This blog is from a webinar that was presented by SunRay Construction Solutions and features Mark A Cobb, an attorney in Georgia who has been practicing for 25 years, specifically in construction law. In this article we will discuss Georgia’s lien law changes, which Mark was instrumental in helping to change. how to deal with material price escalation – a real problem that is affecting the construction industry.
Overview of Georgia’s Lien Law - A Few Definitions
There are five terms that everyone should be aware of. These are as follows:
1. Lien waiver
A waiver is whenever you give up rights, so a lien waiver means that you are giving up rights to file a lien. It is usually done between someone who is paying money, such as an owner, general contractor, or first-tier subcontractor, and it is signed by the other party that is actually giving up the rights. This party would be the general contractor, any subcontractor, sub-subcontractor or material supplier.
Generally, and this is true across all states, there are two types of lien waivers:
a. Conditional waiver
The first type of waiver is the conditional waiver. This is when something is waived or given up upon a certain condition. The most common scenario is when you give up your right to file a lien in return for payment or when you are paid.
b. Unconditional waiver
The second type of waiver is the unconditional waiver. It is an unequivocal giving up of rights. So you sign a document and say that you are giving up your lien rights. There are no conditions, it doesn’t matter whether you receive payment. It does not matter whether contract terms have been met, you simply give up the right to file a lien.
2. Affidavit of Nonpayment
In Georgia, the next document is an Affidavit of Nonpayment. Georgia waivers usually start as conditional and then they shift to unconditional. The only way to avoid a lien waiver is to file a document called the Affidavit of Nonpayment.
There is a statutory form, and it must be filed with the clerk of court where the project is located. There are also certain notice requirements to send it to the owner or the general contractor.
3. Affidavit of Payment
The Affidavit of Payment is a document that voids the Affidavit of Nonpayment. So the sequence is a contractor signs a lien waiver, if they are not paid, they file an Affidavit of Nonpayment, and that is something that is recorded in the courthouse. So, the whole world knows that there is a subcontractor or supplier out there who has not received payment, when they do, whoever paid them wants to void that Affidavit of Nonpayment.
The process for that is called an Affidavit of Payment, and that is recorded in the courthouse. So, everyone then knows that the payment was received.
Overview of Georgia’s Lien Law - A Few Concepts
Now we will go through a few basic concepts.
1. Georgia has statutory form lien waivers
Unlike most other states, Georgia has statutory forms lien waivers, and they are the only enforceable lien waivers. They are substantially similar. One is an interim waiver and the other is a final waiver. Obviously, the interim is used throughout the project’s life, and the final goes with the very last payment.
2. Lien waivers are essentially both conditional and unconditional
As mentioned before, lien waivers are essentially both conditional and unconditional.
3. Once a waiver has been signed, lien rights exist until payment is received
One a waiver has been signed, the signer still has lien rights until payment is received.
4. If payment is not received, claimant needs to file an Affidavit of Nonpayment
If payment is not received within 60 days of the waiver being executed, then the claimant must file an Affidavit of Nonpayment to avoid that lien claim. That is the current lien law, and it is still good through the end of the month of December 2020. So, if you are sitting on anyway unpaid lien waivers that are approaching the 60-day mark, it is imperative that you file an Affidavit of Nonpayment before that 60-day period.
5. Failure to file will result in the waiver converting from conditional to unconditional
Otherwise, that Georgia lien waiver will convert from conditioned upon payment to unconditional. The rules will change on January 1 and that will be the focus of a large part of this blog.
6. This means lien rights are waived whether payment is received or not
Under the current law, if you do not void a lien waiver by filing an Affidavit of Nonpayment within 60 days, then you waive all rights to payments. Not just the right follow lien, but you waive the right to make a contract claim against the entity to hire you, you lose all equitable remedies, and more. So, it is very damaging.
Summary of Lien Law Changes
So the summary of the lien law changes is as follows:
1. Lien waivers no longer waive contract rights
Contract rights will no longer be waived.
2. Lien waivers explicitly waive/include payment bond rights
Similarly, (and this has always been the case in Georgia) people who signed lien waivers were not aware of it, because it was buried deep in the code, but lien waivers now explicitly waive liens as well as payment bond rights. So, this is true on public as well as private projects.
3. Name of waivers changed
The names of the waivers have also been changed slightly.
4. Additional time to file Affidavit of Nonpayment
Additional time has been given to file the Affidavit of Nonpayment. Until the end of this month, a lien waiver that goes beyond 60 days converts to unconditional. The time limit has been extended to 90 days to give people more time.
5. Restrictions on waiver format relaxed
Some of the restrictions on forms have also been relaxed.
Background of ALA Construction Services, LLC v Controlled Access, Inc.
All of these changes in Georgia’s lien laws came about in 2019. There was a pair of Court of Appeals decisions, both involving the same general contractor, ALA Construction. ALA Construction has their subcontractors sign a Georgia lien waiver, and there are two cases that were substantially similar.
The first one was a project called Sugar Hill Overlook. The subcontractor was owed a little more $129,000 and they signed the Interim Waiver. They did not file an Affidavit of Nonpayment within 60 days and they did not file a lien. Eventually, the electric company brought suit against the general contractor for nonpayment.
In the other case, ALA Construction Services versus Controlled Access, on the same project, controlled access was owed almost $18,000. They too signed an Interim Waiver and release Upon Payment. They too failed to file an Affidavit of Nonpayment and failed to file a lien. So, the subcontractor brought suit against the general contractor.
Now if you look at the next to last point, they were both brought in Fulton County. One was in superior court (the Landmark Electric case) and the other was filed in state court (the Controlled Access case). In both cases, parties filed for Motion of Summary Judgement saying they don’t need a judge since the law was on their side.
In the Landmark case, summary judgement was granted to the general contractor, and they said that because the other side signed the lien waiver, they gave up their rights to file a lien. In the other case, summary judgment was denied. The trial court said that they wanted to hear from the subcontractor because it would be unfair to make them give up their rights.
Both of these cases were appealed.
Language of Statutory Lien Waiver Forms
So the court looked at two things – the statute and the actual form. In the statute and what you can see below is a portion of the OCGA (Official Code of Georgia Annotated), 44-14-366(c).
If you look at the bottom, it says that “you (you who signs the lien waiver) shall be conclusively deemed to have been paid in full the amount stated above even if you have not actually received such payment.”
It then goes on to say that “60 days after the date stated above unless you file either an Affidavit of Nonpayment of a claim of lien prior to the expiration of such 60-day period.”
The court then looked at another section (given below) of the same statute and part of the statute says that when a waiver and release is provided for, it shall be binding against the claimant for all purposes. It does not say that lien waivers apply only to material liens. It also does not say that it only applies to payment bond claims. It says that they apply for all purposes.
The same subsection of that code says that such amounts shall conclusively be deemed paid in full upon whatever is given in point (c). So, the court took the form from above, and statute below, and they said that they ruled in favor of the general contractor.
So, the court took the form from the previous slide, statute on this slide, and they said that they ruled in favor of the general contractor. The said that a materialman, a subcontractor – and it does not matter which tier – whoever signs a lien waiver must file a Notice of Nonpayment within 60 days of the date shown on the waiver. Or else the amount in issue shall conclusively be deemed paid in full.
This is binding against the potential lien claimant for all purposes. Again, this means no contract rights or equitable remedies.
Reaction to Court of Appeals Holding
The above happened in September of 2019, and there was a lot of movement. Senator Lindsey Tippins got involved within days of the court holding and put together a legislative drafting committee. Mark Cobb was one of the attorneys on that committee to make these changes. There was also a general contractor representative and a subcontractor representative so that there could be input from the tiers that were being protected.
It became Senate Bill 315 and the Court of Appeals holding was very damaging to everyone, particularly to subcontractors and material suppliers. Because it passed the Georgia Senate. In June, the Georgia legislature reconvened, and it unanimously passed the Georgia house. And bills usually do not pass both houses unanimously.
Then it went to Governor Kemp, and he signed the new bill on August 5. It will take effect in January.
Additional Language Added to O.C.G.A § 44-14-366
Now we will have a look at some of the changes that were made.
1. New section added
First, language was added to the section that was referred to earlier - O.C.G.A § 44-14-366. There was a section A that was added, and it reads as follows:
Waivers and releases provided for under this Code section shall be limited to waivers and releases of lien and labor or material bond rights and shall not be deemed to affect any other rights or remedies of the claimant.
This is a clarification that any lien waiver you sign does also apply to bond rights. More importantly, the last part of this section limits the lien waiver and does not affect any of your rights or remedies. So, as someone who signs a lien waiver, you may be willing to give up your lien rights, but you will probably never give up your contract rights.
That is the claim that says, under the subcontractor agreement, under open account if you are a material supplier, that you are not giving up your contract rights. And the above code section clarifies that.
2. Amended Language to O.C.G.A § 44-14-366(g)
The original language in O.C.G.A § 44-14-366(f) given above has essentially been deleted. The new code language that has been added is as below:
The language in Italics which was added so that you can see when a waiver is signed is for the purpose of waiver of lien or material bond rights to the extent stated in the waiver and release. So, it really does narrow the waiver to waiving rights against bonds and material liens as opposed to contracts and equitable rights.
In subsection two, it also changed that language that said, “shall conclusively be deemed paid in full,” instead it says lien and labor material bond waivers and releases shall conclusively be deemed effective upon the earliest. If you look at the old subsection 2c, it was 60 days to file your Affidavit of Nonpayment.
Now in the new 2(c) you have 90 days. Furthermore, if you look at Section 2(c), the form has also been relaxed. As mentioned earlier, Georgia has only two forms. They are statutory and the only enforceable forms in Georgia. The old law had to be under the current law in all caps under 12-point font. It also arguably had to be on the same page. But that has been relaxed now.
The language will still be in a 12-point font but it does not have to be in bold face and does not necessarily have to be in the same page.
Summary of Changes to Georgia’s Lien Laws
Now we will look at the summary of the lien law rights.
1. Georgia’s statutory lien waivers no longer impact signatory’s contract rights
Georgia’s lien waivers are now expressly limited to waivers and releases of lien and labor or material bond rights and shall not be deemed to affect any other rights or remedies of the claimant; in other words, Georgia's statutory lien waivers no longer impact the signatory’s contract rights;
2. Georgia lien waivers are no longer required to be in boldface capital letters
3. Georgia’s lien waivers now clearly waive payment bond rights
Georgia’s lien waivers now clearly and expressly waiver payment bond rights as well as materialmen’s rights.
4. The names of the lien waivers have been changed
The names of the lien waivers have been changed:
- Waiver and Release of Lien and Payment Bond Rights Upon Interim Payment (formerly known as Interim Waiver and Release Upon Payment);
- Waiver and Release of Lien and Payment Bond Rights Upon Final Payment (formerly known as Interim Waiver and Release Upon Final Payment)
Emphasis was wanted on which was which, so the names were made parallel. The title also includes payment bond rights so that the signatories have a full understand of what they are doing.
5. Time in which person executing lien waivers has to void the lien waiver
The time in which the person executing the lien waivers has 90 days from the date they sign a lien to file an Affidavit of Nonpayment in order to void the lien waiver (formerly, this was a 60-day time period).
6. Affidavits of Nonpayment are no longer required to be in boldface capital letters
The formatting for Affidavits of Nonpayment have been relaxed. They are no longer required to be in bold face capital letters or on the same page.
7. When the new revisions will take effect
These new revisions will take effect January 1, 2021.
8. The notice required in both the Interim Waiver and Final Waiver have been changed
Both the Interim Waiver and Final Waiver are required to have specific language at the bottom, just as the former forms did. And if you notice, the language that is required on the lien waiver forms is, “you shall be conclusively deemed to have waived and released and all liens and claims of liens.” If you have not received payment 90 days after the date stated, then you have 90 days to file your Affidavit of Nonpayment.