Georgia’s Court of Appeals Holds that Lien Waivers Waive Breach of Contract Claims

breach of contract

A recent decision by the Georgia Court of Appeals will force most construction professionals to radically change their view of the scope and effect of statutory lien waivers in the state of Georgia. In ALA Construction Services, LLC v. Controlled Access, Inc., the Court of Appeals held that a lien claimant’s executed statutory lien waiver waived not only the claimant’s lien right but also rights the claimant may have to bring a related breach of contract action.[1]

In ALA Construction, ALA Construction Services, LLC (“ALA”), contracted with Controlled Access, Inc. (“Controlled Access”), to provide equipment and other services for a project in Gwinnett County, Georgia. Controlled Access signed two statutory lien waivers with the expectation that it would be paid for its work. However, Controlled Access was never paid, but it did not file either a statutory Affidavit of Nonpayment or a Claim of Lien within 60 days of its execution of the lien waivers, which had the effect of nullifying Controlled Access’ rights to assert a claim of lien. Having waived its lien rights, Controlled Access instead brought a breach of contract action against ALA seeking payment for the work performed by Controlled Access. The trial court held that Controlled Access did not waive its right to assert a breach of contract claim against ALA by executing the lien waivers.

On appeal, the Court of Appeals reversed, holding that Controlled Access’ lien waivers waived not only its lien rights, but also any related claims for breach of contract. The court relied on portions of the lien waiver statute, O.C.G.A. § 44-14-366, which provides that:

“(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[.]”[2] (emphasis in original).

The Court held that the “plain and unambiguous language” of the statute showed that the “[Georgia] General Assembly intended for [the lien waivers] to be binding against the parties for ‘all purposes,’ not just for purposes of preserving the right to file a lien on the property,” reversed the trial court’s decision, and ruled in favor of ALA. In doing so, the Court stated:

“[T]he statute clearly and unambiguously provides that upon signing the Waivers, Controlled Access had a statutorily imposed responsibility to file either a claim of lien or an affidavit of nonpayment if it wished to keep the debt alive beyond 60 days. Controlled Access did neither and the debt is extinguished.”[3]

The decision in ALA Construction marks a substantial shift in most construction professionals’ understanding of the treatment of lien waivers in the state of Georgia. Previously, most lien claimants and their counsel believed that a statutory lien waiver waived a claimant’s lien rights, but did not affect the claimants’ right to bring a breach of contract action. As a result of this decision, lien claimants who execute lien waivers risk losing their rights to bring breach of contract actions unless they file an Affidavit of Nonpayment or a Claim of Lien within 60 days of execution of a particular lien waiver. Simply put, it makes the timely filing of the foregoing documents more important than ever before.  Under the Court’s holding, a party executing a lien waiver without receiving payment that does not subsequently file an Affidavit of Nonpayment or a Claim of Lien risks losing its ability to seek collection of payment for its work even if it can show that it performed the work and was not paid for it.

If you have questions about Georgia’s mechanic’s lien law or this particular case, please contact the construction group at Smith, Gambrell, & Russell, LLP. We can help businesses in the construction industry navigate this recent change to Georgia lien law and provide recommendations on how to protect against the effects of this decision.

[1] ALA Constr. Servs., LLC v. Controlled Access, Inc., No. A19A0923, 2019 WL 4463305 at *1 (Ga. Ct. App. Sept. 18, 2019). A copy of the decision can be accessed at https://law.justia.com/cases/georgia/court-of-appeals/2019/a19a0923.html (last visited 10/30/2019).

[2] Id.

[3] ALA Constr. Servs., LLC, supra.