A recent case decided by the Georgia Court of Appeals had a devastating impact on contractors’ rights to recover from non-payment. Given the severity of this decision, a bill was quickly introduced to amend Georgia’s lien waiver statutes. Let’s take a look at what changes the bill would make if it eventually passes.
UPDATE: This law was signed by Governor Kemp, and will go into effect in January 2021. Read more about Georgia’s lien waiver changes and the impact of the bill here.
GA Court of Appeals decision’s impact on lien waivers
Late last year, the court issued a decision in ALA Construction Services, LLC. v. Controlled Access, Inc. The case dealt with the implications of failing to provide an Affidavit of Nonpayment in the context of lien waivers.
Background on lien waivers in Georgia
Georgia’s lien waiver provisions are particularly unique as they are both conditional and unconditional. Once a lien waiver is executed, the waiver is conditioned on the receipt of payment. However, there is an important deadline to keep track of. The waiver automatically becomes unconditional within 60 days of the submission of the lien waiver, even if payment hasn’t been made. The only way to avoid this is to either (a) file an Affidavit of Nonpayment, or (b) file a claim of lien.
- For a full breakdown: Georgia’s Very Unusual Rules for Lien Waivers
Georgia Court: Lien waiver doesn’t just waive lien rights
In September 2019, the court was interpreting the language of O.C.G.A. §44-14-366(f), which is the lien waiver statute. Two specific provisions were under scrutiny:
- …waiver or release shall be binding against the claimant for all purposes…
- Such amounts shall be conclusively be deemed paid in full…Sixty days after the date of the execution…unless…claimant files a claim of lien, or files…an affidavit of nonpayment.
After reviewing these provisions, the court declared that failing to take either action (claim of lien, or affidavit of nonpayment) doesn’t just waive the claimant’s right to file a lien. The waiver becomes binding for all purposes, and will conclusively be deemed to be paid in full. This means that, in the eyes of the law, payment took place (even if it didn’t). A contractor cannot file a lawsuit for breach of contract, or file any other contractual claim for payment. By failing to act within 60 days, they waived all of their rights to payment.
This was obviously a painful decision for contractors across the state.
- For a full discussion of the case: Georgia Lien Waivers Can Waive More Than Just Lien Rights
Georgia proposed amendments (SB 315)
Given the severity of this decision, the Georgia legislature quickly responded. Early this year, with the help of the Associated General Contractors of Georgia, Senator Lindsey Tippins introduced SB 315. The bill is currently making its way through the State Senate.
The proposed changes would amend §44-14-366, and limit the waiver and release to just mechanics lien and bond rights. The language in the new bill states that a lien waiver shall not be deemed to affect any other rights or remedies of the claimant. Thereby allowing claimants to retain any their right to collect from nonpayment through contractual claims such as breach of contract. This is welcome news to those working on construction projects within the state of Georgia.
In addition to this, the bill would also extend the deadline to file an Affidavit of Nonpayment of lien claim from 60 to 90 days. This is meant to clear confusion concerning the deadline to file a mechanics lien claim (also 90 days); which is why the bill would remove the lien claim filing from the language of the statute.
- See the full text of the bill here: GA Senate Bill 315
As stated above, this bill is currently clearing the Senate, and will, hopefully, make it all the way to the Governor’s office. This is a surprisingly swift response. Anyone working in the construction industry in Georgia should be paying close attention to how this bill progresses. I know we will be!