B.C.’s Builders Lien Act came into force on February 1, 1998. It updated and in some cases significantly changed the law under the former Builders Lien Act.
Overview of the Act
The objectives of the Builders Lien Act are to ensure that construction funds are used for their intended purpose, and to protect those who add value to a building under construction. To fulfill its objectives, the Act uses three main strategies:
1) The Act provides a form of security to contractors, subcontractors, workers and suppliers who work on a building that is under construction – the builders lien. A builders lien is a charge on property by a person who has supplied work or material to a building under construction. A builders lien may be claimed by a contractor, subcontractor or worker. These are all defined terms under the Act and may also include architects, engineers and suppliers of materials.
2) The Act creates a pool of money out of which claims may be paid, by requiring an owner to hold back 10% of each payment to the contractor – the builders lien holdback. The builders lien holdback provides two functions:
- It ensures that there is a pool of money out of which builders lien claims can be paid (although it does not guarantee payment of those claims).
- It limits an owner’s liability for lien claims. If an owner complies with the holdback provisions of the Act, his or her maximum liability for lien claims will be limited to the amount of the 10% holdback or the unpaid balance of the contract price, whichever is greater.
3) The Act helps to ensure that money intended to finance construction is used for that purpose by imposing a trust on money received by contractors and subcontractors in connection with the construction project – the statutory or deemed trust. Contractors and subcontractors are deemed to be trustees of the money received by them. The persons engaged directly by them are the beneficiaries of the particular trust fund.
Time Limits for Filing Liens and Releasing the Holdback
The Act creates a multiple holdback system, requiring a 10% holdback on each contract and each subcontract. Trades that complete their work early no longer have to wait for completion of the entire project for release of their holdback. Their lien filing period, however, is also shortened.
The deadline for filing builders liens was extended from 31 to 45 days. The time for retaining the holdback was extended from 40 to 55 days.
These time periods begin on the date a payment certifier issues a certificate of completion for a contract or subcontract. A payment certifier is a person identified in the contract or subcontract, such as an architect or engineer. If there is no such person, it is the owner alone for each contract, and the owner and contractor together for each subcontract.
If a certificate of completion has not been issued, the lien filing and holdback periods begin on the date the head contract has been substantially completed, abandoned or terminated or, if there is no head contract, on the date the improvement has been substantially completed or abandoned. The Act includes provisions that define when a contract or improvement has been completed or abandoned.
A certificate of completion will not extend the lien filing and holdback periods if time has already started to run under the previous paragraph.
For strata lots, the Strata Property Act prohibits the filing of a lien after 45 days from the date of purchase, and extends the time for retaining the holdback to 55 days after the purchase.
Obviously, the provisions for determining when the lien filing period and holdback period has expired are complex, and when in doubt legal advice should be obtained.
The Holdback Account
The owner is required to pay the 10% builders lien holdback into an account at a bank or credit union. If the owner fails to do this, the contractor can stop working and sue the owner for damages arising from the work stoppage. The Act requires that the owner and contractor administer the holdback account jointly, so any withdrawals will require the signature of both the owner and the contractor. The holdback account will be treated like a trust account. If the owner acts as the contractor, a separate holdback account will be required for every contract with the owner.
The requirement that the 10% lien holdback be paid into an actual account is a new requirement not found in the previous Act. There are two exceptions. The first is where the total value of work and materials is less than $100,000 (e.g. renovations and small projects). The second is where the owner has a construction mortgage with a “savings institution ” and authorizes the savings institution to disburse the mortgage money. In that case the lender must hold back 10% of the mortgage money from each mortgage draw, and the lender will be liable to the owner and any lien holders if it fails to fulfill its obligations in relation to the holdback.
In the past, lenders held back 10% of each mortgage draw. In most cases, lenders now advance 100% of each draw, but want to ensure that the owner pays 10% into the holdback account.
Protection for Non-Contracting Owners
Owners such as landlords who have not contracted for the work being performed on their property may now file a Notice of Interest at the Land Title Office to protect themselves from lien claims. The notice warns that the owner’s interest in the land is not subject to lien claims unless the work was done at the express request of the owner.
Priority of Mortgage Advances
Advances under a mortgage made after the filing of a claim of lien do not have priority over the claim of lien. However, the Act eliminates the problem created under a previous court case which made it impossible for a lender to advance funds to complete a project under foreclosure when liens were filed. The lender may now apply to the court for an order that subsequent advances will have priority over filed lien claims. If the court is satisfied that the advances will be applied to complete the improvement and will result in an increased value of the land and improvement at least equal to the amount of the proposed advances, the court “must” make the order.
Requests for Information
Under the Act, a lien holder and certain other parties may request information from the mortgage lender, including the terms of the mortgage and particulars of the advances made. The lender must comply within 10 days after receiving the request.
The Act contains several other changes, including a shorter limitation period for breach of trust claims, methods of applying to court to cancel lien claims, changes to the 21-day notice to lien claimants to enforce their lien, and rules on where to start legal proceedings to enforce a lien claim.