By David L. Walker, Jr.
Most contractors understand that Georgia law allows them to file a Materialmen's Lien to secure their right to payment when they have provided materials or labor to improve real property, whether it be in the form of site development, building construction, engineering and architecture, or some other form of land-improving activity. Similarly, most contractors are aware that Georgia law provides them a period of ninety (90) days from the date they "completed the work" to file a lien to secure their position. However, I have observed that many contractors are not aware that the ninety (90) day period to file a lien is irreversibly reduced – often with draconian consequences – when they execute an "Interim Lien Waiver" during the course of their work.
While a lien waiver is designed to protect a developer or General Contractor ("GC") who pays its subcontractors in due course and in good faith, some unscrupulous developers and GC's have used this process to take advantage of unwary contractors. Although these individuals may be a blight on the construction industry, the Courts have nonetheless ruled in their favor by enforcing the statutory language contained in interim lien waivers to the detriment of unsuspecting contractors.
As most contractors know, it is a common procedure for GC's to require contractors to file monthly pay applications, which include – among other things – an itemization of the work the contractor has performed in the preceding month and an Interim Lien Waiver pursuant to O.C.G.A. § 44-14-366. In substance, the lien waiver is a sworn statement from the contractor, by which it waives all of its lien rights in exchange for payment that is due and owing from the GC or developer.
The principle behind the requirement is that a GC and/or developer is entitled to require a contractor to affirm under oath that all of its lien claims, including those of its vendors and subcontractors, will be satisfied when payment is rendered, thereby protecting the GC and developer from unforeseen liabilities. This is a laudable goal and a fair expectation to GC's and developers in their dealings; however, the language of the Interim Lien Waiver form that is promulgated in O.C.G.A. § 44-14-366 also contains the following language:
NOTICE: WHEN YOU EXECUTE AND SUBMIT THIS DOCUMENT, YOU SHALL BE CONCLUSIVELY DEEMED TO HAVE BEEN PAID IN FULL THE AMOUNT STATED ABOVE, EVEN IF YOU HAVE NOT ACTUALLY RECEIVED SUCH PAYMENT, 60 DAYS AFTER THE DATE STATED ABOVE UNLESS YOU FILE EITHER AN AFFIDAVIT OF NONPAYMENT OR A CLAIM OF LIEN PRIOR TO THE EXPIRATION OF SUCH 60 DAY PERIOD.
It is the duty of every contractor to protect itself by understanding the import and implications of executing such an interim lien waiver. Once a contractor executes a lien waiver, it no longer has ninety (90) days from the date the work has been completed to file a lien, but rather, its lien rights are thereafter reduced to only a sixty (60) day period from the date an Interim Lien Waiver is executed. After that 60-day period has run, regardless of whether the contractor has actually been paid, it will be "conclusively deemed to have been paid."
No contractor should ever rely on others to look out for its business interests, and accordingly, every contractor MUST institute a protocol for monitoring payment. On each and every job where an Interim Lien Waiver has been submitted, ensure that either payment is collected or a lien or affidavit of nonpayment is filed prior to expiration of the sixty (60) day period following the execution of each Interim Lien Waiver that was submitted. By exercising such diligence, a contractor can protect itself from this threat. Any contractor who fails to implement procedures and protect itself is playing Russian Roulette with its revenues and is a sitting duck for the consequential peril that can occur.
David L. Walker, Jr. is a partner with Flint, Connolly & Walker, LLP. His legal practice is focused on collaborating with business owners, mid-sized and closely held corporations, as well as real estate owners, developers, and contractors. David has a depth of knowledge in the areas of construction law, contracts, and various matters related to the business operations of employers and business owners.