March is Just Around the Corner: Move the Clocks Forward and Change Your Lien Forms

The 2008 Georgia legislature has thrown the construction industry a curveball in the form of significant changes to the lien law. The revised lien statute does not go into effect until March 31, 2009, but some of the changes affect projects that begin before that date, so those who deal with lien issues need to be familiar with the changes or risk a loss of rights.

The 2008 Georgia legislature has thrown the construction industry a curveball in the form of significant changes to the lien law. The revised lien statute does not go into effect until March 31, 2009, but some of the changes affect projects that begin before that date, so those who deal with lien issues need to be familiar with the changes or risk a loss of rights.

Lien Waivers and Releases

Perhaps one of the most significant changes to the law involves revisions to the “Interim Waiver and Release Upon Payment” and the “Waiver and Release Upon Final Payment” forms. Both the current and new lien statutes invalidate any interim or final waiver and release that fails to comply with the prescribed format, including the statutory notice requirements, so the old forms must be used through March 30, 2009, and the new forms must be used after March 30, 2009. While this may sound like a straightforward administrative task, some people will inevitably use the old forms on projects months, and even years, after the effective date of the new law, and some people will use the new forms before the effective date of the law. To guard against resulting problems, owners, developers, contractors and construction managers should either require a conversion to the new forms on March 31, 2009, or require that both forms be submitted as a condition of payment on any project that starts before the effective date of the new law.

The new law also changes the deadline for a lien claimant to nullify a signed waiver form. Under the current statute, a waiver and release is conclusive evidence of payment upon actual receipt of the payment, the execution of a separate payment acknowledgment, or if the lien claimant does not record a Claim of Lien or Affidavit of Nonpayment within 30 days after signing the waiver and release. The new law extends the time to file either a Claim of Lien or an Affidavit of Nonpayment to 60 days after signing a waiver and release. This change addresses criticism that the 30-day period under the current statute is insufficient because payment problems often do not arise until after the 30-day deadline because of the timing of audits, inspections and closings on construction loans. Extending the time by an additional 30 days creates a greater risk to owners, however, that a Claim of Lien can
be recorded after the owner makes final payment, despite having received signed waivers and releases from all potential lien claimants. This risk makes the Contractor’s Final Affidavit described in O.C.G.A. § 44-14-361.2 even more important because the Final Affidavit will sever the lien rights of any potential lien claimant who has not filed a Preliminary Notice of Lien Rights or a Claim of Lien before the contractor signs the Final Affidavit, even if the 60 days has yet to expire.

The form for the Affidavit of Nonpayment has also changed and, like the lien waiver forms, has new formatting requirements. Though it is not addressed anywhere else in the lien statute, the form has been amended to incorporate a notice and service requirement, which requires the party filing the Affidavit to send a copy of the Affidavit to the property owner within seven days of filing the Affidavit. If
the owner is an entity registered with the Georgia Secretary of State, then the Affidavit may be sent to the owner at its registered address or the registered agent. If the party that filed the Affidavit of Nonpayment is not in privity of contract with the property owner (e.g., subcontractors of any
tier, suppliers or laborers to subcontractors), and a Notice of Commencement was filed on the project, then the form directs that a copy should be sent to the contractor. The statute is not sufficiently clear whether this is an additional requirement, or whether this would serve as a substitute for sending the Affidavit of Nonpayment to the owner, so the better practice is to send a copy to each.

Deadlines for Filing Claims of Lien and Notices of Lien

The time period for filing a Claim of Lien has also changed from “three months” to 90 days. While this may sound like a minor issue, the practical difference could shorten the time period for recording a Claim of Lien by as much as two days. For example, if a potential lien claimant completed its work on
July 31, a Claim of Lien could be filed as late as October 30 under the existing law. Under the new law, the Claim of Lien would need to be filed no later than October 28. Moreover, the filing date may be even earlier if the last day of the three-month or 90-day period is not a business day. Given that the lien statutes are strictly construed in favor of the property owner, failure to appreciate this change could significantly impact a party’s lien rights.

A more precise deadline for notifying the property owner of the Claim of Lien has also been established. Previously, the notice was required to be sent when the Claim of Lien was filed, but the statute does not dictate when the notice would be untimely. Under the new law, the notice must be sent within two business days after the Claim of Lien is filed. The existing statute also requires that notice of the Claim of Lien be sent to the property owner, or to the contractor as the agent for the owner, which suggests that a lien claimant has the option of serving the notice through either the
owner or the contractor. Under the new statute, service of the notice through the contractor is limited to the situation in which the property owner’s address cannot be found. The statute does not clarify the level of diligence that a lien claimant must expend to locate the property owner, but a search for
the property owner’s address should at least include reviewing the records of the Secretary of State because the notice may be sent to the owner’s registered office or registered agent.

Content and Format of Claims of Lien

The new law also modifies the contents and format of Claims of Lien by requiring two notices that are not required under the current statute. First, all Claims of Lien recorded on or after March 31, 2009 must contain a notice that the owner has the right to contest the lien. Although the absence of this
notice will invalidate the Claim of Lien, the new statute does not dictate the language that must be included, so lien claimants should track the language in the statute when drafting Claims of Lien. Second, all Claims of Lien recorded after March 30, 2009 must include a specific notice that the lien is void within 395 days unless a notice of action to foreclose the Claim of Lien is filed within that time period. The new law states that a failure to include this notice will prevent it from being filed, but given the volume of documents that flow through the clerks of the superior courts, it is inevitable that some Claims of Lien without the notice will be recorded after the effective date of the new law. However, even if a Claim of Lien is inadvertently filed without the notice, the new statute mandates that the absence of this notice renders it unenforceable.

Deadlines for Perfecting Liens

The current lien statute provides that lien claimants must file an action on a Claim of Lien within 12 months from the time the claim “became due” in order to perfect the lien. In general, a claim will “become due” when all work is accomplished, or when the last material was supplied to the project,
so under the current statutory scheme a lien claimant who waits the maximum three months to file a Claim of Lien would have nine remaining months in which to commence an action on the lien. The new law significantly changes this deadline and requires that lien claimants file suit within 365 days from the date the Claim of Lien was filed. The practical effect of this revision is that the deadline for perfecting (i.e., filing suit on) the lien may now be extended up to 90 days depending on the timing of when the Claim of Lien was originally filed. Once a lawsuit is filed to perfect a lien, the claimant must file a “Notice of Action” in the county where the Claim of Lien was recorded. The new law also lengthens
from 14 days to 30 days the amount of time in which a lien claimant must file the notice.

Notice of Contest of Lien

While the new law may provide more time to file suit and perfect a lien, Georgia has now joined the ranks of other states that allow an owner to shorten the time to commence a lawsuit to enforce the lien by filing a Notice of Contest of Lien. Once this notice is filed, the Claim of Lien will be extinguished if a lawsuit, claim in bankruptcy or arbitration is not brought within 90 days. Computation of the 90 days is governed by O.C.G.A. § 1-3-1, which remarkably does not govern the time limit to file a Claim of Lien under § 44-14-361.1. This affects the time to institute a lawsuit after a Notice of Contest of Lien is filed and may actually extend the deadline beyond 90 calendar days, even though the time for recording a Claim of Lien remains 90 days regardless of whether the 90th day falls on a weekend or holiday. The rules as to the form and substance of the Notice of Contest of Lien are very specific, and both the notice and proof of delivery upon the lien claimant must be recorded with the clerk of
the superior court in the county where the Claim of Lien was filed. Additionally, once the notice has been filed, the owner or contractor contesting the Claim of Lien must send a copy of the notice to the lien claimant within seven days by registered mail, certified mail or statutory overnight delivery.

Notice of Commencement and Notice to Owner

Georgia’s existing lien statute confers additional rights on property owners for Claims of Lien recorded by subcontractors and suppliers who do not contract directly with the prime contractor. Specifically, if a Notice of Commencement is filed within 15 days from the time the contractor commences work, any party who is not in privity of contract with the contractor (such as sub-subcontractors or suppliers to subcontractors) must provide a Notice to Contractor to the property owner and the contractor within 30 days following the first delivery of labor, services or materials to the property. The new statute clarifies how the Notice to Contractor should be delivered to the property owner and contractor. While good practice dictates that the Notice to Contractor be sent by some method that ensures proof of delivery, the new statute specifically states that the notice must be sent by registered or certified mail or statutory overnight delivery.

Lien Discharge Bonds

Property owners and contractors may discharge a Claim of Lien by filing a bond in the superior court where the lien claim was filed. Unlike some states in which the Claim of Lien “transfers” from the property to the bond, in Georgia the filing of the bond discharges the Claim of Lien, and a claim against the bond replaces the Claim of Lien. Once the Claim of Lien is discharged, a foreclosure action is no longer allowed and recovery is obtained through a suit on the bond. The new law contains additional procedural requirements for the property owner or contractor who records a lien dissolution bond. Previously, an owner or contractor who filed a bond was not required to serve the lien claimant with a notice of filing the bond. The new law requires that the property owner or contractor send a notice and a copy of the bond to the lien claimant within seven days of filing the bond. The notice and copy of the bond must be sent by specific methods at the address stated on the Claim of Lien. If the claimant’s address is not shown on the lien, such as when an attorney files the document, then the owner may send the notice and copy of the bond to the person
that recorded the Claim of Lien, and if the lien claimant is a business entity that is registered with the Georgia Secretary of State, then the statutory requirement is satisfied by sending the notice
and a copy of the bond to the company’s or its registered agent’s address. Interestingly, the new statute clarifies that failure to send the notice and a copy of the bond does not invalidate the bond,
which raises questions about the penalty an owner or contractor faces for failure to comply with the statute.

Process to Void Liens

The current statute contains a procedure for voiding a stale Claim of Lien, but the new law simplifies this procedure and does away with the requirement of an affidavit from a Georgia attorney attesting to a search of the superior court records for a Notice of Action on the Claim of Lien. The new law specifically states that a Claim of Lien expires and “may be disregarded” if a Notice of Commencement of a Lien Action was not filed within 395 days from the date the Claim of Lien was recorded, or within
90 days if a notice was filed by the owner or contractor. It remains to be seen, though, whether this statute has a positive effect on the willingness of title companies to offer opinions when a search discovers stale Claims of Lien.