• Georgia Enacts H.B. 434 Permitting Mechanic’s Liens for Full Contract Balances
  • May 8, 2013 | Authors: Jason D. McLarry; Frank E. Riggs
  • Law Firm: Troutman Sanders LLP - Atlanta Office
  • Today, in a significant development for the Georgia construction industry, Georgia Governor Nathan Deal signed into law House Bill 434 to clarify the monetary sum a lien claimant may recover in a lien foreclosure action. The legislation is a direct response to last summer’s Georgia Court of Appeals decision in 182 Tenth, LLC v. Manhattan Construction Co., , which limited the value of a mechanic’s lien to the value of labor and materials that “actually went into and became a part of the property.” Today’s enactment of H.B. 434 re-establishes the purpose of the Georgia lien law as securing payment for construction services in accordance with agreed contractual amounts. Those lienable amounts now may include contractor and supplier general conditions, other off-site support costs, profit, and pre-judgment interest established by contract.

    In 182 Tenth, the lien claimant, Manhattan Construction Company, identified by the Court of Appeals as the “general contractor” on a large construction project, had submitted a number of monthly progress payment applications pursuant to the terms of the contract that had not been paid, totaling $2,126,148.00. Manhattan filed a claim of lien for that total principal amount certified by the project architect as due under the contract. This amount included at least $1,019,613 allocated to project overhead costs and characterized as “general conditions.” Those costs included the costs of the general contractor’s on-site staff, preconstruction, mobilization, home office support for the project, phone, water, power, job-site trailer, safety, job toilets, office supplies, computers, small tools, fuel and oil, temporary road, progress photos, postage/courier, sidewalk barricades, job site communications, temporary fence, job signage, cleanup crew, dumpster rentals/pulls, final clean, unit certifications, builder's risk insurance, and general liability insurance. The Court of Appeals described these as “overhead costs to manage the job site.” 

    At trial, a jury found that Manhattan was entitled to foreclose on its lien claim for the full principal amount of $2,126,148. The Court of Appeals, however, reversed this judgment ruling that the general condition costs were not lienable because they were not “labor, services, or materials which actually went into and become a part of the property.” The Court of Appeals also found that “interest due on the unpaid payment applications was not a lienable item.” As a result, the Court excluded from the lien amount over half of the contractor’s claim for payment pursuant to the contract terms. The construction industry viewed this interpretation as incorrect and contrary to established legal application of the lien law. It was particularly troubling to general contractors who incur substantial off-site costs for management, administration and insurance coverage for large projects. In this regard, HB 434 recognizes modern construction practices and is intended to return the state of the law regarding lienable contract services to what the construction industry generally thought it was prior to the 182 Tenth decision.

    With the enactment of H.B. 434, Georgia Code Section 44-14-361 now includes two new subsections clarifying that:

    (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.