What Georgia’s New Lien Law Changes Mean for Contractors Seeking Payment

Join Mark Cobb from the Cobb law group in Atlanta, Georgia and learn about Georgia’s new lien law changes | Senate bill 315.

Transcription

Seth Bloom:

Thanks everyone for joining today, we have a lot of participants here. Uh, my name’s Seth bloom, and I am the senior director of attorney services at Levelset. Uh, we’re really excited about our webinar today. If you have any questions during our speakers, uh, program, please just type them in. Uh, and we will ask them live. Otherwise you can post them on the attorney network where you can ask a lawyer and you can always contact, uh, Mark, just additionally by calling him straight to his law firms. So I’m really excited today. Uh, we have Mark Cobb and he’s from the Cobb law group and they’re are based out of Atlanta, Georgia with a secondary office down in South Georgia that we were just talking about. So I’m really interested in this cutting edge law that, uh, Mark was a big part of in, uh, in Atlanta and in Georgia. And that’s, Georgia’s new lien law changes look at Senate bill 315. So Mark, thank you so much for joining us today. And, uh, we look forward to hearing what you have to say.

Mark Cobb:

Um, as Seth said, we are a construction law firm. It’s all we do. We handle all aspects of law for our clients from complex litigation matters, delay liquidated, liquidated damages. Um, my focus is on construction contract drafting and negotiation as well as payment issues. And that involves material man liens, payment, bonds Millerat claims and, um, you know, similar issues related to that. Um, from our two offices, we try to support clients throughout Georgia, but we have really a regional practice. And, um, most recently I was, uh, on a drafting committee to help change Georgia’s lien laws to make them better for those in the industry. And that’s what we’re going to be talking about a little bit today. So let’s get started. Let’s, let’s take a look at the first slide, which talks about, um, Georgia’s lien waivers. They’ve been unique since about 2010, which was the last substantive change or just lean laws.

Mark Cobb:

What makes them unique is that they’re conditional for a period of time and then they switched to becoming unconditional. What does that mean? Well, condition is there’s a condition precedent before something happens. So another example on a construction site might mean if my crew damages another part of the project comment, then I will indemnify the owner or general contractor for the damage that we caused. That’s conditioned, that’s the condition that something had to occur that you’re responsible for. And then if you’re found responsible for that condition, you will then pay that. That’s what happens with a conditional lien waiver is conditioned upon payment. So if I receive X amount of dollars, that I will waive my rights to a lien and unconditional just says, I’m going to pay for everything I’m gonna pay for all the damage on a project knows no contractor or subcontractor is going to sign that document, but if they did, it would be an unconditional waiver. So in a lien waiver scheme, an unconditional waiver just says, I waive my rights to follow lien.

Mark Cobb:

Georgia only has one lien waiver will really there’s two there’s one form one’s interim, the other’s final lien waiver. They’re substantially similar and they start out conditioned upon payment. So if I receive X dollars, I will waive my rights to file a lien. However, under current law on the 60th day, that lien waiver converts from a conditionally waiver to an unconditional lien waiver. So day 60, it doesn’t matter whether or not you have received the money that you’re owed. You waive your rights to follow lien. That’s a big deal. And the only way to Fort that is prior to the expiration of the 60 days is to either file an affidavit of nonpayment or to go ahead and file a material man’s lien otherwise again, and this is very important to understand that current Georgia lien law is conditioned for 60 days after that it’s unconditional.

Mark Cobb:

Most practitioners, most industry professionals have always assumed and taken the, taken the stance that this lien waivers only apply as the name suggests to lien rights, that it did not affect other rights that contractors or subcontractors may have in Georgia. On the next slide, you’ll see that there’s an established case. ALA construction services versus controlled access. ALA construction services was a contractor who was hiring subcontractors and asking them to sign lien waivers with their pay apps. At least three of those subcontractors did not get paid within 60 days. And so they sued ALA construction services for payment under the contract rights in the lower court. In two of those cases, one lower court said, well, you know what? You signed a lien waiver and only applies to lien rights. You still have your contract rights after 60 days, but another lower court said the opposite.

Mark Cobb:

It said, well, the lien waiver really applies to everything. So after 60 days you don’t have any contract rights. Needless to say, both of those cases were appealed to the Georgia court of appeals. In September of last year, the court of appeals came in and reviewed different sections of George’s lien laws. First it considered what the lien actually says. This is required by statute. And the lien says that you shall be conclusively deemed to have been paid in full. Even if you have not actually received such payment within 60 days, Mark, sorry to interrupt for a second. But I just saw our first question come in and I didn’t want to get backed up. Uh, Sarah asked are the waivers statutory forms. They are set story forms. The way the statute reads is that you have to have a lien waiver that substantially complies with the Georgia statutes. And there’s a lot of technical things required in lean in, in Georgia lien waiver. For example, it has to be all caps has to be 12 point font. And it has to have the notice that I was just referencing that says you shall be conclusively deemed to have been paid in full. That has to be on the form.

Mark Cobb:

So the court of appeals did look at the lien waiver. The court of appeals also looked at the underlying statute, which this also is where you’ll find the statutory version of the form, but it’s official code of Georgia. Oh, CGA it’s section 44, 14 three 66. So in addition to having, uh, an example of the forms for the interim and the final lien waivers, it also says that lien waivers shall be binding against the claimant for all purposes. So using those two, um, sections, the F the part that’s actually found on the lien waiver and the part that’s in the code governing lien waivers, the Georgia court of appeals said that the waiver is considered binding against the claimant for all purposes, not just lien rights. So in other words, I’ve had plenty of clients who maybe on slow pay on a project they’re getting paid 60, 70, maybe even 80 days from the date of, of a, of a pay app.

Mark Cobb:

They’ve have a relationship with a contractor or the owner or the developer. They’re not terribly concerned about, about the lien waivers they’ve signed because they know they have contract rights in the event of nonpayment. However, this case ALA construction services versus controlled access, upset that strategy completely. So now, if you have a lien waiver in Georgia, it’s a proper lien waiver, statutory form, and it’s not paid within 60 days. You not only waive your lien, right? You waive your contract rights, you waive rights to unjust enrichment. You waive rights to quantum merit. You wave all of your rights because you’re deemed to have been paid in full that’s a big deal. And it’s hurt a lot of people in a lot of ways. So, um, within a couple of weeks of this, of this holding, um, being released, several organizations got behind wanting to change the Mark.

Mark Cobb:

Do you mind just for my own, maybe we make it easier, just if you could explain what the difference is like in some of those changes, like what, what quantum merit really means and how this could really impact getting paid and what you’re going to get paid, just to maybe break it down a little bit. Sure. Break it down. Yeah. Basically, it’s kind of easy to, to, to, to say that Seth, if, if, if you have a lien waiver and you don’t receive payment in 60 days, you’re not getting paid. You cannot pursue them for contract rights. So your contract may say something else that you, that you have other rights, you cannot Sue them for unjust enrichment, which is a theory that says the work that I’ve performed in your property has increased the value of your property. Therefore I’m entitled to compensation. Quantum Marriott is a fairness doctrine and equity that says something similar. You know, I, I built your walls. I should be paid for your walls. Um, yeah. So unfortunately, if you have a lien waiver and you’re not paid, you are out, you will not be paid. There’s no, no legal mechanism to force payments.

Mark Cobb:

Right. Thank you. So moving on to the next slide, after this adverse holding came out, I mean, it said shock race waves throughout the entire industry. And I would like to point out that that holding is still good law in Georgia and will be good law in Georgia until December 31st, but last October, just a few weeks after the holding was issued, AGC associated general, contractors of Georgia, um, began to move to, to revise George’s lien laws. They put together a panel included three lawyers. I was fortunate enough to be on that panel and we sat down and we went through the holdings of that case and a few other cases that had come down and we decided we wanted to try to push legislation through in the 20, 20 legislative year. So we had about six weeks in order to get it into the, to get it finished before the first deadline, which fell in December.

Mark Cobb:

That’s when it actually goes to a sponsoring to a sponsoring member of the legislature. So we worked, uh, at live meetings, zoom meetings, and email exchanges, trying to come out with a language that would actually help the industry real quickly. It was fascinating to watch this happen so quickly, that seldom happens when you’re trying to change the laws. More importantly, it’s also happened in a year where the Georgia’s legislature took a break because of COVID-19. So the process began normally enough in January. It went before the Senate, um, it had 43 senators sponsoring it. We only had 56 senators. It passed the house, excuse me, it passed the Senate unanimously on the day that it was going to go to the house for consideration. That is when the pandemic officially began. And businesses began shutting down, including the Georgia house, Georgia house, um, took a recess.

Mark Cobb:

They reconvened in June when it was finally presented to the Georgia house. It passed unanimously and the Georgia house. And on August 5th, the Senate bill was signed by governor Kemp into law. And it will take effect starting January 1st, um, in 2021, a couple of the big changes that this, um, bill now law makes is that, um, it specifically limits lien waivers to waiving lien rights. Instead of break it down, if you sign a lien waiver and you’re not paid within a prescribed time, and you choose not to file an affidavit of nonpayment to void that lien waiver, you still have contract rights. You can go after. So you won’t have lien rights to file against the owner, but you will have contract rights against whoever hired you, which may be the owner, maybe a general contractor. It could be a subcontract.

Mark Cobb:

Another big difference is that 60 day window. And for those of you who, um, have spent any time watching payment flow on construction projects, you realize that 60 days is a very short timeframe that 60 day window to be paid or file an affidavit. Affidavit of nonpayment has been extended to 90 days. So you get an additional 30 days. And I think that’s going to really cut down on the amount of affidavits of non payments that need to be filed. That 30 day window seems to be a very 61 65, 68 days seems to be a very common window for people to actually receive their payment. Furthermore, if you remember earlier, I said that the existing law and the 2010 lien waivers said there were two ways to avoid a lien waiver. One is to file an affidavit of non payment. The other way was to file a lien few years ago, there was a court case that said, you cannot file a lien on there’s some exceptions, but you really can’t file a lien unless you are finished with the project.

Mark Cobb:

Therefore, we felt like that was, um, misleading people who might read the statute and think, Oh, I can go ahead and file a lien, even though I’m still working on the project. So we took that out. So the only way to avoid an affidavit of nonpayment is to file. Excuse me. The only way to avoid a lien waiver is to file your affidavits and non payments and remind you, they have to be filed starting January 1st. They have to be filed within 90 days of the date of your lien waiver. Mark, were there any particular interest groups on either side that, uh, you know, had presented obstacles for you for you? We were expecting some pushback from some groups, most particularly the banking lobby simply because, um, in Georgia, unlike other States, construction lenders can have to take priority over material and lanes. And so whenever those get tweaked, they always take an interest.

Mark Cobb:

We were concerned that the banking lobby might push back, particularly against that 90 day period and lieu at the 60 day window, because it opens up the door for, uh, maybe a bank being, it slows the deadline for a bank possibly to know when there’s a payment issue or there’s some issue on the project, but thankfully, um, they didn’t present. They, they, they, they were satisfied with our changes. They accepted them. And in addition to that, we had over 20 professional organizations join in this one. So not only was it a charge led by AGC, Georgia, but also ASA American subcontractors association join, um, construction suppliers association, uh, the Georgia chamber of commerce. The list just goes on and on with all the professional groups who supported the changes as bill. Again, it was unanimous in the house, the Senate governor signed this and all these professional organizations, because that holding was devastating to those in the construction industry and Georgia,

Seth Bloom:

I think a Levelset needs to do another blog about all these changes. Maybe put something together. This is absolutely there’s a lot to this.

Mark Cobb:

There is a lot. And you know, again, it’s getting down to the weeds, you know, payment should be one of the easiest things we send it, we submit a pay app. 30 days later, we get paid. Unfortunately it’s never that easy. And yeah, these, these statutes complicated, um, hopefully we’ve given with these revisions, we’ve given construction professionals a little bit more wiggle room, 90 days, and more importantly, we’ve preserved all their rights except lien rights, which understandably at some point lien rights need to expire. Um, and so now they do 90 days. So that’s, that’s, that’s very good.

Seth Bloom:

Mark. I’ll take a second. We have a bunch of questions coming in and, and just for everyone to know, uh, these will be available on our website. They will also be available on Mark’s website, watch his presentation and get these slides again. I know I have a lot of questions coming in for that. And I will say, Mark, we have a really big crowd. So this is, uh, this is, uh, this is a great webinar for us today. Um, but I will get to some actual questions. Uh, so Kevin asks, so as of January 1st, 2021 will the approve Georgia way to waiver notice language at the bottom of the form, be changed, just say 90 days in lieu of 60.

Mark Cobb:

Yeah. So it’ll be changed to say 90 days, it’ll also be changed to reflect that it only applies to material main lanes or excuse me, to lien rights. And I will also say this as good, good segue to offering this lien waivers in Georgia have always also applied to payment bonds. It has just never been prominent. Now we’ve made it more prominent. We’ve included it now in the, in the title of the documents. And in that notice provision, it does say that it only applies to lien rights and payment on rights. It has said that before we, we wanted to highlight that. So there’s no misunderstandings. Okay. And Sarah just asked again, she says, I’m assuming the affidavit of nonpayment is a statutory statutory as well. It is, it’s in the same code section. And so basically the mechanism is you submit a pay app.

Mark Cobb:

Currently you monitor that payment for 60 days, starting January 1st, you can monitor it for 90 days. You know, we tend to recommend about 10, 15 days before the deadline, you get an affidavit of nonpayment filed, and it’s a statutory form in that same section. It too is all caps and it’s kind of an ugly form. And it’s filed in the courthouse in the County where the project is located. Okay. And just to throw this out, if you file an affidavit of nonpayment down the road, hopefully you will receive payment in full when you do. You’re supposed to file an affidavit of payment, which is yet another form and that same link, same code section. Um, and it has also filed in the courthouse where the affidavit affidavit of nonpayment was filed. Sorry, all these words, even for me, just, um, sounds so simple. I’ll make sure I get the right word, say the right word so that everybody listening, um, gets it.

Mark Cobb:

So I’m going to let you, the con the, the questions are coming in a lot of them, which is great, but I think I want to let you go for another minute or two, because you’ll probably answer some of them, but if not, we’ll circle back. And we’re always going to leave plenty of time in the end and try to get as many questions answered. And Mark’s been gracious enough to have offers some extended time if needed, but it looks like we’ll need it. So I’ll let you go for a minute, Mark, and then I’ll, I’ll stop. You sure. More questions, you know, that’s, that’s really the substantive change. I think we’ve got one more slide with some practical tips, which may answer some of those questions. Um, but when you’re looking at Elaine, when you’re looking at the sort of the process pay app with the lien waiver is a very typical scenario, monitor the deadline. If you’re not paid file that affidavit of nonpayment, then the cause that voids the lien waiver. If you file an FAA of non payment, then when you get paid file an affidavit of payment and that void the affidavit of nonpayment, don’t you love lawyers and legislators for doing all this.

Mark Cobb:

Um, but the, the bottom line is this statute preserves every contractor’s right to money to receive the money for the work that they performed. Um, you know, it’s so it’s, this could not have been more vital, sits. This holding has come out, um, September. So that’s what, 11 months ago, we have gotten repeated calls from contractors who, um, have been caught in this trap where they waited more than 60 days. And I’ve had to, I’ve had to relate some very bad news. I mean, someone calls me about a $200,000 amount they’re owed on a project. And one of my first questions now is did you send a lien waiver? How long ago did you send the lien waiver? It’s been more than 60 days. Sit down, I’ve got some bad news for you. Um, now there are some honest contractors out there and they have played by the rules we’ve always had. And so the, but the only option for getting payment is, um, somebody who wants to treat you fairly right now. And so it’s still important between now and January 1st that you monitor that 60 days. Other questions, Seth.

Seth Bloom:

Yeah, we’ve got a, we’ve got a bunch of them here. So I’ll start with Chris at the top. And I must’ve missed him cause he asked it a few minutes ago, but uh, Chris asks, why didn’t you attempt to change the feature of the law that requires a conditional waiver to become unconditional when it is obviously unfair to the material man, when he hasn’t, when he hasn’t been paid and loses his lien rights.

Mark Cobb:

Sure. Great question. Um, that would have, we anticipated a great deal of pushback from the bank lobby on that when you got to construction lender, they want, they need to know a date, certain when rights evaporate. And so that is part of the point behind that. Secondly, you still, um, as a, as a subcontractor, uh, as, as material men or a sub sub, depending on what doesn’t really matter, what tier you are, you still have the rights to file the lane. And we’ve got you an additional 30 days to preserve those rights. If you are an and people, sometimes people, um, lanes are a wonderful tool for helping you get paid, but they’re not the only tool to getting you paid. And so our focus was to, um, help extend lien rights, but more importantly, keep those other tools in your toolbox so that you get paid. Contract rights are far more important than material and lien rights. If you have a material and lane, but you’re not, but you can’t prove a right to payment in the first place. You can’t perfect. Your lien, you can’t foreclose your lane and won’t get paid.

Seth Bloom:

Okay. Uh, and Stephanie asked since HUD trumps state lien laws, how does, how do these laws affect Davis bacon?

Mark Cobb:

Yeah, the lien laws do not affect any federal projects at all. It only affects Georgia private projects and Georgia public works projects, state municipal, um, city County. Okay.

Mark Cobb:

And Sherry asked, how does a vendor service agreement compared to a contractual obligations for a specific job?

Mark Cobb:

It is, that’s a difficult question to answer without reading what that service actually says, but it is a type of, you know, it can be construed as a type of contract. Um, if you’re talking about some of the terms and conditions, we use those pretty regularly with our clients, um, to make sure that they’re as ironclad as it can be.

Seth Bloom:

Okay. Uh, Sarah also said, she said she came in a few minutes late, so she wanted to know if a notices are still the same or have they changed at all with this new law,

Mark Cobb:

The statutory scheme for like notice of commencement, notice the owner there, they’re still the same. So an owner, GC files, a notice of commencement and then sub subcontractors and suppliers to subcontractors have 30 days to get their notice to owner and notice the contractor out. Okay. And I think we’ve gotten this one a few times, just to be clear, you might’ve answered it, but where can they get the location of the statutory forms with this new language? Do you have it on your website or maybe it’s something we should post? Not yet. We’re going to put work. We’re going to intentionally wait and post this in December. Okay. Because if people use this, now, it won’t be enforceable at all until January 1st. So, um, but they can find it at GA official code of Georgia. It’s 44, 14, three 66, and we’re going to be circulating it to our clients. I’m sure. Levelset is going to be putting it out on some form and we’ll have it available on our website later on. It’s just, it’s a little early we’re, we’re really gearing up for education right now. And for the big change. Cause I don’t want anybody to think that it takes effect. Now that would be devastating, potentially devastating. Yeah.

Mark Cobb:

A lot of things going on, that’s a tough timeline. So we came out of eight questions coming in and we love this. Some, uh, we’ll keep this as a Q and a, but Susan asks, if you do not file the affidavit of payment, are there any legal ramifications? You lose weight. If you don’t file an affidavit of nonpayment within the currently 60 days soon to be 90 day period, you lose your rights to lean right now until December 31st, you lose all rights to payment. You will not get paid after January 31st. You still have your right to seek your payments under your contract.

Mark Cobb:

Okay. Uh, Sarah asks, are there waivers taking place of the notice of contractor spec slash owner? I’m sorry, Metro, repeat that question says I’m sorry. Yeah. I mean it may, we may have a typo or two I’ll come back to that. One. Does the conditional lien waiver need to match the statutory forms? Exactly. Word for word. And that was asked by Jim. Sure. The statutory language says it has to substantially comply. And so, um, we try to, we tend to not, we tend to not changing the words, but occasionally we do change words depending upon the specific nature of the project and the risk involved. Um, another example is currently the code says that that notice language, the language, which says you shall be conclusively deemed to have been paid in full currently it’s required on the face of the lien waiver, which means front page we’ve we’ve removed that. Similarly, the all caps has been removed the end January 1st, the new lien waivers will not have to be in all caps. So we’ve tried to change the format a little bit to make them easier to read.

Mark Cobb:

Okay. Uh, this one’s pretty general, but we’ll throw it out here and be, there’ll be some meat on it. Uh, how does a general contractor set up a contract with a homeowner given this new law, um, in the homeowner situation? Rarely do we see homeowners requiring lien waivers? I think it’s a great idea. If I were building a house, I would require a lien waiver, but I don’t really see those. So as a general contractor, if you’re a home builder, you probably do want them from your subs. That way the subs can’t come. You know, there’s a deadline as to when the subs can come back and actually lean your project. And so I would put that as a requirement in my contract with the subs.

Mark Cobb:

Okay. Uh, we’ll keep going. Lots are coming in, uh, from Stephanie D recommend any contract language stating that you will not provide a lien waiver for unpaid work or unpaid retainage. Um, it, you know, if I were to do that, it would depend upon the relationship you have with the, with the, um, whoever you’re contracting with what we find is a better situation is actually vetting your general contractor or vetting your owner. It’s it’s amazes me how few people do that. Um, maybe that’s a seven seminar topics that we can put together sometime. But you know, if you look at even just the lean record in Georgia, which is public record, if you look at, if you Google look for newspaper articles, you tend to find out who the good GCs are and who they are, who are not same way with developers may take a little bit more work with developers for the secretary of state’s website and find you can go to contractor pages at Levelset. We can tell you that too, but due diligence will help prevent those problems.

Mark Cobb:

All right. Uh, melody asks, will there be any conditional and an income and an unconditional waiver or will they be one in the same? They’re one of the same they’re substantially, same idea I expressed before there can nail starting January 1st, lien waivers will be conditioned upon payment for 90 days on the 90th day, they will convert to unconditional, but only as to lien rights. Thank you. Uh, Pam asked some contractors have multiple waivers. They require per their contract. Does the Georgia lien waiver supersede all others? Great question. Um, the others are not enforceable in Georgia, so I kinda don’t care whether I tend to not care. My clients sign it as to lien waivers. You do have to be careful though, and still review what they say, because you may be waving other things besides the lien rights. And those might be enforceable in Georgia. So example,

Seth Bloom:

You might be waiving rights to file a personal injury claim or theft or damage claim, um, which is unrelated to lien rights. Okay. Um, some of these questions have been answered. So I’m just trying to, this is a good problem to have, uh, what is the deadline from the last date of furnishing with and without a bond on pro well, on public projects, you have to give notice within 90 days of the last day of furnishing. If you make a claim against the bond on private projects, everyone I’ve ever seen has been 90 days, but on private projects, you are dealing with a private contract between an owner or GC and the insurance company. There’s no statutory language that dictates how long it must be. So in theory, they could, um, in a private project, reduce that period or expand that period.

Seth Bloom:

Um, going through these probably gonna wind down the questions are a few minutes over 10 30, um, should general contact has changed its lien waiver forms in the middle of a project. I think they’ll have to do that. I would have one form through December, the new form of January. Okay. Uh, first tier subcontractors and suppliers are not required to file notice to owner slash notice to contractor, correct? That is correct. Mark. This is like a bar exam. I passed you. I mean, so far I’m not, I’m going to cross reference in you, but, uh, it sounds like you know what you do. And so everyone out there, if they, if they need someone that really understands this work, it’s clear that Mark has a mastery of it because I know we’re thrown at them a whole lot of questions in different areas, but we really appreciate it.

Seth Bloom:

Mark, is there any other stuff you have to say or final words and, um, um, there’s a few questions that are still left, but I think we’ve answered most of them. And I just want to tell everyone out there, you know, go to levelset.com You hit ask a question. You can post these wherever you are at Georgia. Um, get other lawyers to answer the questions or call Mark directly up at the comp firm and, uh, you know, hire him, tell him you need a lawyer, you got some problems. Uh, hopefully he can, uh, you know, help, uh, navigate those. So Mark, is there anything else you have? Uh, and I know there’s still questions coming in here. Uh, but I think, you know, most of them have been answered. Um, well, what Sherry, let me get, let me go to Sherry real quick. Sherry.

Seth Bloom:

She goes, does the current 60 day timeframe or the new Nate 90 day timeframe still start from the last day you were on the property? No good question. As it relates to lean waivers, it starts from the date of the lien waiver. So in theory, you’re doing a lien waiver every month with each pay app. And so it’s, it’s, you’re always having, you’re having to constantly monitor the date of the lien waiver and when the payment arrives and whether or not you need to file an affidavit of mom pain. Right? Well, Mark, um, everyone could get your information directly from this slide. Uh, you know, they can also go to Levelset and post questions. Uh, we look forward to working with you and your whole firm and, uh, developing a closer relationship and getting some of your thought leadership and all the great things that you’re doing in Georgia and, uh, helping clearing this up for people and really help contractors and subcontractors and really the whole construction industry with, uh, navigating this new law. So thank you so much. We really appreciate it. Well, thank you, sir. Thank you. And seriously, anybody email me, call me. I’ll be glad to, to ask the question as best as I can.