2010 CUMULATIVE SUPPLEMENT Chapter 11: Georgia Construction and Design Law

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1 2010 CUMULATIVE SUPPLEMENT Chapter 11: Georgia Construction and Design Law IX Construction Liens Replace the first paragraph with the following: Mechanics and materialmen s liens are established by Code section and are governed by Code sections to IX(E)(1) Construction Liens Notices and Claim of Lien Front End Notices Notice to Contractor Delete the third paragraph of the subsection titled Notice to Contractor (beginning Act 766. Replace the first paragraph of the same subsection with the following: If a Notice of Commencement is properly filed, then a potential lien claimant that does not have a direct contract with the prime contractor on the construction project must provide a Notice to Contractor to preserve its lien rights. The Notice to Contractor must be sent by registered or certified mail or statutory overnight delivery to the prime contractor and to the property owner (or the agent of the owner) within thirty days from the later of the filing of the Notice of Commencement or the first delivery of labor, services, or materials to the project. O.C.G.A (a). The Notice to Contractor does not have to be filed with the clerk of the court, but it must be sent by registered or certified mail or statutory overnight delivery to the owner (or the agent of the owner) and to the prime contractor at the addresses set forth in the Notice of Commencement. O.C.G.A (a), (c). IX(E)(2) Construction Liens Notices and Claim of Lien Preliminary Notice of Lien In the fourth new paragraph (beginning A preliminary notice of lien is not a substitute for filing a claim of lien ), replace the phrase three months with ninety days.

2 IX(E)(3) Construction Liens Notices and Claim of Lien Claim of Lien Elements of the Claim of Lien Replace the subsection titled Elements of the Claim of Lien in its entirety with the following: A claim of lien should be, in substance, in the form provided by statute: A.B., a mechanic, contractor, subcontractor, materialman, machinist, manufacturer, registered architect, registered forester, registered land surveyor, registered professional engineer, or other person (as the case may be) claims a lien in the amount of (specify the amount claimed) on the house, factory, mill, machinery, or railroad (as the case may be) and the premises or real estate on which it is erected or built, of C.D. (describing the houses, premises, real estate, or railroad), for satisfaction of a claim which became due on (specify the date the claim was due, which is the same as the last date the labor, services, or materials were supplied to the premises) for building, repairing, improving, or furnishing material (or whatever the claim may be). O.C.G.A (a)(2). This form is not mandatory, and substantial compliance with the required terms is sufficient. J.H. Morris Bldg. Supplies v. Brown, 264 S.E.2d 9, 10 (Ga. 1980). The claim of lien has seven essential elements: 1. The correct name of the lien claimant and a description of its business; 2. The amount owed; 3. The correct name of the owner of the premises, real estate, house, improvement, or railroad; 4. A description of the real property or improvements with sufficient specificity so as to clearly identify it; 5. The date the claim became due; 6. A notice to the owner of the property on which the claim of lien is filed that the owner has the right to contest the lien (see also Section IX.E.5, infra); and 7. The following statement regarding the claim s expiration pursuant to Code section (see also Section IX.F, infra), to be included on the face of any claim of lien in at least twelve-point, bold font: This claim of lien expires and is void 395 days from the date of filing of the claim of lien if no notice of commencement of lien action is filed in that time period. O.C.G.A (a)(2). Note that the substantive form of the claim of lien provided by the statute does not include the sixth and seventh elements listed above. Those elements need to be included as additions to the statutory language. 2

3 IX(E)(3) Construction Liens Notices and Claim of Lien Claim of Lien Time to File Claim of Lien Replace the subsection titled Time to File Claim of Lien in its entirety with the following: A claim of lien must be filed within ninety days after the completion of the work, the furnishing of the architectural services, or the furnishing or performing of such surveying or engineering services or within ninety days after the material or machinery is furnished. O.C.G.A (a)(2). That is, a claim of lien must be filed within ninety days after the claim became due. Id.; Sears, Roebuck & Co. v. Superior Rigging & Erecting Co., 170 S.E.2d 721, 722 (Ga. Ct. App. 1969). For the purpose of a claim of lien, the date the claim was due is defined as the last date the labor, services, or materials were supplied to the premises. O.C.G.A (a)(2). Materials are considered to have been furnished when they are received on the job site, not when the supplier provides those materials to a common carrier for delivery to the job site. Atlanta Jewish Cmty. Ctr., Inc. v. Tom Barrow Co., 203 S.E.2d 921, 922 (Ga. Ct. App. 1974). The date the claim became due must be calculated from the last date lienable materials are supplied. Non-lienable items cannot be used to establish the date the claim became due. Downtowner of Atlanta, Inc. v. Dunham-Bush, Inc., 170 S.E.2d 590, 591 (Ga. Ct. App. 1969). On open accounts, the date the claim became due generally is considered to be the date of delivery of the last item of lienable material which forms a part of the open account for the specific project involved. Downtowner of Atlanta,170 S.E.2d at 591; Vulcan Materials Co. v. D.H. Overmyer Warehouse Co., 156 S.E.2d 213 (Ga. Ct. App. 1967). Thus, a material supplier does not have to file a separate claim of lien within ninety days after each distinct delivery made pursuant to an open account for a particular project; rather, it only has to file one claim of lien within ninety days after the last lienable materials are supplied pursuant to that open account. Vulcan Materials, 156 S.E.2d at 213. A lien claimant with an open account involving two separate projects, however, cannot use the date on which the last materials were supplied to one of the projects for the date the claim became due on the other project. The lien claimant must use the date the last materials were supplied to the specific project against which the lien is being filed. Crane Co. v. Hirsch, 7 S.E.2d 83, 85 (Ga. Ct. App. 1940). If a supplier has 3

4 one open account for two projects, it is also important that the supplier be able to differentiate the materials that went to each of the projects and be able to show that the payments for those materials were applied either as directed by the company paying for those materials or in a reasonable manner if no specific directions were provided to the supplier. Contracts for services and labor might present a greater degree of difficulty in determining the date the claim became due, depending on the type of work that was performed. A service or labor contract generally is considered to have been completed on the date the last service for the improvement of the real property is performed. Levy v. G.E.C. Corp., 161 S.E.2d 339, (Ga. Ct. App. 1968). As with materials, the date the claim became due for services and labor is based on the date the last lienable labor or services were provided. The question of whether the labor or services provided are lienable often arises in connection with the installation of minor items, repair work, and punchlist work. The work performed must be integral to the completion of the original contract (and any change orders to the contract) in order to constitute a lienable activity. Courts have held that a jury may determine that punchlist work, including repair work and minor installation separately invoiced but for which no charge was assessed, may serve as a basis for determining the date the claim became due so long as that work was required to complete the contract. Cumberland Bridge Assocs., Ltd. v. Builders Steel Supply, Inc., 315 S.E.2d 484 (Ga. Ct. App. 1984). Similarly, work that is not billed for but is done to complete a project (such as inspection, cleanup, and final adjustments) may extend the time when the claim became due if the jury so finds. Sears, Roebuck & Co. v. Superior Rigging & Erecting Co., 170 S.E.2d at 721. Therefore, the fact that a lien claimant has billed its work as 100% complete is not dispositive in establishing the date from which the claim became due. The date the claim became due depends upon when the last labor or materials that were integral to the completion of the original contract were supplied to the project. Old Stone Mortgage & Realty Trust v. New Ga. Plumbing, Inc., 231 S.E.2d 785, 788 (Ga. Ct. App. 1976), aff d, 236 S.E.2d 592 (Ga. 1977). A lien claimant cannot attempt to extend the date the claim became due by simply returning to the project and trying to create work. A contractor cannot go back indefinitely to check to 4

5 see if all work was complete or to perform some type of repair. Womack Indus., Inc. v. B & A Equip. Co., 405 S.E.2d 880, (Ga. Ct. App. 1991). The issuance of a certificate of occupancy and a certificate of substantial completion for a project more than ninety days prior to the filing of a claim of lien will not preclude the filing of the claim of lien so long as the claim of lien is filed for record within ninety days after the last supplying of labor and materials. Resurgens Plaza S. Assocs. v. Consol. Elec. Supply, Inc., 452 S.E.2d 784, (Ga. Ct. App. 1994) (evidence of the last date of supplying materials demonstrated by a delivery ticket). At one time the determination of the specific date on which the ninety-day period would begin to run was governed by case law. In an 1897 decision, the Supreme Court of Georgia held that the date on which the claim became due would be included as the first day in the calculation. Jones v. Kern, 28 S.E. 850, 851 (Ga. 1897). The state Supreme Court more recently held that the deadline for filing a claim of lien was not be extended by weekends or holidays and followed the same calculation method applied in Jones v. Kern. U.S. Filter Distrib. Group, Inc. v. Barnett, 538 S.E.2d 739 (Ga. 2000). Code section , however, now provides for the computation of time for purposes of the lien statutes to be determined pursuant to Code section 1-3-1(d)(3). Time computed under Code section 1-3-1(d)(3) does not count the first day and extends time periods for weekends and holidays. IX(E)(3) Construction Liens Notices and Claim of Lien Claim of Lien Filing and Recording a Claim of Lien In the subsection titled Filing and Recording a Claim of Lien (beginning Code section (a)(2) requires.... ), replace the phrase three month period with ninety-day period. IX(E)(4) Construction Liens Notices and Claim of Lien Notice to Owner or Contractor of Filing Claim of Lien Replace this subsection in its entirety with the following: 4. Notice to Owner and Contractor of Filing of Claim of Lien No later than two business days after the date a claim of lien is filed, a lien claimant must send a copy of the claim of lien by registered or certified mail or statutory 5

6 overnight delivery to the owner of the property or, if the owner s address cannot be found, the contractor, as the agent of the owner. If the property owner is an entity on file with the Secretary of State s Corporations Division, sending a copy of the claim of lien to the entity s address or the registered agent s address satisfies that requirement. If a notice of commencement is filed with the clerk of the superior court pursuant to subsection (b) of Code section , a lien claimant also must send a copy of the claim of lien by registered or certified mail or statutory overnight delivery to the contractor at the address shown on the notice of commencement. O.C.G.A (a)(2). IX(E)(5) Construction Liens Notices and Claim of Lien Notice of Contest of Lien Replace this subsection in its entirety with the following: By recording a Notice of Contest of Lien with the clerk of the superior court of the county in which a claim of lien has been filed, an owner or a general contractor shortens the lien claimant s time for commencing a lien action. O.C.G.A The Notice of Contest informs the lien claimant that the owner or general contractor contests the lien and that the time within which a lien action must be commenced is limited to sixty days from the receipt of the Notice. The Notice also explains that the lien will expire and become void unless the lien claimant both commences a lien action within sixty days from receipt of the Notice and files a notice of commencement of the lien action within thirty days of filing the action. The owner or general contractor must send a copy of the Notice of Contest to the lien claimant within seven days of filing and must record proof of delivery to the superior court clerk. The claim of lien will be extinguished if no notice of commencement of a lien action is filed by the lien claimant within ninety days after the filing of the Notice of Contest. IX(F) Construction Liens Perfection, Foreclosure, and Levy Replace this subsection in its entirety with the following: Once a lien claimant has filed a valid claim of lien, the claimant must perfect and foreclose the lien. To perfect its lien, the lien claimant must demonstrate substantial compliance with its contract to furnish labor, services, or materials. O.C.G.A (a)(1). 6

7 The lien claimant also must commence a lien action on the underlying debt for the recovery of the amount of the claim within 365 days from the date of filing for record of [the] claim of lien and must file a notice of commencement of the lien action with the clerk of the superior court of the county in which the claim of lien was filed within thirty days after filing the action. O.C.G.A (a)(3). (See Section IX.E.3, Claim of Lien Time to File Claim of Lien, supra, for a discussion of determining the time the debt became due. ) A lien action is defined as a lawsuit, a proof of claim in a bankruptcy case, or a binding arbitration. O.C.G.A (2.1). The notice must be executed under oath by the lien claimant or the claimant s attorney and must contain a caption referring to the then owner of the property against which the lien was filed and referring specifically to a deed or other recorded instrument in the chain of title of the affected property. This notice of commencement of the lien action also must identify the court or arbitration venue where the lien action on the underlying debt was brought; the style and number, if any, of the lien action; the names of all parties to the lien action; the date of filing the lien action; and the book and page number of the records of the county wherein the subject lien is recorded in the same manner in which mechanics and materialmen s liens are otherwise filed. If a notice of commencement of the lien action is filed but not signed under oath, then the claimant can cure this defect at any time without court permission until a pretrial order is entered and with court permission after the pretrial order is entered. O.C.G.A (a)(3). Failure to properly file this notice within the thirty-day time limit destroys all lien rights. Palmer v. Duncan Wholesale, Inc., 413 S.E.2d 437, 439 (Ga. 1992); Allied Elec. Contractors, Inc. v. Kern & Co., 362 S.E.2d 452 (Ga. Ct. App. 1987). Code section (a)(4) provides exceptions to the requirement that the lien claimant bring suit on the underlying debt and allows the lien claimant to proceed in rem directly against the property owner. A notice of commencement of the lien action still must be filed. The exceptions, generally, are that the debtor has absconded, died, or left the state so that personal jurisdiction cannot be obtained, that the contractor or subcontractor has been adjudicated bankrupt or died so that no final judgment can be obtained, or that the contract between the lien claimant and the contractor or 7

8 subcontractor includes a provision preventing payment to the claimant until after the contractor or subcontractor has received payment (a pay-if-paid clause). A claim of lien is unenforceable if the lien claimant fails to commence a lien action within 365 days from the date of filing the claim of lien or fails to file the statutory notice of commencement within 395 days from the same date. The following statement must be included on the face of any claim of lien filed after March 31, 2009: This claim of lien expires and is void 395 days from the date of filing of the claim of lien if no notice of commencement of lien action is filed in that time period. Failure to include this language will invalidate the lien and prevent it from being filed, but no release or voiding of the lien will be required. O.C.G.A To foreclose on a perfected lien after obtaining a judgment against the debtor, the lien claimant must file suit against the owner of the real estate. Once a lien claimant obtains judgment against the owner establishing a special mechanic s lien against the property, the real estate may be levied by sheriff's sale pursuant to O.C.G.A to A purchaser at a sheriff's sale takes free and clear of all liens and encumbrances. All liens thereafter attach to the proceeds of the sale rather than to the real property. All mechanic s liens for repairs, building, or furnishing materials or services to improve the same property, as to each other, have equal priority if they are properly declared and filed for record within ninety days after the work is done or before that time. That is, mechanic s liens on the same property that are properly recorded and perfected have equal priority regardless of the date of actual foreclosure of any one in particular. O.C.G.A (b). Mechanic s liens are superior to all other liens except: liens for taxes, the general and special liens of laborers, the general lien of landlords of rent when a distress warrant is issued out and levied, claims for purchase money due persons who have only given bonds for titles, and other general liens (when actual notice of the general lien of landlords and others has been communicated before the work was done or materials or services furnished). O.C.G.A (c). 8

9 IX(G) Construction Liens Lien Waivers and Releases Replace this subsection in its entirety with the following: Lien waivers executed in advance of the provision of services are unenforceable. O.C.G.A (a). No oral or written statement by a claimant purporting to waive, release, or otherwise impair a lien claim is enforceable unless it substantially follows the statutory form and the claimant receives payment. O.C.G.A (b). Should waiver be induced prior to payment, but payment not then received, a lien claimant must file a Claim of Lien or an Affidavit of Nonpayment within sixty days and as provided in O.C.G.A (f)(2). A party filing an Affidavit of Nonpayment, within seven days of filing the affidavit, must send a copy by registered or certified mail or statutory overnight delivery to the property owner and, if the filing party is not in privity of contract with the owner and a Notice of Commencement has been filed, to the general contractor. The statutory Waiver and Release upon Payment forms provide that execution of the document conclusively deems the signator to have been paid the stated amount sixty days after the stated date, even if payment is not actually received, unless an Affidavit of Nonpayment or a claim of lien is filed before the end of that sixty-day period. O.C.G.A (c) ( Interim Waiver and Release Upon Payment), -366(d) ( Waiver and Release Upon Final Payment ). Failure to include this notice will render the form unenforceable and invalid. IX(I) Construction Liens Bonding in Lieu of Lien Rights Replace this subsection in its entirety with the following: After a claim of lien is filed, the owner of the real estate or the contractor employed to improve the property may discharge the lien by filing a bond with the clerk of the superior court of the county in which the real estate is located (and in which the lien is filed.) The party filing the bond must send a notice of filing the bond and a copy of the bond by registered or certified mail or statutory overnight delivery to the lien claimant at the address stated on the lien within seven days of filing the bond. Filing a bond converts the claim to a personal action and discharges the real estate from the lien. The bond must be double the amount claimed under the lien except in cases involving a 9

10 lien against residential property, in which case it must be in the amount claimed. O.C.G.A (a). See also Benning Constr. Co. v. All-Phase Elec. Supply Co., 424 S.E.2d 830 (Ga. Ct. App. 1992); Linco Constr. Co. v. Tri-City Concrete, Inc., 288 S.E.2d 125 (Ga. Ct. App. 1982). 10