Homeowner Protection Act – Rules for Builders

In response to the leaky condo crisis, the B.C. government passed a new law called the Homeowner Protection Act. The Homeowner Protection Act creates the Homeowner Protection Office, and requires compulsory licensing for builders and mandatory warranty coverage on new homes. (In addition, recent regulations under the Act introduced licensing and warranty requirements for building envelope repairs – click here for more information.)

Builder Licensing

All residential builders (including developers and general contractors) must be licensed by the Homeowner Protection Office. Licenses are for one year only and must be renewed annually. The Homeowner Protection Office has the authority to monitor builders and cancel their licenses.

New Home Warranties

To obtain a building permit, builders must provide proof of third-party warranty coverage for the home. The warranty provider must be licensed with the government. Warranties must provide the following minimum coverage:

  • 2 years for materials and labour
  • 5 years for building envelope (including water penetration)
  • 10 years for structural defects

Owner-Built Homes

The Act sets out special rules for owner-built homes. An owner-builder is a person who builds a single, detached home for their own personal use, not more than once in any 18 month period. An owner-builder does not have to be licensed or provide a third-party warranty on their home. Instead, they must file an Owner-Builder Declaration and Disclosure Notice with their building permit application. If an owner-builder sells a home within 10 years of completion, they must give the buyer a copy of the Owner Builder Declaration and Disclosure Notice. The Disclosure Notice alerts buyers to the fact that the home is not protected by a third-party warranty.

If you have any questions about the requirements under the Homeowner Protection Act, please contact us, or visit the Homeowner Protection Office.

FAQs About 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.

In this article we answer questions about the Act from the perspective of a landlord, an owner building a house, a purchaser, a contractor and a lender:

Q. I am a landlord of a commercial building. How can I protect myself from lien claims for work done for my tenants?

A. The Act permits you to file a Notice of Interest against your property at the Land Title Office. The notice warns that the your interest in the land  is not bound by a builders lien unless the work was done at your express request. Any trades who supply work or materials to your property for your tenants will not be able to claim a lien against your interest in the property, unless you authorized the work.

Q. I am having a house built for me. What is a builders lien holdback and is it necessary?

A. The Act requires you to hold back 10% of each payment to the contractor (the builders lien holdback) in a special account so that there is money available for payment of liens. Without a holdback, you could be responsible for the full amount of all lien claims even if the contract price was already paid in full.

Q. What do I do with the holdback?

A. As the owner, you are required to pay the holdback into an account at a savings institution. If you don’t, the contractor can stop working and sue you for damages arising from the work stoppage. If you don’t have a general contractor, a separate holdback account is required for every contract. Withdrawals from the holdback account will require the contractor’s signature as well as your own.

Q. Is a special holdback account always necessary?

A. Yes, with two exceptions. The first is where the value of work and material supplied is less than $100,000 (e.g. renovations). The second is where you have authorized the construction lender to disburse the mortgage money on your behalf, in which case the lender holds back 10% from each draw. However, this results in an area of liability for lenders that most will not be willing to enter.

Q. I am purchasing a new home. Should I be worried about builder’s liens?

A. Yes. If you purchase 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 Act deals with this problem by permitting purchasers 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 that your contract permits you to hold back funds if the time for filing liens has not expired by closing.

Q. I am a framing contractor. Do I still have until 31 days after substantial completion of the building to file a builders lien?

A. No. You now have until 45 days after a payment certifier issues a certificate of completion for your contract. The payment certifier is usually the architect or engineer, but may be the owner or the owner and general contractor together if your contract does not identify the payment certifier. However, regardless of when or whether a certificate of completion is issued, you may not file a lien after 45 days from the date of substantial completion, abandonment or termination of the general contractor’s contract (or, if there is no general contractor, of the project).

Q. Do I still need to wait until 41 days after substantial completion of the entire building to receive my share of the builders lien holdback?

A. No. Under the multiple holdback system, the general contractor maintains a separate holdback for each subcontract, which will be released 55 days after the payment certifier issues a certificate of completion for that subcontract.

Q. I work for a bank. The bank is ready to advance a draw on a construction mortgage, but there are liens filed against the property. The draw is needed to complete the building. How can the bank’s advance have priority over the liens?

A. The general rule is that advances made by a lender after a lien is filed do not have priority over the lien. However, it may be possible for the bank to apply the advance to the payment of the liens. The Act also allows the bank to apply for a court order that the mortgage advance will have priority over the filed liens. The court will make the order if it is satisfied that the advance will be applied to complete the construction and will result in increased value to the property at least equal to the amount of the advance.

For more specific information on how the Builders Lien Act affects you, contact us at your convenience.

 

Buyer Must Pay GST on Real Estate

A buyer must pay the GST on any taxable purchase, even if the parties did not think that any GST was payable, according to a recent decision of the B.C. Supreme Court.

Under the GST legislation, when GST is payable, the buyer is generally responsible to pay it, while the seller is responsible to collect it from the buyer and remit it to the Crown. The property in this case was a used residential and commercial building. The residential portion of the building was exempt from GST. The commercial portion was taxable, but the seller assumed that the buyer was registered for GST, relieving her of her duty to collect and remit the tax. As a GST registrant, the buyer would have been responsible to remit the tax himself, but would have been able to offset the GST payable against the GST collected on the commercial rents of the tenants.

Unfortunately for everyone, the buyer did not register for GST. When Revenue Canada discovered that the sale went through, it assessed GST, penalties and interest of over $20,000. Although the tax was payable by the buyer, Revenue Canada demanded payment only from the seller, because she should have collected it from the buyer.

The seller eventually paid the tax and then sued the buyer to recover the amount paid. However, the Excise Tax Act (the GST legislation), only allows a seller to recover GST from a buyer if the seller has notified the buyer by an invoice, receipt or in the sale agreement that GST is either included in the purchase price or in addition to it. The sale agreement did not specify whether GST was included in or in addition to the purchase price.

The seller therefore tried to meet the requirements of the Excise Tax Act by providing an invoice to the buyer (2 ½ years after the sale completed!) stating that GST was in addition to the purchase price. The judge, however, concluded that the seller met the requirements of the Act because of a clause on the reverse side of the Real Estate Board’s standard form Contract of Purchase and Sale. The clause requires that each party must comply with the Excise Tax Act. Under the Excise Tax Act, if GST is payable, the buyer is required to pay it.

Accordingly, the clause on the reverse side of the contract, by requiring the parties to comply with the Act, meant that the buyer would be required to pay any GST. The judge concluded that this clause was sufficient notice to the buyer that GST was in addition to the purchase price, and the seller was able to recover the GST she paid from the buyer. This case illustrates the pitfalls that can arise for buyers and sellers of real estate, and the importance of receiving legal advice.