B.C.’s BUILDERS LIEN ACT

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.

Other Changes
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.

THINGS YOU SHOULD KNOW ABOUT PURCHASING YOUR FIRST HOME

Bob & Mary Buy Their First House

Bob and Mary had been married six years when Bob’s 35th birthday proved to be a milestone in their life together. Their daughter was two years old and both were progressing as software engineers. (They’d met at a conference in Hong Kong where Bob had been working.) Now they were about to buy their first house. Some anxiety about the home purchase did arise, but Beacon Law Centre’s Kelvin Scheuer helped to deal with that.

–>> Read more by clicking here to download the PDF Newsletter

PROTECT YOUR INTEREST IN YOUR HOME

Steve McKenzie, Retired Retailer

Now an elderly widower, Steve McKenzie once owned and managed a popular downtown department store in a small city on the mainland. This father of three has accomplished much for his family. After his wife of 52 years passed on, he bought a house on the south island with his youngest daughter, Julie, and he husband Ian.

–>> Read more by clicking here to download the PDF Newsletter

Home Buyers – Beware of Broken Promises

One of the most exciting decisions we make involves the purchase of a new home. While the experience can be exhilarating, finding the perfect home can be challenging even for a sophisticated buyer. We find a home we like, but often with a few small problems. For example, the landscaping is not quite finished, or there is a large pile of rubble that should be removed from the yard. Do we go ahead, or not?

To induce a buyer to sign a Contract of Purchase and Sale, a seller may be prepared to take care of minor problems with the property. A clause will be added to the Contract of Purchase and Sale indicating that before the completion date (the day the Buyer must pay the purchase price), the seller will correct the problem. In this situation, the buyer needs to beware of his or her legal rights or responsibilities if the seller does not fulfill the promise.

The standard form of Contract of Purchase and Sale provides that there are no promises or agreements other than those written in the Contract of Purchase and Sale, but that those promises and agreements that are written in the Contract of Purchase and Sale will survive the completion of the sale. In the case of a seller who breaks a promise to fix something, the second part of this clause is helpful for a buyer. The clause means the seller is legally bound to correct the problem even after the completion date. If the seller does not, the buyer can sue for damages in Small Claims Court or, if the loss exceeds $25,000, in Supreme Court. But court proceedings are time consuming, slow, and costly. Even if the buyer gets a judgment against the seller, it may be difficult to recover the money.

To avoid the need to take a seller to court, buyers should have their realtor include a clause in the Contract of Purchase and Sale that allows the buyer:

  • to inspect the property before the completion date to make sure that the problem has been corrected, and
  • to hold back an amount equal to the cost to fix the problem if the seller has not fixed it by the completion date.

A buyer is generally not entitled to cancel the Contract of Purchase of Sale if a seller breaks a promise to correct a problem and, unless the Contract contains such a remedy, a buyer cannot demand that the purchase price be reduced, or that a sum of money be held back from the seller.

If you are buying or selling real estate and have questions about your contract, give us a call.

NEW LICENSING FOR LEAKY CONDO REPAIRS

In 1999 the B.C. government implemented the Homeowner Protection Act, creating the Homeowner Protection Office, and requiring compulsory licensing for builders and mandatory warranty coverage on new homes (click here to see ourarticle about the Homeowner Protection Act).

Under new regulations that came into force on October 1, 2000, repair contractors who arrange, manage or perform building envelope repairs (mainly leaky condo repairs) must be licensed by the Homeowner Protection Office and must offer a warranty on the repairs from a third-party insurance company. A municipality will not issue a building permit for the repair job unless the contractor proves that it is licensed and that the proposed repairs are covered by a third-party warranty. (In areas where a building permit is not required the contractor must still meet these requirements).

The minimum warranty coverage is two years on labour and materials. If 60% or more of any wall is replaced, an additional 5-year warranty on water penetration is required.

These new regulations do not apply to buildings with less than three dwelling units, rental buildings, hotels and motels, dormitories, care facilities, buildings covered by warranty insurance, and buildings with repair costs less than the greater of $10,000 or $2,000 per unit in the building. As well, the regulations do not apply to repairs carried out by the original builder at no charge to the owners or when there is a cost-sharing agreement between the builder and the owners.

If you have any questions about the licensing and warranty requirements under the Homeowner Protection Act, please call us.

RENTALS, PETS AND AGE RESTRICTIONS – NEW STRATA BYLAWS COMING

All strata corporations have bylaws to deal with the management, maintenance and use of strata lots and common property. The new Strata Property Act, which came into force on July 1, 2000, contains a set of Standard Bylaws that apply to all new strata corporations.

The Standard Bylaws are the “starting” bylaws for all new strata corporations formed after July 1, except to the extent that different bylaws are filed by the developer at the land title office. Strata corporations formed under the old Condominium Act (pre-existing strata corporations) are not yet affected by the new Standard Bylaws. However, on January 1, 2002, the new Standard Bylaws will become the “default” bylaws for all strata corporations, except to the extent that a strata corporation has filed different bylaws at the land title office.

Currently the “default” bylaws for pre-existing strata corporations are those contained in Part 5 of the Condominium Act. These bylaws can be changed or added to by filing a bylaw amendment at the land title office. Many strata corporations have filed bylaw amendments at the land title office to provide for rental restrictions and other matters. However, to the extent that, on January 1, 2002, a pre-existing strata corporation is relying on some or all of the Part 5 bylaws (as opposed to bylaws filed at the land title office), the new Standard Bylaws will be substituted for those Part 5 bylaws.

As a result, all pre-existing strata corporations should carefully review the new Standard Bylaws. If there is a Standard Bylaw that a strata corporation does not wish to adopt, the strata corporation should replace, amend or disapply this bylaw by passing and filing at the land title office a new “substitute” bylaw before January 1, 2002.

The most controversial bylaws are usually those that deal with rental restrictions, pets and age restrictions. Some questions about how the new Strata Property Act deals with these types of bylaws are answered below.

Can a strata corporation prohibit rentals?
Under the former Condominium Act, a strata corporation could pass a bylaw to “limit” the number of strata lots that may be rented. Various court decisions held that this did not permit a strata corporation to “prohibit” rentals – in other words, the bylaws had to permit at least one rental. Under the new Strata Property Act, a strata corporation may prohibit the rental of strata lots. However, any restriction will not apply to family members (the owner’s spouse, or a parent or child of the owner or of the owner’s spouse).

May a strata corporation screen tenants?
Under the new Act, a strata corporation may control the conduct, but not the choice, of tenants. Strata corporations may no longer screen tenants, establish screening criteria, require the approval of tenants or require terms to be inserted in tenancy agreements.

Can an owner apply for an exemption from a rental restriction bylaw?
Yes, on the grounds that it causes hardship to the owner. The strata corporation cannot unreasonably refuse to grant an exemption. In a recent case, the court stated that economic hardship, combined with a “leaky condo” problem, might be sufficient grounds for an exemption.

What about existing rentals?
If a tenant occupies a strata lot when a rental restriction bylaw is passed, the bylaw will not apply to the strata lot until one year after that tenant moves out. If the strata lot is not rented when the bylaw is passed, the bylaw applies one year after it is passed. If a developer reserved the right to rent a strata lot for a period of time, the rental restriction does not apply until the earlier of the sale of the strata lot by the first purchaser or the expiry of the developer’s rental reservation period.

Are there any new requirements for landlords?
Yes, a landlord must give the tenant a “Notice of Tenant’s Responsibilities” and a copy of the bylaws and rules of the strata corporation. If the landlord does not comply with this requirement, the tenant must still comply with the bylaws and rules, but may terminate the tenancy and have the landlord pay the moving expenses.

Can a strata corporation prohibit pets?
Yes, but the bylaw will not apply to a pet living with an owner or tenant when the bylaw is passed.

Do the Standard Bylaws allow pets?
Yes, the Standard Bylaws permit 1 dog or 1 cat, 2 caged birds, a reasonable number of fish and a reasonable number of small caged mammals.

Can bylaws restrict the age of strata lot owners? 
No, but the bylaws may restrict the age of occupants of strata lots. An age restriction bylaw will not apply to persons occupying a strata lot when the bylaw is passed.

If you have any questions about the Strata Property Act or the Standard Bylaws, please call us.

Homeowners Ordered to Remove Suite

A B.C. couple that excavated their crawl space and converted it into a secondary suite, in violation of a municipal bylaw, was recently ordered to restore their home to its original condition.

In 1994 the couple built a two-storey house with a crawl space on a lot they owned in Burnaby. The lot was zoned for single-family homes with a maximum floor area of 2,400 square feet. The house built on the lot was just under the maximum permitted floor area. In 1995 the owners excavated part of the crawl space for a suite, resulting in the floor to ceiling height being increased from 4 feet to 8 feet, and increasing the floor area of the home by about 700 square feet.

After the City found out about the excavation, the owners applied for a building permit, which was refused. An application for a variance was also refused, and in 1997 the city began legal action against the owners to force them to restore the crawl space. The trial judge found in favour of the City. The owners appealed to the B.C. Court of Appeal.

The owners’ main defence was that the City didn’t prosecute thousands of owners of illegal suites, but only those that it received a complaint about. They argued that by ignoring the other illegal suites and proceeding only against the defendants because a complaint was received, the City was violating their right to equality under the Charter of Rights.

In essence the defendants’ position was that the City should not be permitted to enforce its bylaws unless it had a system in place for enforcing all breaches of its bylaws.

The Court of Appeal dismissed this argument, comparing it to a motorist ticketed for speeding arguing that the ticket should be ruled invalid because other motorists have driven over the speed limit without being issued tickets.

Finally, the court refused to exercise its discretion to refuse to make the order. Restoring the crawl space would require the defendants to spend a considerable sum of money. The court weighed the public interest of enforcing the bylaw against the hardship the order would impose on the defendants.

Given that the defendants knowingly and deliberately flouted the bylaw for their own benefit, the court ordered that they restore the crawl space to its original condition. This case illustrates the danger for homeowners who attempt to circumvent local bylaws. The courts may not be sympathetic to them if they are prosecuted.

New Condo Legislation In Force

A new act has replaced the Condominium Act as the primary legislation covering the development and governance of condominiums in B.C. The Strata Property Act, along with its amendments, regulations and forms, came into force on July 1, 2000. The new Act applies to all condominiums, both new and existing.

The responsibilities of the owner developer in the initial stages of the strata corporation have been expanded and clarified. For example, developers will be required to:

  • act in the best interests of the strata corporation
  • contribute start-up money to the contingency reserve fund
  • provide more comprehensive documents to the strata corporation, including “as-built” plans and warranties
  • compensate strata corporations for serious under-estimation of expenses, and for failure to call the first meeting or to transfer documents to the strata corporation.

Rules of governance and procedure for the strata corporation have been enhanced and clarified. Many of these provisions have been moved from the bylaws to the body of the Act to ensure that they will not be changed.

The creation and enforcement of bylaws is substantially the same. Some of the key provisions regarding bylaws include the following:

  • Owners must ratify new rules at a general meeting
  • The Act does not prohibit age restriction bylaws
  • New age and pet bylaws will not apply to currently resident persons and pets
  • New procedures for bylaw enforcement include giving persons against whom a complaint has been made a hearing before imposing any penalty
  • The Act makes tenants responsible for complying with the bylaws, and makes landlords responsible for disclosing the bylaws to tenants.

The bylaws of existing strata corporations will remain in force until January 1, 2002, when they will be replaced by a new set of Standard Bylaws. However, the Standard Bylaws will not affect any bylaws that have been filed at the Land Title Office, except to the extent that the filed bylaws do not comply with the Act..

Condominium rentals are often a cause of dispute. The new Act maintains and clarifies a strata corporation’s ability to pass bylaws limiting or prohibiting the rental of strata lots. However, rental restriction bylaws will not apply to family members, and owners will have one year to comply with any new rental restriction bylaw.

If you would like more information or have any questions about this new legislation, please call us.

More information is also available at http://www.fin.gov.bc.ca/strata.htm

SWEETHEART STRATA DEAL UNSWEETENED

A B.C. Supreme Court judge recently ruled that the developer of a strata-titled development had an obligation not to put its interests ahead of the interests of future owners.

The developer had agreed to give the first purchaser in the development an exclusive 99-year lease of a rooftop patio owned by the strata corporation. Since the developer owned all of the strata lots, it entered into the lease on the strata corporation’s behalf. The lease provided that no rent was payable to the strata corporation, and that the strata corporation would pay for all maintenance and repair costs. The purchaser would not have purchased the strata lot if the developer had not included the lease of the patio.

Subsequent purchasers were aware of the lease and there were no complaints about it until 11 years later, when a new owner convinced the strata corporation to pass a bylaw making the first purchaser responsible for all of the costs of the leased patio area. 

The first purchaser brought an action against the strata corporation for a declaration that the bylaw was unenforceable because it violated the lease. However, the judge ruled that the lease was void because it was not in the best interest of all of the owners. Because strata corporations have a duty under the Strata Property Act to manage common property for the benefit of all owners, developers are not permitted to use their initial control of the strata corporation to benefit themselves at the expense of future owners.

Legal Non-Conformity

Under the Municipal Act (since renamed the Local Government Act), municipalities may pass zoning bylaws to regulate the use and density of land and the use and location of buildings. Often the existing use of land or buildings will not conform to the requirements of these new zoning bylaws. Section 911 of the Municipal Act (formerly section 970) allows the existing use of land or a building to continue despite a new bylaw as a legal non-conforming use, on certain conditions.

The existing use may continue unless the use is discontinued for a period of six months, and the discontinuance is not the result of normal seasonal or agricultural practices. As well, if a non-conforming building is damaged or destroyed to the extent of 75% or more of its value above its foundations, it cannot be repaired or replaced unless it conforms to the bylaw.

If the use and density of an existing building conforms to a new bylaw but the building’s siting, size or dimensions do not, section 911 allows the building to be repaired, extended or altered as long as it does not result in a worse contravention of the bylaw.

The BC Court of Appeal recently considered the interpretation of section 911. The case dealt with a family that co-owned a parcel of recreational property with several other individuals in a communal ownership arrangement. Each owner was entitled to the exclusive use of one of 17 segments of the property, and each segment had a cabin on it. In 1977 the local regional district passed a zoning bylaw allowing only three cabins on the property. The use of the 17 existing cabins was allowed to continue as a legal non-conforming use.

In 1991 the family’s cabin was partially destroyed by fire, to the extent of approximately 50%. Perhaps unaware of the provisions of the Municipal Act, the family allowed the local fire department to burn the cabin to the ground as a training exercise. When the family applied to rebuild the cabin, the regional district refused to grant a building permit. The family rebuilt the cabin anyhow, and despite a stop work order issued by the regional district.

The regional district applied to the court for an order to have the cabin removed, on the basis that it was not allowed under section 911 because the original cabin was destroyed beyond 75% of its value. The trial judge ruled that, when determining if a building has been destroyed beyond 75% of its value, section 911 should be interpreted to apply to the buildings on a parcel of land as a whole, and not to the single building at issue. Because the fire did not affect the other cabins on the land, section 911 did not prohibit the replacement of the family’s cabin.

The Court of Appeal disagreed. It held that section 911 must be interpreted to apply to each separate building on a parcel of land (unless the building is one of several other buildings that together form a single enterprise, such as a farm or a camp). It stated that the purpose of section 911 is to ensure that non-conforming uses are not continued indefinitely, and that property eventually comes into conformity with municipal zoning bylaws. As a result, the court ruled that the cabin was not permitted as a legally non-conforming use under section 911.

However, the court refused to order removal of the cabin. The court held that it would be “highly inequitable” to order removal, given that the cabin was almost identical to its predecessor, and that it was not disruptive to adjacent property owners or to the environment. The court acknowledged that this was “one of those rare cases” where it was appropriate for the court to refuse to enforce a statute.

The ruling didn’t leave the family totally off the hook. They were ordered to bring the cabin into compliance with new floodplain requirements