The worst news for an owner of real property (Owner) that is being developed for commercial use is that a lien has been filed against that property. Once a lien is filed, the Owner’s lender may stop approving draw requests until the lien is discharged. To avoid curtailing the flow of funds, it is critical that the Owner take all necessary steps to protect itself from potential lien claims and ensure that the Owner has remedies available if a lien is actually filed. This means including provisions in construction contracts to make sure that (1) the Owner can pay subcontractors and suppliers directly or by joint-check if necessary; (2) the contractor is required to bond off any liens filed by subcontractors or suppliers and to indemnify the Owner against any costs Owner incurs because of the lien; and (3) the Owner has the right to withhold payment from the contractor to cover the costs associated with Owner bonding off the lien.
For projects located in Georgia, the Owner should file, or require its contractor to file, a Notice of Commencement no later than 15 days after the work at the site starts. Recording the Notice of Commencement and posting a copy at the project site provides the Owner with protection from lien claims filed by lower-tier subcontractors by requiring those downstream entities to comply with extra procedural requirements before they are eligible to file liens against the project.
The Owner should also make sure that its contractor is regularly submitting the appropriate lien waivers on behalf of itself as well as all of its subcontractors and suppliers with each Application for Payment. As subcontractors and suppliers complete their scope of work for the project, the Owner should verify that the contractor has submitted final lien waiver forms on behalf of those subcontractors and suppliers. Once the project has been completed and the Work fully performed, the contractor should submit a final lien waiver and a final affidavit confirming the contractor has been paid all amounts owed for the performance of its services as part of the documentation closing out the construction of the project.
