Legal Alert: Georgia Court of Appeals Upholds Lien, but the Lien May Have Limited Value

by Eversheds Sutherland (US) LLP
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In a recent case, the Georgia Court of Appeals reaffirmed that, in most instances, a contractor’s or materialmen’s lien may only be asserted against “whatever interest his employer had in the property at the time the work was done or the materials were furnished.” Pinnacle Properties V, LLC v. Mainline Supply of Atlanta, LLC , 735 S.E.2d 166, 170 (2012).

Pinnacle Properties V, LLC (“Pinnacle”) was a developer that owned 34 acres of property. Id. at 168. On December 1, 2007, Pinnacle executed four agreements with the Kennesaw Development Authority (“KDA”). Id. The two agreements relevant to the case at hand were a Rental Agreement and a Purchase, Sale, Financing, and Option Agreement. Id. In these agreements, KDA agreed to purchase the 34 acres for an initial payment in excess of $11.6 million and to rent the property back to Pinnacle for $10 so Pinnacle could construct mixed - use office and retail buildings. Id. Additionally, the parties agreed that KDA had the option to purchase the improvements from Pinnacle as they were completed, or Pinnacle could purchase both the land and the improvements from KDA. Id. The agreements further provided that Pinnacle’s ownership of the improvements terminated upon the termination of the Rental Agreement which terminated, “at the latest, on November 30, 2012.” Id.

To construct the first building of the development, and only building actually completed, Pinnacle hired a general contractor who in turn hired the lien claimant in the case, Mainline Supply of Atlanta, LLC (“Mainline”) to provide piping, valves, and fittings for the building. Id. at 169. The general contractor failed t o pay Mainline for the materials provided so Mainline filed claims of lien and a complaint against Pinnacle and KDA. Id. The trial court granted KDA’s motion for summary judgment and released KDA from the action. Id. Specifically, the court found that “KDA had no ownership in the building, but held a fee simple interest in the land, and that Pinnacle held a usufruct in the land, but had ‘title’ to the improvements, i.e. the building, which could be encumbered.” Id. The court then granted Mainline’s motion for summary judgment declaring “a special lien and enter[ing] judgment against Pinnacle’s ‘fee simple interest’ to the improvements, its option to sell the improvements or purchase the land, and its interest as a grantee under the deed to secure debt .” Id. Pinnacle appealed the court’s ruling.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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