This week Governor Nathan Deal signed Georgia HB 434 which amended the Georgia Lien Law to allow lien claimants to include overhead costs and interest in amounts claimed in mechanic’s and materialman’s liens.
As I discussed in my last post, the changes were sought by contractor groups to overcome a 2012 decision of the Georgia Court of Appeals that specifically held that overhead and administrative costs were not lienable. See 182 Tenth, LLC v. Manhattan Construction Company.
Problem solved, right?! Not exactly.
Unfortunately, the new language potentially causes new problems and case-by-case litigation over whether certain costs are lienable. This is because the standard now for determining the amount of the lien is “the amount due and owing the lien claimant under the terms of its express or implied contract, subcontract or purchase order.” O.C.G.A. §44-14-361(c).
This change appears to make the lien claimant’s contract the controlling authority on what amounts are lienable rather than looking to statutory definitions or references for that answer. This would be a significant departure from how the Georgia Lien Law has been interpreted in the past. And, more importantly, it will turn the issue of “what is lienable” into a case-by-case determination.
What is “due and owing?”
Here are a few situations that I think will arise as a result of the new statutory language:
- We now know that interest can be included in the amount of the lien, but at what rate? The new Lien Law is not clear on that issue. If the contract contains an interest clause, then presumably the contract rate would apply, but often contracts do not provide for interest on unpaid amounts. If that is the case, should the general pre-judgment interest rate apply, the rate for commercial accounts, or should the interest rate of the Georgia Prompt Pay Act apply?
- Another issue that will almost certainly be raised by this new language is whether attorneys’ fees can be included in a lien if the lien claimant’s contract allows recovery of attorneys’ fees. But, what if the contract allows for recovery of attorneys’ fees only if the lien claimant prevails?
- Historically, delay damages for extended overhead and idle equipment have not been lienable because these were not labor and materials that were actually incorporated into the project. However, it is at least arguable now that a lien claimant can include delay damages if its contract allows recovery of delay damages. However, what if the lien claimant is a subcontractor whose contract provides that the sub recovers delay damages only to the extent that the prime contractor recovers from the owner, but it has not yet been determined that the delay was caused by the owner or that the prime will recover delay damages from the owner?
There is a potential here for contractors to use this new and untested language to inflate or exaggerate the liens by including significant amounts for items that are actually in dispute. For example, claims for delay damages and attorneys’ fees can outsize contract balances and change orders by exponential amounts. If this starts to happen, expect owners to take action—either by seeking relief from the courts in the form of penalties or damages for overstated liens, or by lobbying the Georgia Legislature for further amendments to the Georgia Lien Law that provides better guidance as to what items are lienable.