Attention to detail is critical when dealing with mechanics lien rights. Since lien rights grant an extraordinary means of protection, claimant’s need to ensure that every “i” is dotted and “t” is crossed.
But sometimes mistakes can happen. Even worse, other parties’ mistakes can happen, which can affect your rights; or muddle them. For example, take a look at this recent Georgia court case where an error in a subcontractor’s business name caused headaches for a material supplier’s mechanics lien claim.
Mechanics lien rights in Georgia: Who can file?
The parties entitled to lien rights in Georgia is listed under OCGA §44-14-361(b):
[A lien] may attach to the real estate of the owner for which labor, services, or materials are furnished if they are furnished at the instance of the owner, contractor, or some other person acting for the owner or contractor…
What this means, in simplified terms, is that in order to have lien rights in Georgia, the claimant must have contracted with the property owner, or be part of the chain of contracts with the owner.
This is pretty standard. After all, how can one expect to hold the owner’s property liable for nonpayment, if the work performed wasn’t at the request of the owner, or a contractor acting under the owner’s authority?
As simple as this seems, it’s important to keep in mind that lien laws are strictly construed. Any deviation or mistake in the process or requirements can spoil a claimant’s lien rights. Or, at the very least, make things much more complicated and expensive — in some instances, whether the error is the claimant’s fault or not.
Take a company name for instance: A recent case from the Georgia Court of Appeals dealt with a GC challenging a material supplier’s claim because the name of the subcontractor’s company on the contract with the GC didn’t match up with the sub’s name on the supply agreement.
Subcontractor name differs on construction documents
The case in question: Optum Construction Group, LLC et al. v. City Electric Supply Company
- General Contractor: Optum Construction Group, LLC (Optum)
- Subcontractor: Palmetto Services, LLC (Palmetto Services)
- Supplier: City Electric Supply Company (City Electric)
- Represented by:
The dispute between the parties arose on a construction project for the improvement of a Hampton Inn property. Optum was the general contractor on the project and entered into a subcontract with “Palmetto Power Services Palmetto Power Unlimited, Inc.” (Palmetto Unlimited) to perform electrical work. Once work began, all pay applications submitted to and paid by Optum were from “Palmetto Power Services.”
Palmetto Services had contracted with City Electric for building materials related to the project. Accordingly, to preserve their lien rights, City Electric sent a notice to Optum stating that they were providing materials to “Palmetto Power.”
As the project progressed, according to Optum, Palmetto Unlimited had abandoned the project and failed to make payments to City Electric. Subsequently, City filed a mechanics lien on the property claiming over $123K in nonpayment. In response, Optum bonded off the lien pursuant to OCGA §44-14-364.
When the lawsuit to enforce the claim was filed, both City Electric and Optum filed a motion for summary judgment. The trial court granted City’s motion and denied Optum’s.
Lien claim challenged for lack of privity
On appeal, Optum argued that the trial court erred because City Electric didn’t qualify as a lien claimant under §44-14-361(b). Specifically, because the subcontract identified the subcontractor as “Palmetto Power Services Palmetto Power Unlimited Inc.,” and not “Palmetto Power Services, LLC.”
Due to this, Optum claimed there is no privity of contract between Palmetto Services and Optum. Thus, no chain of contract between City Electric and the property owner (or with Optum, for that matter).
Georgia courts have previously held that “absent proof of a contractual relationship, either directly or through a chain of contracts, between the owner of the property and the person to whom the materials are furnished, a lien created under OCGA §44-14-361 et. seq. will not attach.”
Along this line of reasoning, the court stated:
“Here, there is a genuine issue of material fact as to whether Optum had a contractual relationship through a chain of contracts with Palmetto Services. The subcontract lists “Palmetto Power Services Palmetto Power Unlimited Inc.” as the subcontractor and not Palmetto Power Services, LLC. But Optum concedes that “Palmetto Power Unlimited was ultimately organized as an LLC instead of a corporation.” Therefore, it appears that the named subcontractor never existed.”
Given this, the court declared that the contract was unclear as to the subcontractor’s identity, and the record had conflicting evidence concerning whether City Electric was in a contractual relationship with Optum.
The summary judgment was reversed, and the case was remanded to trial.
Accuracy is paramount for lien rights
Mechanics liens are creatures of statute. And, as mentioned above, strict compliance is required. This decision just reinforces this concept.
It may seem like the court is splitting hairs here, but when hard-earned money is on the line, there’s no detail too small. This is why it’s crucial to ensure the accuracy of not only your contract documents, but your lien and notice documents as well. And unfortunately, the error in this case wasn’t even City Electric’s fault — yet they’re the one’s dealing with the consequences.
Small errors like this may not result in the complete loss of rights in all circumstances. The court even conceded that “a mere misnomer of a corporation in a written instrument, or in a law, or in a judicial proceeding is not material or vital in its consequences, if the identity of the corporation intended is clear or can be ascertained by proof.”
But it will cost more time, money, and effort to prove that these types of mistakes are indeed just mistakes.