Construction Law - Frank O. Brown, Jr.

• Publication year: 2008

by Frank O. Brown, Jr.^*

I. Introduction

This Article focuses on noteworthy construction law decisions by Georgia appellate courts between June 1, 2007 and May 31, 2008 and significant construction-related legislation enacted by the Georgia General Assembly during the same period.

II. Mechanics' and Materialmen's Liens

A. 2008 Statutory Amendments

Significant amendments to Georgia's mechanics' and materialmen's lien (M & M Lien) laws were passed by the 2008 Georgia General Assembly.¹ The amendments will come into effect on March 31, 2009.² All parties involved in the construction process, including attorneys, need to become familiar with these amendments.

1. Deadline for Filing M & M Liens: The amendments set the period for filing an M & M Lien at ninety days³ rather than the somewhat confusing "three months" period under the current law.⁴ Like the three-month period, the new ninety-day period is triggered by the completion of the work, services, materials, or machinery.⁵

2. Interpretation of Deadlines: The amended law legislatively settles two time calculation issues not expressly addressed by the current statute.⁶ First, in calculating M & M Lien law deadlines, such as the three months mentioned above, the first day counted is the one following the event and not the date of that event.⁷ For example, if work was completed on June 1, 2008, then the first day counted would be June 2, 2008. Second, if a deadline expires on a non-business day (a Saturday, Sunday, or legal holiday), the deadline is automatically extended to the next business day.⁸

3. Rules for Mailing M & MLien to Owner and/or Contractor: Under the amended law, a lien claimant must mail a copy of the M & M Lien to the owner of the liened property within two business days after the M & M Lien is filed⁹ rather than at the time of filing, as required by the current law.¹⁰ It can be mailed to the principal office address or, for companies registered with the Georgia Secretary of State, to the registered agent address.¹¹ If an owner's address cannot be determined, a copy must be mailed within that two-day period to the general or pertinent prime contractor as agent for the owner.¹² Whenever the general or pertinent prime contractor has filed a Notice of Commencement, a copy must also be mailed to the contractor within two days at its address listed on that notice.¹³ All copies must be mailed by registered or certified mail or statutory overnight delivery.¹⁴

4. Deadline for Filing Lien Action: The amended law changes the date a lien claimant must normally file a legal proceeding against the party indebted to it (not a lien foreclosure suit against the property owner) to keep a lien alive.¹⁵ Instead of the current period of twelve months after the date that work or material was last provided,¹⁶ the period will be 365 days from the date the lien was filed.¹⁷ The amendments also clarify that the legal proceeding necessary to continue the lien, which the amended law defines as a "lien action,"¹⁸ need not be a lawsuit, but can, when appropriate, be a demand for binding arbitration or a bankruptcy proof of claim.¹⁹

5. Deadline for Filing Notice of Lien Action: Until the amendments become effective, a lien claimant must file a notice of a legal proceeding in the real estate records of the county in which the liened property is located within fourteen days after that proceeding is filed.²⁰ After the effective date of the amendments, that notice must be filed within thirty days after the lien action is filed.²¹

6. Manner of Mailing Project Notice to Contractor: The amended law does not change the requirement that if a Notice of Commencement has been filed, a potential M & M Lien claimant that is not in privity of contract with the general or prime contractor must send a Notice to Contractor to the owner and contractor to preserve its inchoate lien rights.²² Under the amended law, however, that notice must be sent by registered or certified mail or statutory overnight delivery.²³

7. Forms for Valid Lien Waiver: The amended law changes the mandatory content of legally effective interim and final lien waiver forms.²⁴ It also extends the period in which someone signing an M & M Lien waiver can file an Affidavit of Nonpayment from thirty to sixty days after the lien waiver is signed and changes the form of that affidavit.²⁵ An Affidavit of Nonpayment states that the payment for which the lien waiver was signed was not made.²⁶

8. Circumstances that Void Liens: Under current law, if an M & M Lien claimant files a lien but then does not pursue a timely legal proceeding against the debtor or does not timely file a notice of that proceeding in the county real estate records, the M & M Lien does not automatically become void.²⁷ Instead, the property owner must file a request for it to be marked void and take a number of other steps.²⁸ The amended law automatically voids an M & M Lien 395 days after it is filed unless a notice of commencement of lien action has been filed within that time.²⁹

9. Mandatory Statement in M & M Liens: In order to provide clear notice of the automatic voiding of an M & M Lien after 395 days, any lien filed after March 31, 2009 must include the following statement 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."³⁰ The absence of that statement prevents the lien from even being filed and, if mistakenly filed, from being valid.³¹

10. Manner of Contesting Liens: Significantly, under the amended law, an owner or contractor may elect to shorten the time for the M & M Lien claimant to file a lien action, which is normally 365 days from the lien filing date, by filing a Notice of Contest of Lien in the superior court clerk's office.³² That notice, which states that the owner or contractor contests the M & M Lien, must be substantially similar to the form provided in the amended law.³³ It must also be served on the lien claimant within seven days after the Notice of Contest of Lien is filed.³⁴ Service is deemed complete upon mailing by registered or certified mail or statutory overnight delivery to the address noted on the face of the lien.³⁵ If the lien claimant does not file a Notice of Commencement of Lien Action within ninety days after the filing of the Notice of Contest of Lien, the M & M Lien is extinguished.³⁶ Importantly, proof of delivery must also be filed in the superior court clerk's office.³⁷ However, when it must be filed is unclear. Subsection (a) seems to require that the proof of delivery be filed with the Notice of Contest of Lien since it states that the Notice of Contest of Lien must be filed "along with proof of delivery upon the lien claimant."³⁸ But as noted above, subsection (b) allows service to occur within seven days after the Notice of Contest of Lien is filed.³⁹ Perhaps, "along with" does not mean contemporaneously but instead simply means that both documents must be recorded. It is more likely, however, that subsections (a) and (b) are inconsistent and will need to be amended. Until that time, it may be prudent to serve the Notice of Contest of Lien on the same date as filing it and to contemporaneously file a short affidavit of counsel swearing to that service and attaching a copy of the envelope sent by registered or certified mail or statutory overnight delivery.

B. Suit Deadline

Counsel for construction equipment suppliers should note Central Atlanta Tractor Sales, Inc. v. Athena Development, LLC.⁴⁰ The opinion also provides guidance to counsel for general contractors, owners, sureties, and all M & M Lien claimants. Central Atlanta Tractor Sales, Inc. (CATS) rented construction equipment to general contractor West Georgia Excavation, Inc. (WGE), which WGE used on a project for Athena Development, LLC (Athena). The equipment was not used for the project on or after February 16, 2004. On March 12, 2004, within the three-month period for filing liens, CATS filed its lien. Thereafter, Athena removed the lien from the project with a discharge bond obtained from Accredited Surety & Casualty Company, Inc. (Accredited Surety).⁴¹

On February 16, 2005, CATS filed suit against WGE, exactly one year from the date on which the equipment was returned to CATS. CATS obtained a default judgment against WGE and then filed suit against Athena and Accredited Surety to recover on the discharge bond. Athena and Accredited Surety moved for summary judgment, contending that CATS's suit against WGE had not been filed within the twelve-month period specified in Official Code of Georgia Annotated (O.C.G.A.) Sec. 44-14-361.1(a)(3).⁴² This subsection states that to maintain an effective lien, a lien claimant must file suit against its debtor "within 12 months from the time the same shall become due."⁴³

In opposition to the motion, CATS argued that WGE's debt had not become due until the equipment had been inspected by CATS for damage, which occurred on February 18, 2004, two days after its last use on the project. Not until then, CATS argued, could the amount owed by WGE be determined and thus not until then had WGE's debt become due.⁴⁴ The trial court granted Athena's and Accredited Surety's motion for summary judgment, and CATS appealed.⁴⁵

The Georgia Court of Appeals affirmed,⁴⁶ holding that the inspection period did not extend the beginning of the twelve-month period in O.C.G.A. Sec. 44-14-361(a)(3).⁴⁷ To hold otherwise, it reasoned, would create two problems.⁴⁸ One problem would be inconsistent commencement dates for the calculation of the three-month period for filing liens and the twelve-month period for filing suit against the debtor.⁴⁹ Because, according to the court, the same commencement date should apply and O.C.G.A. Sec. 44-14-361.1(a)(2) makes it clear that the three-month period begins when the equipment "is furnished," (or last furnished), the twelve-month...