Construction Law

• Publication year: 2020

Construction Law

Ward Stone Jr.

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Construction Law

by Ward Stone, Jr.^*

I. Introduction

During the Survey Period, the Georgia appellate courts handed down a number of decisions underscoring the requirement that contractors hold valid and current contractor's licenses issued by the Secretary of State's office in order to be able to enforce construction contracts.¹ Several attempts to side-step the statute,² carve out exceptions, or avoid the harsh consequences of violating the statute were rejected in favor of strict interpretation. As several courts noted concerning the licensing statutes:

[I]n construing any statutory text, we must presume that the General Assembly meant what it said and said what it meant. To that end, we must afford the statutory text its plain and ordinary meaning, we must view the statutory text in the context in which it appears, and we must read the statutory text in its most natural and reasonable way, as an ordinary speaker of the English language would.³

During the Survey Period, Georgia courts also affirmed the eight-year outside limit under the statute of repose for bringing contract or tort claims arising out of a contract of construction,⁴ examined the standards

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for awarding attorney's fees in Miller Act⁵ fee-shifting cases,⁶ examined the effectiveness of lien waivers,⁷ and examined the limitations on indemnity provisions in construction contracts.⁸

II. Consequences of Failing to Have a Contractor's License

A. Fleetwood v. Lucas

In Fleetwood v. Lucas,⁹ the Georgia Court of Appeals again reaffirmed the necessity of holding a contractor's license as a prerequisite for enforcing a construction contract.¹⁰ Lucas, an unlicensed contractor, filed suit against the Fleetwoods, et al., for the balance claimed to be due to him under contracts for improvements to a house and an office, respectively, owned by the Fleetwoods. The Fleetwoods moved for summary judgment and then a directed verdict based upon Lucas's failure to have a Georgia contractor's license as required under O.C.G.A. § 43-41-17(b). Lucas admittedly did not possess a Georgia general contractor's license when he entered into the contracts, nor did he inform the Fleetwoods that he did not possess a license.¹¹ The court quoted O.C.G.A. § 43-41-17(b) which provides, in relevant part:

Any contract entered into . . . for the performance of work for which a residential contractor or general contractor license is required by this chapter and not otherwise exempted under this chapter and which is between an owner and a contractor who does not have a valid and current license required for such work in accordance with this chapter shall be unenforceable in law or in equity by the unlicensed contractor.¹²

The court noted that O. C.G.A. § 43-41-17(a)¹³ provides that "no person, whether an individual or a business organization, shall have the right to engage in the business of residential contracting or general contracting without a current, valid residential contractor license or general

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contractor license[.]"¹⁴ However, Lucas claimed that the work he performed on the house did not require a license because it was "repair work,"¹⁵ relying upon O.C.G.A. § 43-41-17(g),¹⁶ which states:

Nothing in this chapter shall preclude a person from offering or contracting to perform or undertaking or performing for an owner repair work, provided that the person performing the repair work discloses to the owner that such person does not hold a license under this chapter and provided, further, that such work does not affect the structural integrity of the real property.¹⁷

The court noted that Rule 553-8-.01 of the Georgia Compilation of Rules and Regulations¹⁸ defines repair "to mean fixing, mending, maintenance, replacement[,] or restoring of a part or portions of real property to good condition."¹⁹ The court examined the scope of work for the house and concluded that the services to be performed by Lucas exceeded the definition for repairs under the Rule, but concluded that nevertheless Lucas could not argue the exception applied because he failed to disclose that he did not possess a contractor's license, as required by the statute.²⁰

For the office property, Lucas admitted that the scope of work contracted for would have required a contractor's license but insisted that the Fleetwoods acted as the general contractor and he was merely the servant of the Fleetwoods.²¹ Therefore, Lucas argued, he was not a "contractor" subject to the statute and no license was required.²²

The court examined the definition of a contractor under O.C.G.A. § 43-41-2(4),²³ which states:

"Contractor," except as specifically exempted by this chapter, means a person who is qualified, or required to be qualified, under this chapter and who, for compensation, contracts to, offers to undertake or undertakes to, submits a bid or a proposal to, or personally or by others performs the construction or the management of the construction for

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an owner of any building, bridge, or other structure, including a person who installs industrialized buildings as defined in paragraphs (3) and (4) of Code Section 8-2-111, for the construction or improvement of, addition to, or the repair, alteration, or remodeling of any such building, bridge, or structure for use by the owner or by others or for resale to others. The term "contractor" for purposes of this chapter shall include a person who contracts to, undertakes to, or submits a bid or proposal to perform, or otherwise does himself or herself perform, for an owner:

(A) Construction management services relative to the performance by others of such construction activities where the person performing such construction management services is at risk contractually to the owner for the performance and cost of the construction; and

(B) Services of a contractor as part of performance of design-build services,

whether as a prime contractor, joint venture partner, or as a subcontractor to a design professional acting as prime contractor as part of a design-build entity or combination.²⁴

The court rejected Lucas' argument that he was not a contractor, noting that Lucas had agreed he entered into contracts with the Fleetwoods to perform services for compensation, including making repairs to the house and the office.²⁵ Thus, the court found that

Lucas "for compensation, contract[ed] to . . . personally or by others perform [ ] . . . the construction or improvement of, addition to, or the repair, alteration, or remodeling of any . . . building, . . . for use by the owner or by others or for resale to others."²⁶

Accordingly, "he was a contractor as defined in O.C.G.A. § 43-41-2(4) and was required to have a license under O.C.G.A. § 43-41-17(a)."²⁷ The court concluded Lucas was barred from bringing the action and reversed with direction that the trial court enter judgment for the Fleetwoods.²⁸

B. LFR Invsestments, LLC v. Van Sant

LFR Investments, LLC v. Van Sant²⁹ is another example of the Georgia Court of Appeals strictly enforcing the plain meaning licensing

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statutes.³⁰ LFR Investments (LFR) was a single-member LLC with its sole member being Louis Reynaud. Reynaud held a valid contractor's license as a residential basic qualifying agent registered with the Georgia Department of State for the entity Peachtree Gardens Development, Inc. However, at no time was Reynaud registered as a residential basic qualifying agent for LFR. LFR entered into a contract with Van Sant to purchase a property in Forsyth. Van Sant hired LFR as general contractor to build a house on the property. However, about a year before the house was completed Van Sant terminated the contract with LFR and hired another contractor to complete the work. LFR filed suit against Van Sant for breach of contract and unjust enrichment. Van Sant filed a motion for partial summary judgement arguing that LFR did not have the right to enforce the contract because he was not properly licensed. LFR argued that, because its sole member Reynaud was properly licensed as a statutory "qualifying agent" for another entity, LFR should be considered properly licensed and able to enforce the contract.³¹

The court looked to the plain language of the statute, which provides:

[N]o person, whether an individual or a business organization, shall have the right to engage in the business of residential contracting or general contracting without a current, valid residential contractor license or general contractor license, respectively, issued by the division under this chapter or, in the case of a business organization, unless such business organization shall have a qualifying agent as provided in this chapter holding such a current, valid residential contractor or general contractor license on behalf of such organization issued to such qualifying agent as provided in this chapter.³²

The court rejected LFR's argument and found that O.C.G.A. § 43-41-9(a)³³ required the sponsoring agent to be registered for the entity that is using the license.³⁴ The court held that "for a business to be considered properly licensed, . . . it must have at least one qualifying agent that is properly licensed, and that qualifying agent must specifically hold a license on that business's behalf."³⁵ Given that Reynaud had not qualified as a registered agent on behalf of LFR, LFR was not a properly licensed entity and the contract was unenforceable by LFR.³⁶ The court noted: "For Reynaud to be considered a qualifying agent

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on LFR's behalf, the statute therefore makes clear that Reynaud must hold a license specifically on LFR's behalf, and to obtain that license, Reynaud must have applied for such license with the Secretary of State 'expressly on behalf of LFR."³⁷ The court also noted that O.C.G.A. § 43-41-9(e)(2)³⁸ "explicitly contemplates that 'a qualifying agent may serve in such capacity for more than one business organization[.]'"³⁹ To do so, however, the statute...