Just a few weeks ago we wrote about how the Georgia legislature had passed several amendments to its mechanics lien law that were only waiting on the government’s signature. We’ve been following the bill’s progress closely and are happy to report that on May 7, 2013, Governor Nathan Deal signed House Bill 434 into law.
The Law’s Background
As is often the case, lobbyists have been advocating for an explicit change in the law after an unfavorable decision by a Georgia court nearly a year ago. In that case, 182 Tenth L.L.C. v. Manhattan Construction Company, the Court of Appeals of Georgia reversed the trial court’s holding and instead found that a lien claimant could not include interest on the amount claimed in a mechanics lien.
Unfortunately, neither the trial court nor the Court of Appeals’ opinion gives us a great factual background, but the plaintiff’s complaint provides a one-sided view of the dispute. In June 2006, Manhattan entered into a contract with Midtown Atlanta Properties to construct a building called The Onyx in midtown Atlanta. The complaint alleges that “Defendant 182 Tenth was the entity” that was supposed to pay Manhattan the entire contract price of more than $36 million. About 10 months later, in March 2007, Manhattan stopped work on the project after 182 Tenth failed to make several payments.
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After Manhattan stopped working it decided to file a mechanics lien worth approximately $2.1 million on the property. Manhattan initiated a foreclosure suit to enforce the lien March 14, 2008, and was awarded $1.75 million.
After 182 Tenth appealed, the Court of Appeals reversed the trial court’s award. Specifically, the court held that only about $1 million of the $2.1 Manhattan claimed in its mechanics lien was actually due to “labor and material actually furnished to improve the property.” The rest, another $1.1 million, included items that were not lienable such as interest on the amount owed to Manhattan.
An intense lobbying effort followed the unfavorable holding in 182 Tenth and less than a year later those lobbyists managed to get the bill changed.
The court’s ruling infuriated Georgia contractors who now realized that they could not recover for any amount that was not specified for in the contract, such as interest or other general costs. An intense lobbying effort followed the unfavorable holding in 182 Tenth and less than a year later those lobbyists managed to get the law changed.
What the Bill Changes
As we noted in the earlier post, Georgia mechanics lien law now includes the following text:
(c) Each special lien specified in subsection (a) of this Code section shall include the amount due and owing the lien claimant under the terms of its express or implied contract, subcontract, or purchase order subject to subsection (e) of Code Section 44-14-361.1.
(d) Each special lien specified in subsection (a) of this Code section shall include interest on the principal amount due in accordance with Code Section 7-4-2 or 7-4-16.
Subsection (c) implies that so long as an item is listed in the contract, a lien claimant can include that item’s worth in a valid mechanics lien. Subsection (d) makes it explicitly clear that whether or not interest is included as a lienable amount in the original contract, a lien claimant may recover interest on any unpaid amounts.
Why Did the Bill Become Law?
The legislative history behind HB 434, which became Act 340 once it was signed by the governor, is fascinating. First of all, it only took a little over a month for the bill to pass both houses, including two votes in the House on March 7, 2013, and then another one after the bill was amended, on March 28, 2013. The bill passed with unanimous support in the Senate and the first time in the House and only received two “nay” votes when it returned to the house.
Given this speedy history, it’s not clear why the bill sat for more than a month on the governor’s desk. Nevertheless, the bill gained passage so quickly probably because it simply wouldn’t make sense if unpaid subcontractors and suppliers weren’t permitted to recover interest on amounts they were owed. In many other instances involving breach of contract cases, Georgia courts have consistently permitted parties to recover interest on their award. In fact, the rate of 7% has been established as the legal rate of interest under Georgia law.
The changes to Georgia’s mechanics lien law now allows any unpaid party to include interest in a lien
While the court in 182 Tenth may not have been wrong in not permitting Manhattan to recover interest since interest was not specified in its contract, the changes to Georgia’s mechanics lien law now allows any unpaid party to include interest in a mechanics lien.