Builders Liens (Script 268)
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- 1 What is a builders lien?
- 2 Who can file a builders lien?
- 3 Why file a builders lien?
- 4 How does a lien claimant file a lien?
- 5 What are the time limits to file a lien?
- 6 What must a claimant do after filing a lien?
- 7 What can a landowner do to remove a lien?
- 8 Can a landowner—or others on the project—speed things up?
- 9 What happens in court?
- 10 How does the Act help claimants get money owed to them?
- 11 Are there other holdbacks?
- 12 How can a contractor or subcontractor speed things up?
- 13 What is the trust fund?
- 14 Summary
What is a builders lien?
A builders lien is also known as a lien on land. It secures a claim for payment for work done on—or materials supplied to—a construction project or for repairs or renovations made to an existing structure. When a lien is registered in the Land Title Office, it becomes a charge against the title to the land or property involved.
Builders liens can be an effective tool to recover unpaid debts owed to contractors and material suppliers. But because the law is complex and filing accurately completed forms within the required deadlines is important, you should get legal advice when filling a builders lien.
Who can file a builders lien?
People and companies can claim a lien if they are any of the following:
- workers on a construction project.
- suppliers of materials (including renters of equipment) used on a project.
- contractors hired by the landowner to work on the project.
- subcontractors hired by the contractor or by other subcontractors to work on the project.
- engineers and architects on the project.
However, a person who performs or provides work or supplies material to an architect, engineer or material supplier can’t file a builders lien.
Why file a builders lien?
A lien claimant can file a builders lien to secure payment for work done on—or material supplied to—an improvement to land, such as a construction project. A large construction project is like a pyramid, with a developer (usually a landowner) at the top. The landowner may handle the construction personally, or hire a general contractor. The general contractor may hire several subcontractors such as a plumber, electrician, and so on. Those subcontractors may in turn hire workers and material suppliers. Somewhere in this chain of contracts, someone may not get paid.
The BC Builders Lien Act (the Act) helps those who have worked on a construction project or supplied material to it, but haven’t been paid. Under this law, they can file a charge against the property to secure payment of the money owed to them.
But a builders lien is not always good security. When a project fails, those who have filed liens often receive only a fraction of what they are owed. The right to file a builders lien is no substitute for careful credit-granting practices. And people on a construction project who have not been paid have other options to collect money owing to them. They can sue the company or person who hired them, or anyone who guaranteed the debts or contractual obligations of that company or person. They can also make a claim against any bond that a contractor or subcontractor provided for the project. And they can make a claim against anyone who breached the trust provisions of the Act. Script 250, called “Collection of Debts” has more on this. It’s a complex area of law. For legal advice, consult a lawyer.
How does a lien claimant file a lien?
A claimant can file a lien personally or have a lawyer file it. The lien claimant must fill out a completed Claim of Lien (Builders Lien Act Form 5) and file it in the Land Title Office where the land is registered. It is important to complete the form accurately. The lien claimant has to pay for preparing and filing a lien. But they can claim these costs if the lien is proven.
To file a lien, you need the legal description of the project site—a street address is not enough. You can go to BC Assessment Authority’s area office to get free information on the legal description. Office locations are listed on the website. You can also get information from BC Assessment online, for a charge, as its website explains. Lawyers can also provide the legal address.
What are the time limits to file a lien?
Claimants must act quickly to file a lien. If they wait too long, they lose the right to do so. Generally, the deadline to file a lien is 45 days after the project is substantially completed, abandoned or ended. But it may be necessary to file sooner.
Three different events can start the clock running to file lien:
- a “certificate of completion” is issued
- the head contract is completed, abandoned, or terminated (if there is a head contract)
- the improvement is completed or abandoned (if there is no head contract)
Simple completion, termination, or abandonment of a subcontract, or a contract that is not a head contract, will not itself start the clock running to file a lien.
Once a “certificate of completion” is issued for a contract or subcontract, then the deadline is 45 days from the date the certificate was issued. Condominium projects and mines and quarries have different deadlines. Because the deadlines are short and can be confusing, it’s good to file the lien well before a deadline. The deadline is strict: a court cannot extend it.
Even if a claimant has not filed a lien within the time limit, they may still be able to file a lien against holdback funds that have not yet been distributed. This is often called a Shimco claim. To do this, the claimant must start a lawsuit in BC Supreme Court. The holdback fund is discussed below.
What must a claimant do after filing a lien?
A claimant must sue in BC Supreme Court to enforce the lien and prove it is valid. The lawsuit must be started in a Supreme Court Registry near the property. In other words, lawsuits to prove builder’s liens can be filed only at the Supreme Court, and only in the same jurisdiction as the land which the lien will be placed on. A claimant should get legal advice if it’s not clear which court registry is the right one.
A claimant must also file a “certificate of pending litigation” (CPL) against the property in the Land Title Office after filing the lawsuit in Supreme Court.
A claimant must do both these things (sue and file the CPL) within a year of filing the lien or else the lien is no longer valid.
Because a builders lien is registered against the land, it can interfere with the landowner’s ability to sell the property or maintain mortgage financing for the project. This may encourage the landowner to take steps to “clear” the lien, which may involve paying the lien or providing other security.
What can a landowner do to remove a lien?
A landowner may not want to pay off the lien if there is a dispute about whether it is valid. Or a landowner may not be the person in default—for example, the lien claimant supplied materials to a subcontractor who has not paid for them. But in either case, a landowner may not want the property tied up in a long court battle that interferes with selling or mortgaging it. The Act lets a landowner pay money into court—either the full amount of the lien or a smaller amount linked to the holdback kept from the person who owes the money. The court can then order the lien and CPL to be removed from the property. Then the lien has no further effect on the property. The money paid into court is held as security for the lien—to be paid to the claimant if the lien is eventually proven.
A land title search will typically show whether a lien has been filed against a property.
Can a landowner—or others on the project—speed things up?
Yes, a landowner, or other people involved in the project, can give the lien claimant a written notice to speed up the process. If this happens, the claimant must start the lawsuit and file the CPL within 21 days, instead of the usual year. If the claimant misses this time limit, the lien is removed. The court cannot extend the 21 days. But a claimant may still have a valid Shimco claim against the holdback fund, explained below. In other words, there is no specific time limit to bring a claim against the holdback monies provided they haven’t been paid out.
What happens in court?
If the landowner doesn’t pay the lien, and the court decides it is valid, the court may order the sale of the property and the use of the sale proceeds to pay the lien. But if the court decides the lien is not valid, it will remove the lien, and it may order the claimant to pay the landowner’s costs resulting from the lien and the court case.
Sales of property to pay liens are actually quite rare. More often, if liens are proven, the amount of the holdback fund available to satisfy the liens is calculated. Then the parties negotiate and the lien claimants are paid their proportionate share of the available holdback funds.
How does the Act help claimants get money owed to them?
Sometimes, the landowner will properly pay its contractors (or its head contractor) but one or more of them won’t pay its subcontractors or they won’t pay their workers or suppliers. All the unpaid parties could then file liens and the landowner would have to pay all of them too. It wouldn’t be fair to make the landowner pay twice, so the Act uses a system called the “holdback” to protect the landowner if the general contractor or a subcontractor defaults, or does not pay what they owe.
The landowner must hold back 10% of the contract price until 55 days after the general contract is substantially completed, abandoned, or otherwise ended. If the total project is over $100,000, the landowner must pay the 10% holdback into a holdback account at a bank or savings institution, administered jointly by the landowner and the contractor. After the 55 days are up, if no liens have been filed within the 45-day limit and no lawsuit making a Shimco claim has been started, the landowner can pay out the 10% holdback to the contractor. But if any liens have been filed, the holdback may be used to help pay these liens.
Often, the total of all liens filed by all claimants is greater than the holdback. The landowner does not have to pay lien claimants more than the holdback amount (plus any other money owed to the contractor and not needed to complete the contractor’s work or fix deficient work by the contractor). So claimants may receive only part of their lien—it depends on the details of the case. The Act sets out how claimants share the holdback.
Are there other holdbacks?
BC has a multiple holdback system. So contractors and subcontractors must also hold back 10% from any subcontractors they hire. But no holdback can be kept from workers, material suppliers, architects, or engineers—they must be paid in full. The value of these holdbacks may limit the amount a lien claimant can recover under the Act.
How can a contractor or subcontractor speed things up?
Contractors or subcontractors who have finished their part of a project may not want to wait until the whole project is done to get the 10% held back from them. The Act allows a holdback to be released 55 days after a certificate of completion is issued for their work. If the architect issues a certificate of completion for their contract or subcontract, the person can get their holdback 55 days after the certificate is issued—unless any liens have been filed within the 45-day time limit or any Shimco lawsuits have been filed against the holdback.
What is the trust fund?
The Act says that all money received by a contractor or subcontractor is a trust fund for the benefit of the people or companies hired for the project by the contractor or subcontractor. Contractors or subcontractors must pay for everything they owe for work and materials supplied for the project ' before they can use the money for anything else. If they don’t, they may be in breach of trust and their directors and officers may be personally liable.
Builders liens can be very complicated. You should get prompt legal advice if you are not sure of your position.
[updated November 2016]
The above was last reviewed for accuracy by Anna Kurt and edited by John Blois.
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