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Georgia lien law: an overview.

Claim of Lien is an encumbrance against real property created by state law for the purpose of securing payment for labor, materials or services expended to improve that property. Because owners are reluctant to pay for construction work in advance and repossession of construction work--if it is not paid for--is impractical, construction lien laws were enacted to encourage building and development by providing a means by which contractors and others performing work on credit could secure their right to payment through the recording of a Claim of Lien against the owner's improved property.

In Georgia, lien laws were enacted in the early 1800s to provide protection for masons and carpenters. The statute has been modified a number of times since then and now extends to cover a wide variety of persons, including, among others, registered architects and engineers, contractors, subcontractors, materialmen, suppliers and others who provide labor, materials or services. The 1991 amendments to the lien statute expressly extended lien rights to suppliers furnishing rental tools, appliances, machinery or equipment for real property improvements. Suppliers to suppliers generally do not have lien rights in Georgia.

Those persons authorized to file lien claims as a result of their furnishing labor, services, or materials in the building, repairing or improving of real estate are defined by the Georgia statute as follows:

(1) mechanics of every sort who have taken no personal security for work done and material furnished;

(2) contractors;

(3) subcontractors;

(4) materialmen to contractors;

(5) materialmen to subcontractors;

(6) laborers;

(7) registered architects furnishing plans, drawings, designs or other architectural services;

(8) registered land surveyors;

(9) registered professional engineers;

(10) contractors, subcontractors and materialman furnishing material to subcontractors;

(11) laborers furnishing labor for subcontractors for building factories, furnishing materials for factories, or furnishing machinery for factories;

(12) machinists and manufacturers of the machinery who may furnish, put up or repair any mill or machinery;

(13) contractors who build railroads; and

(14) suppliers furnishing rental tools, appliances, machinery or equipment.

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Georgia Notices

Notice of Commencement

Georgia, like many other states, has developed statutory procedures for identifying potential lien claimants at the start of the construction work. Once potential lien claimants are identified, the owner is in a better position to verify that all work has been paid for and that the property is protected from Claims of Lien.

In Georgia, an owner has the option of recording with the Clerk of the Superior Court in the county where the project is located a Notice of Commencement no later than 15 days after the contractor physically starts work on the property. The Notice of Commencement contains information relevant to the lien rights of potential lien claimants on the project, and should include the following:

(1) the name, address and telephone number of the contractor;

(2) the name and location of the project being constructed and the legal description of the property upon which the improvements are being made;

(3) the name and address of the true owner of the real property;

(4) the name and address of the person other than the owner at whose instance the improvements are being made, if not the true owner of the real property;

(5) the name and address of the surety for the performance and payment bonds, if any; and

(6) the name and address of the construction lender, if any.

To be effective, a copy of the Notice of Commencement must be posted at the project site throughout the duration of the project. In addition, the contractor is required to provide a copy of the Notice of Commencement to any subcontractor, materialman or person making a written request to the contractor for a copy. Failure to provide the Notice of Commencement upon request can extend or stay the obligation of a remote contractor's need to serve a notice to owner.

Preliminary Notice of Lien Rights/ Notice to Contractor

Georgia has two retention of rights, or "notice paths," for remote contractors (one not in privity with the owner), the seldom used Preliminary Notice of Lien Rights and the frequently used Notice to Contractor. With both notices, identification of potential lien claimants is the underlying goal, but recording a Preliminary Notice of Lien Rights can have significantly different consequences. One of an owner's best methods for quickly and effectively eliminating lien rights in Georgia is to require its contractor to execute a Contractor's Final Affidavit with the final disbursement of the contract price. A Contractor's Final Affidavit is a sworn statement that "the agreed price or reasonable value of the labor, services or materials has been paid or waived in writing by potential lien claimants." A Contractor's Final Affidavit effectively cuts off all lien rights that have not previously been preserved by recording either a Claim of Lien or a Preliminary Notice of Lien Rights. When properly recorded, a Preliminary Notice of Lien Rights will prevent a claimant's lien rights from being cut off by a Contractor's Final Affidavit. A potential lien claimant's Notice to Contractor has no such effect.

A remote contractor may record a Preliminary Notice of Lien Rights with the Clerk of the Superior Court of the county where the project is located "within 30 days after the date any materials, labor or services were furnished." Within seven days of recording, the potential lien claimant must then send a copy of the Preliminary Notice of Lien Rights to the contractor and the owner by registered or certified mail. Architects, engineers, land surveyors and foresters are exempted from the required filing of a notice, even if they are not in privity of contract with the contractor.

Unlike a Preliminary Notice of Lien Rights, a Notice to Contractor does not need to be recorded; certified delivery will suffice. Additional considerations are:

(1) the notice of contract must be in writing and must be given within 30 days from the filing of the Notice of Commencement or 30 days following the first delivery of labor, services or materials to the property, whichever is later;

(2) the notice must be given to both the contractor and either the owner or the owner's agent;

(3) the notice must set out the name, address and telephone number of the person providing labor, services or materials;

(4) the notice must contain the name and address of each person at whose instance the labor, services or materials are being furnished;

(5) the notice must contain the name and location of the project set forth in the Notice of Commencement;

(6) the notice must include a description of the labor, services or materials being provided; and

(7) the notice shall include, if known, the contract price or anticipated value of the labor, services or materials to be provided or the amount claimed to be due, if any.

The Notice to Contractor and Preliminary Notice of Lien Rights may be combined in the same instrument, but to be effective, the instrument must still meet the requirements of both notice procedures.

Georgia's lien law also gives owners and lenders the right to send a potential lien claimant, who recorded a Preliminary Notice of Lien Rights, a demand by certified or registered mail to file a Claim of Lien. To be effective, the Demand to File a Claim of Lien must be sent after the contractor has achieved substantial completion, or the potential lien claimant's contract has been terminated or abandoned. If the potential lien claimant fails to record a Claim of Lien within 10 days after receiving the Demand, his Preliminary Notice of Lien Rights expires and is dissolved.

Bond to Discharge a Lien

Owners generally want Claims of Lien removed from their properties as quickly as possible to avoid breaching their loan or lease agreement or delaying the closing of their permanent loan, among other reasons. There are several options for canceling a Claim of Lien short of paying the total amount claimed to be due. For instance, a Claim of Lien may be cancelled or dissolved: (1) as a result of a negotiated compromise and settlement with the lien claimant; (2) by the lien claimant's voluntary cancellation; (3) by failing to timely bring an action on the Claim of Lien; or (4) by recording a lien transfer or dissolution bond.

In Georgia, the owner or the contractor "employed to improve the property" has the right to file a bond "before or after foreclosure proceedings are instituted" "Bonding off" a Claim of Lien (discharging the lien by filing a bond) is often the preferred route because it clears title quickly, conveniently and economically without waiving any dispute the owner or contractor may have about the amount claimed to be due. Although the bond effectively discharges the real property from the lien, a lien claimant must still commence an action for the recovery of the alleged debt within 12 months (365 days under proposed legislation) from the time the claim became due.

Claim of Lien

Under Georgia law, the timeframe for the filing of a lien is calculated from the date of the last furnishing of labor or materials to the project. A claim of lien must be recorded within three months (90 days under proposed legislation) of last furnishing. For materials, the date the materials are received on the job site, and not the shipping date, is applicable. A contractor cannot return on its own to the project site to verify completion of the work, or to do some minor and unrequested repair work, and thereby extend the time for filing the lien.

To preserve a recorded Claim of Lien, the claimant must bring an action against the person with whom it had a contract within 12 months (365 days under proposed legislation) from the date the claim became due. An action can be combined against both the owner and the person or entity with whom the lien claimant had a contract only if venue against both is proper in the same county. Otherwise, the lien claimant must first obtain a judgment against the person or entity with whom it had a contract before filing a second action against the owner to perfect the Claim of Lien.

Contrary to the ordinary meaning of the terms, a claim comes due on the last date that labor, materials or services are furnished, not the date that payment is contractually required to be made. Therefore, payment terms such as "net 30" are ineffective for extending the time for recording a Claim of Lien.

Georgia's New Lien Statute's a Peach

On April 11, 2008, Georgia Senate Bill 374 was sent to the governor for his signature. The bill is expected to be signed and wilt become effective March 31, 2009. The bill entitled an Act to amend Part 3 of Article 8 of Chapter 14 of Title 44 of the Official Code of Georgia, revises certain time periods for filing mechanic's liens and provides for certain notices regarding waiver of liens or claim upon bonds.

The proposed bib includes the following important changes:

1. The filing of a lien claim is amended from within three months to within 90 clays after the completion of the work, the furnishing of the architectural services, or the furnishing or performing of such surveying or engineering services in the office of the clerk of the superior court of the county where the property is located.

2. The lien shaft include a statement regarding its expiration pursuant to Code Section 44-14-367 and a notice to the owner of the property on which a claim of lien is filed that such owner has the right to contest the lien; the absence of such statement or notice shall invalidate the lien.

3. No later than two business days after the date the claim of lien is filed of record, the lien claimant shall send a true and accurate copy of the claim of lien by registered or certified mail or statutory 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; provided, however, 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 shall satisfy this requirement. In all cases in which a notice of commencement is filed with the clerk of the superior court pursuant to subsection (b) of Code Section 44-14-361.5, a lien claimant shall also 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;

4. The commencement of a lien action for the recovery of the amount of the party's claim is amended from within 12 months to within 365 days from the time the claim becomes due. In addition, the party claiming the lien shall file a notice with the clerk of the superior court of the county wherein the subject lien was filed has been amended from within 14 days to within 30 clays of commencement.

5. In the event a lien is bonded off, the new statute that within seven days of flung such bond and any attachments, the party filing the bond shall send a notice of filing such 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 or, if no such address is shown for the lien claimant, to the person shown as having filed such lien on behalf of the claimant.

6. When a claimant is requested to execute a waiver and release in exchange for or in order to induce payment other than final payment, the waiver and release must follow substantially the approved form. The following wording has been added by statute: "NOTICE: WHEN YOU EXECUTE AND SUBMITTHIS DOCUMENT, YOU SHALL BE CONCLUSIVELY DEEMED TO HAVE BEEN PAID IN FULL THE AMOUNT STATED ABOVE, EVEN IF YOU HAVE NOT ACTUALLY RECEIVED SUCH PAYMENT, 60 DAYS AFTER THE DATE STATED ABOVE UNLESS YOU FILE EITHER AN AFFIDAVIT OF NONPAYMENT OR A CLAIM OF LIEN PRIOR TO THE EXPIRATION OF SUCH 60-DAY PERIOD. THE FAILURE TO INCLUDE THIS NOTICE LANGUAGE ON THE FACE OF THE FORM SHALL RENDER THE FORM UNENFORCEABLE AND INVALID AS A WAIVER AND RELEASE UNDER O.C.G.A. SECTION 44-14-366."

Source: Greg Powelson, MLBS

Greg Powelson is director of NACM'S Mechanic's Lien and Bond Services. He can be reached at gregp@nacm.org or 216-212-6020.
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Title Annotation:selected topic
Author:Powelson, Greg
Publication:Business Credit
Geographic Code:1U5GA
Date:Jun 1, 2008
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