Georgia Contractors and Subcontractors Beware!
Georgia Court of Appeals rules that subcontractor's failure to timely record Affidavit of Nonpayment defeats both lien and breach of contract claims.
In a landmark decision that has far reaching implications for the Georgia construction industry, on September 18, 2019, the Georgia Court of Appeals ruled that a
subcontractor's failure to timely record an Affidavit of Nonpayment or Claim of Lien within 60 days of signing a Georgia statutory lien
waiver form defeated not just its lien claim for the underlying debt, but also the subcontractor's breach of contract claim. The Court of Appeals reached this result despite the undisputed fact that the subcontractor had not been paid for its work.
In the case ALA Constr. Servs., LLC v. Controlled Access, Inc., No. A19A0923, 2019 WL 4463305 (Ga. Ct. App. Sept. 18, 2019), ALA Construction Services, LLC ("ALA") contracted with subcontractor Controlled Access, LLC ("Controlled Access") to provide controlled access equipment and related services for the Sugar Hill Overlook Townhomes in Gwinnett County, GA. Thereafter, Controlled Access invoiced ALA for the work. On the same day, Controlled Access executed two interim waivers in accordance with the O.C.G.A. § 44-14-366. Pursuant to O.C.G.A. § 44-14-366, a contractor may ask a materialman or subcontractor, once the labor, services, or materials have been furnished, to execute an "Interim Waiver and Release Upon Payment" under the statutory form language found in O.C.G.A. § 44-14-366(c). Georgia law provides the following as it concerns its Interim Wavier and Release Upon Payment:
(1) When a waiver and release provided for in this Code section is executed by the claimant, it shall be binding against the claimant for all purposes, subject only to payment in full of the amount set forth in the waiver and release. (2) Such amounts shall conclusively be deemed paid in full upon the earliest to occur of: (A) Actual receipt of funds; (B) Execution by the claimant of a separate written acknowledgment of payment in full; or (C) Sixty days after the date of the execution of the waiver and release, unless prior to the expiration of said 60 day period the claimant files a claim of lien or files in the county in which the property is located an affidavit of nonpayment[.]
Moreover, the law also requires that the lien waiver form put the contractor or subcontractor on notice that it may lose its lien rights if it does not timely record either an Affidavit of Nonpayment or Claim of Lien within 60 days of signing the lien waiver. Indeed, in this instance, the lien waiver form included the following notice, as required by the Georgia statute:
NOTICE: When you execute and submit this 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 form under [OCGA §] 44-14-366.
ALA Construction did not pay the invoices within 60 days of when Controlled Access signed the lien waiver form. Importantly, Controlled Access did not record an Affidavit of Non-payment or Claim of Lien before the expiration of the 60 day period following its execution of the lien waiver. Having not been paid, Controlled Access filed a breach of contract claim against ALA for the invoiced amounts owed.
Analyzing the statutory language O.C.G.A. § 44-14-366, the Georgia Court of Appeals concluded that the statute "clearly provides that the General Assembly intended the Waiver to be binding against the parties for 'all purposes,' not just for the purposes of preserving the right to file a lien on the property." ALA Constr. Servs., LLC v. Controlled Access, Inc., No. A19A0923, 2019 WL 4463305, at *2 (Ga. Ct. App. Sept. 18, 2019). Finding the argument that a release of a lien does not necessarily release the underlying debt unpersuasive, the Court construed the lien statute in favor of the property owner. The Court held that a "materialman must file a notice of non-payment within 60 days of the date shown on the waiver and release or else that amount at issue 'shall conclusively be deemed paid in full,' and the presumption of payment is 'binding against the claimant for all purposes.'" Id. at *3 (Ga. Ct. App. Sept. 18, 2019).
The implications of this ruling to the Georgia construction industry cannot be understated. This decision means that a
lien claimant is deemed paid for all purposes, not just as it relates to its lien claim, if 60 days pass from the date of signing the statutory lien waiver form without the recording of either a Claim of Lien or Affidavit of Nonpayment. Given that many project payment schedules go beyond 60 days, Georgia contractor and subcontractors would be especially prudent to systematically file Affidavits of Nonpayment for all outstanding debts prior to the 60-day deadline. Otherwise, Georgia contractors and subcontractors could very well risk losing their ability to sue under a breach of contract theory to recover payments owed for the worked performed, even in situations where both parties acknowledge the contractor or subcontractor has not been paid.
