Difference between revisions of "Builders Liens"

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Occasionally, those who work or supply materials on a construction project aren’t paid for the work or materials supplied. A '''builders lien''' can help them collect the money they’re owed.


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==What you should know==
==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.
===A builders lien can help someone get paid for work or materials provided to a construction project===
[https://www.canlii.org/en/bc/laws/stat/sbc-1997-c-45/latest/sbc-1997-c-45.html#sec2_smooth The ''Builders Lien Act''] gives an individual or company a '''lien''' for money they are owed for work or materials supplied on a construction project. This law gives them a lien on the building, the owner’s interest in the building, the land involved, and the materials supplied.


==Who can file a builders lien?==
When a builders lien is '''filed''' in the land title office, it becomes a charge against the title to the land which was improved by the work or materials.
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.
A builders lien can be an effective tool for those who provided work or materials on a construction project to recover money they’re owed.


==Why file a builders lien?==
===Who can claim 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.
An individual or company can claim a builders lien if they are any of the following on a construction project:


The [http://www.bclaws.ca/civix/document/id/complete/statreg/97045_01 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.
* workers on the project
* suppliers of materials (including renters of equipment) used on the project
* contractors hired by the owner to work on the project
* subcontractors hired by the contractor or by other subcontractors to work on the project
* engineers or architects on the project


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 [[Collection of Debts (Script 250) | 250]], called “Collection of Debts” has more on this. It’s a complex area of law. For legal advice, consult a lawyer.  
However, a person who performs work or supplies material to an architect, engineer or material supplier can’t claim a builders lien.


==How does a lien claimant file a lien?==
===Why someone might file a builders 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'' [http://www.bclaws.ca/civix/document/id/complete/statreg/1_98 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.
A lien claimant can file a builders lien in the land title office to secure payment for work or material supplied to a construction project.


To file a lien, you need the legal description of the project site—a street address is not enough. You can go to [http://www.bcassessment.ca/ BC Assessment Authority]’s [http://www.bcassessment.ca/contact-us 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.  
A large construction project is like a pyramid. The owner or developer is at the top. They may hire a general contractor. The general contractor may hire several subcontractors to handle specific parts of the job, such as concrete work, plumbing, electrical work, and so on. Those subcontractors may in turn hire workers and material suppliers. Somewhere in this chain of contracts, someone may not get paid.


==What are the time limits to file a lien?==
[https://www.canlii.org/en/bc/laws/stat/sbc-1997-c-45/latest/sbc-1997-c-45.html The ''Builders Lien 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 land which was improved by the work or materials, to secure payment of the money owed to them.
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 lien claimant 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. We explain the process to file and enforce a builders lien shortly.
# 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.
===If someone files a builders lien===
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 a construction project. This may encourage the landowner to take steps to clear the lien, which may involve paying the lien or providing other security.


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.  
That said, a landowner may not want to pay off the lien if there is a dispute about whether the claim is valid. Or the landowner may not be the person in default — for example, the lien claimant may have supplied materials to a subcontractor who has not paid for them.


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.  
In situations like these, the landowner may not want the property tied up in a long court battle that interferes with selling or mortgaging it. [https://www.canlii.org/en/bc/laws/stat/sbc-1997-c-45/latest/sbc-1997-c-45.html#sec23_smooth Under the ''Builders Lien Act''], a landowner can apply to '''pay money into court''' — either the full amount of the lien or a smaller amount linked to the amount held back from the person who owes the money (we explain the holdback scheme shortly).


==What must a claimant do after filing a lien?==
The court can then order the lien to be removed from the title of 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 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.  
{| class="wikitable"
|align="left"|'''Tip'''
A land title search will typically show whether a builders lien has been filed against a property.
|}
===The owner must hold back 10% of the contract price, in case there are liens===
On a construction project, an owner could pay the contractor in full, only to see the contractor default on its payment to a subcontractor. Or a subcontractor might fail to pay its workers or suppliers. If all the unpaid parties filed liens, the owner would potentially have to pay twice — once to the contractor and again to the lien holders.


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.
To avoid this unfairness, the ''Builders Lien Act'' requires an owner to hold back 10% of each payment to the contractor in a special account so there is money available for payment of liens. This is called the '''builders lien holdback'''.


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.  
The owner must hold back 10% of the contract price until 55 days after the general contract is substantially completed, abandoned, or otherwise ended.


==What can a landowner do to remove a lien?==
After the 55 days are up, if no liens have been filed within the 45-day limit (and no lawsuit making a lien claim has been started), the owner 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.
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 apply to court to 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.  
Often, the total of all liens filed by all claimants is greater than the holdback. The owner does not have to pay lien claimants more than the holdback amount. 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.


==If a lien is filed based on false information==
===Contractors must hold back 10% from any subcontractors they hire===  
Under [http://www.bclaws.ca/civix/document/id/complete/statreg/97045_01#section45 section 45] of the Act, a person who knowingly files a lien with a false statement could be fined up to $2000 plus the amount by which the lien exceeds the actual claim. And the person could be liable for damages for abuse of process and slander of title.  
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 ''Builders Lien Act''.


==Can a landowner—or others on the project—speed things up?==
====A contractor or subcontractor can 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.
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 lawsuits have been filed against the holdback.


==What happens in court?==
==The steps to enforce a builders lien==
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.  
===Step 1. A lien claimant files a builders lien===
To file a builders lien, the lien claimant must fill out a '''claim of lien''' ([http://canlii.ca/t/84px in Form 5]). The claimant must file this form in the land title office where the land involved is registered. The form must include the legal description of the project site — a street address is not enough. [https://www.bcassessment.ca/ You can get the legal description from BC Assessment].


==How does the Act help claimants get money owed to them?==
Generally, the deadline to file a lien is '''45 days''' after the project is substantially completed, abandoned or ended. One of the events that can start the clock running to file a lien is when a '''certificate of completion''' is issued for a contract or subcontract. Then the deadline is 45 days from the date the certificate was issued.
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.
{| class="wikitable"
|align="left"|'''Tip'''
Even if a claimant has not filed a lien within the time limit, they may be able to sue in court for a portion of any holdback funds that have not yet been distributed. As builders liens involve legal complexities, tight filing timelines, and detailed paperwork, it’s wise to get legal advice.
|}
===Step 2. The lien claimant sues to prove the builders lien===
A lien claimant must sue in court to enforce the lien and prove it is valid.


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.  
The lawsuit must be started in a Supreme Court registry near the property. The claimant must also file '''a certificate of pending litigation''' against the property in the land title office after filing the lawsuit.


==Are there other holdbacks?==
A claimant must do both these things (sue in court and file the certificate of pending litigation) within '''one year''' of filing the builders lien. If they don’t, the lien is no longer valid.
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?==
====A landowner — or others on the project — can 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.
A landowner, or other people involved in the construction 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 certificate of pending litigation within '''21 days''', instead of the usual year. If the claimant misses this time limit, the lien is removed.


==What is the trust fund?==
===Step 3. The court decides on the lien’s validity===  
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 '
If the lien claimant’s lawsuit reaches a court hearing, the court decides whether the lien is valid. If the court finds the lien is valid, the court may order the '''sale of the property''', and the use of the sale proceeds to pay the lien. If the court decides the lien is not valid, it will remove the lien.
''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.


==Summary==
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.
Builders liens can be very complicated. You should get prompt legal advice if you are not sure of your position.


==Common questions==


[updated July 2018]  
===I am buying a new home. Should I be worried about builders liens?===
Yes. If you buy the home within 45 days of its completion, there could be lien claims filed after you become the owner. You could be in the position of having to pay the liens, even though you already paid the purchase price in full. [https://www.canlii.org/en/bc/laws/stat/sbc-1997-c-45/latest/sbc-1997-c-45.html#sec4_smooth The ''Builders Lien Act'' has provisions that deal with this problem]. These permit buyers to hold back 10% of the purchase price from the seller until the time for filing liens expired. '''But these provisions have ''not'' been proclaimed'''. As a result, you must ensure your contract permits you to hold back funds if the time for filing liens has not expired by closing.


'''The above was last reviewed for accuracy by Anna Kurt and edited by John Blois.'''
===I’m doing a home renovation. Do I need to arrange for a special holdback account?===
 
The ''Builders Lien Act'' requires an owner to hold back 10% of each payment to a contractor for a period of time, so there is money available for payment of liens. The holdback must be placed in a special account for each contract. The requirement for a special account does '''not''' apply where the value of work and material supplied is less than $100,000. This is often the case with a home renovation. (To be clear: the requirement to hold back 10% does apply; the requirement for a special account does not apply.)
----
----


===What is meant by the term “trust fund” in the builders lien context?===
The ''Builders Lien Act'' says that money received by a contractor or subcontractor for work done constitutes a '''trust fund''' for the benefit of people they hire on the project. Trust funds cannot be used to the personal benefit of a contractor or subcontractor until they pay the people they hire on the project. A contractor or subcontractor who does not follow these trust rules may be personally liable for '''breach of trust'''. This is sometimes a way for lien claimants who are not fully paid using their lien rights to recover further amounts owed to them.


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Revision as of 02:29, 6 October 2020

This information applies to British Columbia, Canada. Last reviewed for legal accuracy by Anna Kurt, Garapathi Law group in July 2018.

Occasionally, those who work or supply materials on a construction project aren’t paid for the work or materials supplied. A builders lien can help them collect the money they’re owed.

What you should know

A builders lien can help someone get paid for work or materials provided to a construction project

The Builders Lien Act gives an individual or company a lien for money they are owed for work or materials supplied on a construction project. This law gives them a lien on the building, the owner’s interest in the building, the land involved, and the materials supplied.

When a builders lien is filed in the land title office, it becomes a charge against the title to the land which was improved by the work or materials.

A builders lien can be an effective tool for those who provided work or materials on a construction project to recover money they’re owed.

Who can claim a builders lien

An individual or company can claim a builders lien if they are any of the following on a construction project:

  • workers on the project
  • suppliers of materials (including renters of equipment) used on the project
  • contractors hired by the owner to work on the project
  • subcontractors hired by the contractor or by other subcontractors to work on the project
  • engineers or architects on the project

However, a person who performs work or supplies material to an architect, engineer or material supplier can’t claim a builders lien.

Why someone might file a builders lien

A lien claimant can file a builders lien in the land title office to secure payment for work or material supplied to a construction project.

A large construction project is like a pyramid. The owner or developer is at the top. They may hire a general contractor. The general contractor may hire several subcontractors to handle specific parts of the job, such as concrete work, plumbing, electrical work, 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 Builders Lien 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 land which was improved by the work or materials, to secure payment of the money owed to them.

A lien claimant 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. We explain the process to file and enforce a builders lien shortly.

If someone files a builders lien

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 a construction project. This may encourage the landowner to take steps to clear the lien, which may involve paying the lien or providing other security.

That said, a landowner may not want to pay off the lien if there is a dispute about whether the claim is valid. Or the landowner may not be the person in default — for example, the lien claimant may have supplied materials to a subcontractor who has not paid for them.

In situations like these, the landowner may not want the property tied up in a long court battle that interferes with selling or mortgaging it. Under the Builders Lien Act, a landowner can apply to pay money into court — either the full amount of the lien or a smaller amount linked to the amount held back from the person who owes the money (we explain the holdback scheme shortly).

The court can then order the lien to be removed from the title of 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.

Tip

A land title search will typically show whether a builders lien has been filed against a property.

The owner must hold back 10% of the contract price, in case there are liens

On a construction project, an owner could pay the contractor in full, only to see the contractor default on its payment to a subcontractor. Or a subcontractor might fail to pay its workers or suppliers. If all the unpaid parties filed liens, the owner would potentially have to pay twice — once to the contractor and again to the lien holders.

To avoid this unfairness, the Builders Lien Act requires an owner to hold back 10% of each payment to the contractor in a special account so there is money available for payment of liens. This is called the builders lien holdback.

The owner must hold back 10% of the contract price until 55 days after the general contract is substantially completed, abandoned, or otherwise ended.

After the 55 days are up, if no liens have been filed within the 45-day limit (and no lawsuit making a lien claim has been started), the owner 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 owner does not have to pay lien claimants more than the holdback amount. 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.

Contractors must hold back 10% from any subcontractors they hire

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 Builders Lien Act.

A contractor or subcontractor can 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 lawsuits have been filed against the holdback.

The steps to enforce a builders lien

Step 1. A lien claimant files a builders lien

To file a builders lien, the lien claimant must fill out a claim of lien (in Form 5). The claimant must file this form in the land title office where the land involved is registered. The form must include the legal description of the project site — a street address is not enough. You can get the legal description from BC Assessment.

Generally, the deadline to file a lien is 45 days after the project is substantially completed, abandoned or ended. One of the events that can start the clock running to file a lien is when a certificate of completion is issued for a contract or subcontract. Then the deadline is 45 days from the date the certificate was issued.

Tip

Even if a claimant has not filed a lien within the time limit, they may be able to sue in court for a portion of any holdback funds that have not yet been distributed. As builders liens involve legal complexities, tight filing timelines, and detailed paperwork, it’s wise to get legal advice.

Step 2. The lien claimant sues to prove the builders lien

A lien claimant must sue in court to enforce the lien and prove it is valid.

The lawsuit must be started in a Supreme Court registry near the property. The claimant must also file a certificate of pending litigation against the property in the land title office after filing the lawsuit.

A claimant must do both these things (sue in court and file the certificate of pending litigation) within one year of filing the builders lien. If they don’t, the lien is no longer valid.

A landowner — or others on the project — can speed things up

A landowner, or other people involved in the construction 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 certificate of pending litigation within 21 days, instead of the usual year. If the claimant misses this time limit, the lien is removed.

Step 3. The court decides on the lien’s validity

If the lien claimant’s lawsuit reaches a court hearing, the court decides whether the lien is valid. If the court finds the lien is valid, the court may order the sale of the property, and the use of the sale proceeds to pay the lien. If the court decides the lien is not valid, it will remove the lien.

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.

Common questions

I am buying a new home. Should I be worried about builders liens?

Yes. If you buy the home within 45 days of its completion, there could be lien claims filed after you become the owner. You could be in the position of having to pay the liens, even though you already paid the purchase price in full. The Builders Lien Act has provisions that deal with this problem. These permit buyers to hold back 10% of the purchase price from the seller until the time for filing liens expired. But these provisions have not been proclaimed. As a result, you must ensure your contract permits you to hold back funds if the time for filing liens has not expired by closing.

I’m doing a home renovation. Do I need to arrange for a special holdback account?

The Builders Lien Act requires an owner to hold back 10% of each payment to a contractor for a period of time, so there is money available for payment of liens. The holdback must be placed in a special account for each contract. The requirement for a special account does not apply where the value of work and material supplied is less than $100,000. This is often the case with a home renovation. (To be clear: the requirement to hold back 10% does apply; the requirement for a special account does not apply.)

What is meant by the term “trust fund” in the builders lien context?

The Builders Lien Act says that money received by a contractor or subcontractor for work done constitutes a trust fund for the benefit of people they hire on the project. Trust funds cannot be used to the personal benefit of a contractor or subcontractor until they pay the people they hire on the project. A contractor or subcontractor who does not follow these trust rules may be personally liable for breach of trust. This is sometimes a way for lien claimants who are not fully paid using their lien rights to recover further amounts owed to them.

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