On August 5, 2020, Georgia Governor Brian Kemp signed into law a revised version of Georgia’s mechanics’ and materialmen’s lien statute.  Under the new law, a claimant’s submission of a statutory lien waiver will only impact that claimant’s lien rights, and the waiver will not extend to any available contractual rights or remedies.  SB 315, which takes effect on January 1, 2021, is intended to address the outcome of a surprising 2019 Georgia Court of Appeals decision in which the court barred a contractor’s breach of contract suit due to the contractor’s prior execution of the statutory lien waiver.

Under Georgia’s current lien waiver statute – O.C.G.A. § 44-14-366 – a claimant who submits an interim lien waiver, and who is subsequently not paid that amount, must, within 60 days, file either (1) an affidavit of nonpayment or (2) a claim of lien to preserve its rights.  Failure to do so can have severe consequences – where a claimant allows the 60 day period to expire without submitting either filing, the statute will “conclusively” deem the amount to have been paid in full, regardless of whether that is, in fact, the case.  See O.C.G.A. § 44-14-366(f)(2).

Even so, the common understanding of the statute was that the failure to submit either filing would only impact a claimant’s lien rights, and that a claimant could still pursue any available contractual rights and remedies.  But in ALA Construction Services, LLC v. Controlled Access, Inc., 351 Ga. App. 841, 843 (2019), the Georgia Court of Appeals rejected this assumption, finding it at odds with the statute’s clear language, which required that the failure to submit either filing be binding against a claimant for “all purposes.”

In that case, subcontractor Controlled Access filed a breach of contract suit alleging nonpayment against contractor ALA Construction.  Along with its initial invoices to ALA Construction, Controlled Access had submitted the required interim lien waivers with language tracking O.C.G.A. § 44-14-366.  But although ALA Construction subsequently did not pay Controlled Access the invoiced amount, Controlled Access neglected to file either a claim of lien or an affidavit of nonpayment within the ensuing 60-day period.

ALA Construction then filed a motion for summary judgment based on Controlled Access’s failure to submit either filing within 60 days as required by O.C.G.A. § 44 14-366.  The Court of Appeals agreed with ALA Construction’s reading of the statute, finding its “plain and unambiguous” language “clearly provides that the General Assembly intended the Waiver to be binding against the parties for ‘all purposes,’ not just for preserving the right to file a lien on the property.”  Id. at 843 44.  Though ALA Construction never paid Controlled Access, the Court therefore determined that its debt was “extinguished” following the expiration of the 60-day period.  Id. at 844. 

The surprise decision in ALA Construction prompted swift action in the state legislature.  SB 315, which passed both the House and the Senate with considerable support, revises O.C.G.A. § 44-14-366 to provide that waivers and releases under the statute “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.”  To this end, SB 315 also eliminates the statute’s prior language providing that the amount contained in the lien waiver “shall conclusively be deemed paid in full” upon expiration of the 60-day period.

As an additional measure of protection, SB 315 extends the statutory 60-day period to 90 days, providing unpaid claimants more time to file an affidavit of nonpayment (SB 315 also removes the option to “file a claim of lien” as a way to nullify the effect of the statutory lien waiver).

The new law directly addresses the outcome of ALA Construction by revising the statute to accord with the construction industry’s original understanding of O.C.G.A. § 44-14-366.  Beginning January 1, 2021, a claimant who neglects to file an affidavit of nonpayment within the now-prescribed 90-day period will only be deemed to have waived its lien rights, and any other contractual rights that claimant may have will be unaffected.  In the interim, potential claimants should be aware that the ALA Construction decision still governs and that contractual claims can still be lost by failing to comply with the filing requirements of O.C.G.A. § 44 14-366.

As a further consequence of these statutory changes, Project owners should consider requiring contractors to submit signed “Claim Waivers” along with their lien waivers as a means to extinguish potential contract claims upon payment.  This is often an important strategic point for Project owners to push when conducting initial contract negotiations.

[View source.]