Ch. 18 - Construction Liens Flashcards
Construction Lien
(aka Bidders’ lien) is a charge or claim against real property that has been improved by construction. Must be registered in appropriate land registry office. Motive is to make property difficult to sell/borrow against until lien is removed, forcing owner to deal with the claim. On most projects, work is done in advance of payment (on credit). Liens prevent contractor/suppliers performing work and not getting paid for the work completed. Money stops flowing as soon as lien in place. Lien claimant may ultimately force the sale of the property to satisfy the lien (rare).
Lien
A charge or claim against property
Cause of Action
the right to sue against the owner’s property through legislation, even though the lien claimant may not have contracted directly with the owner. Rationale behind this remedy is that the owner’s property value has increased due to the labor or material of the claimant.
Trust Provision of a construction lien statute
a clause that creates a trust such that funds received by a contractor or subcontractor are designed as trust funds, obliging the contractor (trustee) to use those funds to pay subcontractors, workers, and suppliers working under the contractor (beneficiaries). Terms require contractor to pay all beneficiaries before using any of the funds for any other purpose. Trust provisions do NOT guarantee pay for all subcontractors/suppliers.
Holdback
(aka retainage) A portion of the contract price kept out of the hands of the contractor & subcontractors until the project is complete to determine whether the other parties have been paid. Typically 10%. All statutes contain requirements. guarantees that some money will be available to pay out liens, but doesnt guarantee money for all claimants.
Multiple Holdback system
a legislative requirement for the owner, contractor, and all subcontractors to retain the 10% holdback from others below them on the construction project. Ontario, Sask, & BC use this.
Statutory Declaration
a sworn document declaring that, to the best of the knowledge of the declarant, all the financial obligations of the subcontractor have been met, including payments to workers, subcontractors, suppliers, assessments of all authorities having jurisdiction, such as workers’ compensation premiums & taxes. A person who knowingly swears a false statutory declaration could face criminal charges for perjury. Can be used as a precaution for contractors to not have to pay twice if a subcontractor doesnt pass the money down the contractual chain.
Lien Legislation
all provinces have construction lien legislation. Provides security of payment for contractors, subcontractors & suppliers. Facilitates credit in the construction industry. Outlines time limitations and procedural requirements. May also state what land registry and court registry must be used & how docs must be notarized. Lien statutes often allow the owner or contractor to remove a lien by providing alternate security (e.g. cash, letters of credit, lien bonds) for the claim and allows flow of funds to continue; the lien is then secured by the alternate security.
Architects and Engineers under BC’s Builder’s Lien Act
An architect or engineer who merely provides drawings but does not set foot on site is still providing “services” and is entitled to a lien, as long as that architect or engineer is not a sub-consultant and the services are in relation to an “improvement” as defined by the Act.
Perfecting the Lien
until a lien claim is proved in court, a claim of lien remains only a claim until claimants commence legal action and prove their claims. to perfect the lien, need to prove work was performed or material supplied to specific “improvement” and complied with construction lien act. Lien claim only lasts one year - must start lawsuit before or may be responsible for damages to the owner. Not enough for supplier claimant to show that material was supplied to a contractor who worked on the improvement if it is possible that the material was used on another project.
Subcontractor definition in Act
a person engaged by a contractor or another subcontractor to do one or more of the following in relation to an improvement: (a) perform or provide work; (b) supply material; but does not include a worker or a person engaged by an architect, an engineer, or a material supplier.
Who may claim a Lien?
Claimants typically include workers, contractors, subcontractors, material suppliers & may include engineers and architects. lien claimant need not be in contractual privity (a relation recognized by law) with the land owner.
Breach of trust consequences
one is quasi-criminal penalty, which is a fine or jail term specified in a statute other than the Criminal Code.
Lien priority
Liens will take priority over subsequent interests in the land. If property is sold with registered lien, lien claimant must be paid out of the proceeds first in accordance with the lien’s priority. Priority depends on timing of registration and, sometimes, on when the work the lien relates was commenced. Priority determines the order in which parties get paid out.
Liens on holdbacks
In BC, liens can be filed against holdbacks. The lien against the holdback must be filed before the holdback is paid out; this will be after the time for filing liens against the land has expired & so it gives parties who missed the first deadline another opportunity to file a lien.
