hard to get this important issue before the legislature as soon as possible. After the Senate passed the bill, it was hoped that the Georgia House would pass the bill in March, and that it would be signed by the governor soon thereafter. It was further hoped that the bill would become effective on July 1, 2020. Unfortunately, the pandemic set its sights on Georgia. The Georgia House did not meet; thus, the bill remains pending with the House. At this time, there have not been any details regarding when the Georgia State House might reconvene and entertain hearing the proposed changes to the lien laws. Thus, until this happens, Georgia’s statutory-form lien waivers continue to waive all rights to payment–not just lien rights.

Details of the Proposed Changes to Georgia’s Lien Laws: The substantive changes which have been proposed to the Georgia legislature have centered around (i) limiting the lien waiver to a waiver and release of mechanics and materialmen’s liens and payment bond claims and (ii) specifically allowing for construction professionals to maintain their lien rights after lien waivers are signed. In order to do this, the drafting committee looked at both the lien waiver forms currently in use in Georgia and the statute governing the lien waiver. In addition, there were some less substantive changes suggested including amending the font size, extending the date to file an Affidavit of Nonpayment to a most-realistic 90 days, and some other technical clarifications.

On the lien waiver, there is a mandatory notice which needed to be amended to reflect the drafting committee’s goals. The notice appears at the end of the lien wavier and it states that the signor of the lien wavier will be deemed to have received payment in full after 60 days from the date of the lien wavier (unless an Affidavit of Nonpayment is filed). Here is a copy of the proposed changes to this notice proposed by Senate Bill 315:

NOTICE:  WHEN YOU EXECUTE AND SUBMIT THIS DOCUMENT, YOU SHALL BE CONCLUSIVELY DEEMED TO HAVE BEEN PAID IN FULL THE AMOUNT STATED WAIVED AND RELEASED ANY AND ALL LIENS AND CLAIMS OF LIENS UPON THE FOREGOING DESCRIBED PROPERTY AND ANY RIGHTS REGARDING ANY LABOR OR MATERIAL BOND REGARDING THE SAID PROPERTY TO THE EXTENT (AND ONLY TO THE EXTENT) SET FORTH ABOVE, EVEN IF YOU HAVE NOT ACTUALLY RECEIVED SUCH PAYMENT, 60 90 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 90 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 O.C.G.A. SECTION § 44-14-366.

The second section which needed substantive work was the statute governing Georgia’s Lien Waiver’s. O.C.G.A. Section 44-14-366 included language such as making the lien waiver binding against the claimant “for all purposes”. Here is a copy of the text used in Senate Bill 315 which shows the current statute and the proposed changes:

(f)(g)(1)  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 of the waiver of lien and labor or material bond rights to the extent stated in the waiver and release, subject only to payment in full of the amount set forth in the waiver and release the provisions of paragraphs (2) and (3) of this subsection.

(2) Such amounts lien and labor or material bond waivers and releases shall conclusively be deemed paid in full effective upon the earliest to occur of:

      (A) Actual receipt of funds in the amount set forth in the waiver and release;

      (B) Execution by the claimant of a separate written acknowledgment of payment in     full; or

      (C) Ninety Sixty days after the date of the execution of the waiver and release, unless prior to the expiration of said 60 90 day period the claimant files a claim of lien or  files in the county in which the property is located an affidavit of nonpayment, using substantially the language in the following form in boldface capital letters, where  such language shall be in at least 12 point font and need not be in boldface capital  letters:

Status of the Supreme Court’s Review of Appellate Decisions: In September, the Georgia Court of Appeals ruled in favor of a general contractor who claimed that Georgia’s Lien Waivers waived and released all claims for payment (the subcontractors argued that the Lien Waivers only waived and released their potential lien claims, but it did not release its contract claims for payment). In early October, the subcontractors filed their Petition for Writs of Certiorari asking the Supreme Court to review the Court of Appeals decision. Briefs were filed by both parities. On April 20, 2020, the Georgia Supreme Court denied the Writ. Thus, the Georgia Court of Appeals decision was not overturned, and their decision is binding on all construction lien waivers signed in Georgia. The cases are styled, Controlled Access, Inc. v. ALA Construction Services, Inc. and Landmark Electric and Company, LLC v. ALA Construction Services, LLC

Background and Facts: As a reminder to those who missed our latest blog article on the subject, the Court of Appeals cases arose from a general contractor who failed to pay its subcontractors on a large project in metropolitan Atlanta. The offended subcontractors filed materialmen’s liens against the project, and then they attempted to perfect their liens by filing suit to collect the amount they claimed they were owed. There were two substantially similar cases progressing contemporaneously in two separate metropolitan Atlanta counties.

In one case, the trial court agreed with the general contractor that Georgia’s lien waiver forms apply to all claims for payment (lien rights as well as contract rights); the other trial court found the general contractor’s argument unfair and found in favor of the subcontractor. Both of these cases were appealed. The Court of Appeals held as follows:

The Georgia Court of Appeals, Fifth Division holds that taken in context and construing the lien statute in favor of the property owner, the statutory language, which includes mandatory notice language in the form, shows that the materialman must file a notice of non-payment within 60 days of the date shown on the waiver and release or else that the amount at issue shall conclusively be deemed paid in full, and that the presumption of payment is binding against the claimant for all purposes. The calculation of the 60-day period in O.C.G.A. § 44-14-366(f)(1) is clearly written and unambiguous.

What You Need to Know Now: If you execute Georgia lien waivers, it is imperative that you follow Georgia’s Lien Act very closely. Thus, if a contractor or subcontractor does not receive payment within 60 days of the date of the lien waiver, then that contractor, subcontractor, or supplier MUST file an Affidavit of Nonpayment prior to the expiration of the 60 day period; otherwise, if will forfeit all rights which they may have for payment.

This is a very scary issue for Georgia contractors, and O.C.G.A. Section 44-14-360 et. seq. contains many requirements which must be strictly construed in order to preserve lien rights and payment bond rights. If you have any questions, please contact us.