Unlicensed Contractors In Georgia Lose All Contract Rights According to Georgia Court of Appeals
Recently, the Georgia Court of Appeals handed down a decision which should be a wake-up call for all unlicensed contractors doing business in the State of Georgia. In Saks Management and Associates, LLC v. Sung General Contracting, Inc., the court determined that an unlicensed general contractor is unable to enforce its contract rights.
The case deals with a conflict arising between an owner and a general contractor on a construction project. In July 2016, Saks Management and Associates LLC (“Saks”), the owner of an apartment complex in Atlanta, and Sung General Contracting, Inc (“Sung Contracting”), the general contractor entered into a contract for some remodeling work on a Saks-owned complex. The substantial completion of the work was scheduled by March 31, 2017. However, at the time the contract was executed, neither Sung Contracting nor its sole owner, Chol Chung, had obtained a valid general contractor license to work in the State of Georgia.
In August 2016, the city of Atlanta ordered a stop-work notice on the Project because the required permits had not been issued to commence work. At that time, Sung Contracting contracted a professional engineer and licensed general contractor named Sung Chung to obtain the permits. (Chol Chung was also known as Sung Chung, however the professional engineer was a different person.) It was claimed that this information was not given to Saks.
On February 1, 2017, Sung Contracting demanded an out-of-schedule, full payment by February 3 or, it threatened, that it would stop work on the Project. Saks agreed to pay $200,000.00 at that time, and both parties agreed to accelerate the date of completion to February 28. Sung Contracting did not finish the work under the accelerated construction schedule and continued working on the project until March 24 when Saks decided to terminate the contract for the construction delays.
Saks subsequently filed a lawsuit against Sung Contracting, it’s principal Chol Chung, and the professional engineer for breach of contract, negligence, conversion, unjust enrichment and fraud. Sung Contracting, in turn, filed counterclaims for breach of contract, quantum meruit and unjust enrichment, among other things. Both parties filed Motions for Summary Judgment asking to Court to rule in its favor on the basis of law (as the facts were not in dispute). The trial Court denied the petitions for summary judgment and both parties appealed to the Georgia Court of Appeals.
Saks argued that the statutory requirements to obtain a general contractor license precluded Sung Contracting from bringing any of its claims. Specifically, OCGA § 43-41-17 (a) provides as follows:
that no person shall have the right to engage in the business of general contracting without a current, valid general contractor license issued by the State Licensing Board for Residential and General Contractors.
In addition, OCGA § 43-41-17 (b) provides:
As a matter of public policy, any contract entered into on or after July 1, 2008, for the performance of work for which a residential contractor or general contractor license is required by this chapter and not otherwise exempted under this chapter and which is between an owner and a contractor who does not have a valid and current license required for such work in accordance with this chapter shall be unenforceable in law or in equity by the unlicensed contractor. For purposes of this subsection, a contractor shall be considered unlicensed only if the contractor was unlicensed on the effective date of the original contract for the work, if stated therein, or, if not stated, the date the last party to the contract executed such contract, if stated therein. . . . . This subsection shall not affect the rights of parties other than the unlicensed contractor to enforce contract, lien, or bond remedies. . . .
To counter the owner’s argument, Sung Contracting argued that a the repair rule exemption applied to this case. Specifically, Sung Contracting relied upon OCGA § 43-41-17 (g) which states as follows:
Nothing in this chapter shall preclude a person from offering or contracting to perform or undertaking or performing for an owner repair work, provided that the person performing the repair work discloses to the owner that such person does not hold a license under this chapter and provided, further, that such work does not affect the structural integrity of the real property. The board shall by rule or regulation further define the term “repair” as used in this subsection and any other necessary terms as to the scope of this exemption.
Furthermore, the State Licensing Board for Residential and General Contractors has enacted a repair rule that defines “repair” “to mean fixing, mending, maintenance, replacement or restoring of a part or portions of real property to good condition. Ga. Comp. R. & Regs. r. 553-8-.01
Sung Contracting claimed that it disclosed to Saks that it did not hold a general contractor license in Georgia and argued that the work did not impact any structural alteration that affected the integrity of the property; thus, Sung Contracting did not have to obtain a Georgia contractor’s license before performing the work on the Project.
The Court of Appeals considered that there was no evidence that Sung Contracting disclosed in writing its lack of license as general contractor which is a prerequisite to the application of the repair rule exemption. Also, the Court held that since “the statewide licensing system for general contractors was enacted for the interest of the public … [S]o the contract between Sung General Contracting and Saks is void, at least as far as Sung General Contracting’s right to enforce it in law or in equity”. Saks Mgmt. & Assocs., LLC. v. Sung Gen. Consequently, Sung Contracting lost its right to all claims for payment even though the project owner, Saks, kept its right to enforce and assert claims under the contract.
This rule has an important implication for the construction industry in Georgia because in order to maintain their rights under a construction contract and enforce them in the future, Georgia constructors must be always aware to obtain and maintain all proper valid licenses for general contractors before performing their work on a Project. The risk of doing business without a valid contractor’s license should be avoided by always checking license status at onset of every contract.