Builders Liens (No. 268)
|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.
- 1 Understand the legal framework
- 1.1 A builders lien can help someone get paid for work or materials provided to a construction project
- 1.2 Who can claim a builders lien
- 1.3 Why someone might file a builders lien
- 1.4 If someone files a builders lien
- 1.5 The owner must hold back 10% of the contract price, in case there are liens
- 1.6 Contractors must hold back 10% from any subcontractors they hire
- 2 The steps to enforce a builders lien
- 3 Common questions
Understand the legal framework
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. The Builders Lien 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 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.
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.
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.
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 by permitting 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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