Construction Contract Law A Lien is a “charge” or encumbrance against real property. The Lien is a form of security for a debt (similar to a mortgage) Liens have existed to secure payments to tradespersons for work on vehicles or equipment (garage-man’s or mechanic’s lien)
Builders Liens Creature of Statute No lien in common law Created by legislature Designed to protect the tradesman who worked on the construction of an improvement but did not get paid.
Builders Liens A lien arises when: Improvement made to Land Pursuant to a contract Benefit to or known by the Owner
Builders Liens Improvement Very important – there must be an increase in the value due to the work performed. The person who makes the improvement is entitled to a lien until paid for the work
Builders Liens Contract must be present Gratuitous performance of work will not lead to a lien (eg: husband cannot lien wife’s property) If contract in place but no payment amount or mechanism was specified – contract would fail for vagueness and no lien could result If contract in place but no price was stipulated the court would probably try to establish an appropriate amount for the value of the work done.
Builders Liens Benefit to Owner Owner “owns” land Improvement “improves” land Lien charge against land for value of improvement Only reasonable that Owner must authorize work that could be liability for him
Builders Liens Known to Owner In case of situation where land is leased and the lessee contracts for the improvement Here, if contractor intends to have recourse to the land, the Owner must be aware of the work prior to the work being started If the Owner approved the improvement then both the legal and leasehold interest could be charged
Builders Liens Purpose of Lien Protects the interest of a worker who has contributed work to improve land. Provides the owner with the maximum liability that is chargeable against the land for unpaid workers pursuant to a contract.
Builders Liens Land Titles System Torrens system of land titles Named after Robert Torrens Principals Registration Indefeasibility of title
Builders Liens Registration Two land titles offices Person can rely on information from registry In case of error, compensation from Registrar Operation defined by Land Titles Act
Builders Liens Indefeasibility of Title Title defined in registry is absolute Cannot be overcome unless a statute-defined exception has occurred
Builders Liens Land Titles Examination of a Title shows all interests
Builders Liens Operation of the Lien Act Statutory Right – not common law Act interpret strictly – eg time deadlines
Builders Liens Definitions Contractor Person contracting with or employed directly by an owner to do work for an improvement Not a labourer
Builders Liens Improvement Anything constructed, build, erected, placed, dug, drilled or intended to be… on or in land, except a thing that is neither affixed to or becomes part of the land
Builders Liens Owner A person having an estate or interest in land at whose request, expressed or implied and On whose credit On whose behalf With whose privity and consent, or For whose direct benefit Work is done for an improvement
Builders Liens When does a lien arise? As soon as work is done, for value, on an improvement Value of the lien The value of the work actually done and materials actually furnished shall be calculated on the basis of: The contract price, The actual value of the work done or materials furnished if there is not a specific contract price
Builders Liens Cannot waive rights Cannot contract out of your own lien rights. No Lien Waiver – like in U.S.
Builders Liens Lien Fund Key provision of Act Owner must withhold 10% of value of work done for period of 45 days from Date of issue of certificate of substantial performance (where one issued) Date of complete (where no certificate of substantial performance)
Builders Liens Major, Minor Lien Fund and Substantial Performance Substantial Performance When work is ready for use for purpose intended, and Work to be done under a contract capable of being finished for: 3% of first $500,000 2% of next $500,000 1% of balance For $2,000,000 contract the work to be done: $15,000 + $10,000 + $10,000 = $35,000
Builders Liens Lien Fund Calculations Case 1 Case 2 Case 3
Builders Liens Significance of Lien Fund Recourse of subcontractor Recourse of worker Owner must monitor and supervise lien fund Owner who does not withhold lien amount is risking paying twice.
Builders Liens Registration of Lien Must be done within 45 days of last work on the improvement Note that contract does not have to be terminated Work can still be underway Can be used to secure payment Results in cessation of flow of funds from Owner to Contractor
Builders Liens Removing a Lien Simple way – pay the guy Complicated way Money into court to stand in place of the land Severe penalties for false liens Liable for legal and other costs and damages
Builders Liens How long does a lien last? Until dealt with or expires Expires if no action taken within 180 days No 180 day limit if lien removed by paying funds into court
Builders Liens Who forces the issue? Either side can take action to force the issue Lienholder – Application to have lien declared valid Money in court used to pay lienholder Lien fund (holdback) used to pay lienholder Sell property and use proceeds to pay Owner/Other Party Can demand that lienholder prove lien Application to have lien declared invalid
Builders Liens Multiple lienholders Split money pro-rata
Builders Liens Lienable Land Crown land not lienable Reservations not lienable Leased land lienable to the extent of the leasehold estate Land held by married people even though only one party signed contract (no dower rights)
Builders Liens Subsequent sale If work done and property sold Subsequently filed lien for work is invalid
Builders Liens Multiple Contractors on Land Multiple lien funds Not intermingled Developer acting as prime contractor
Builders Liens Prevenient arrangement Ongoing sales – is it one contract?
Builders Liens Who can file a lien Lumber company – bulk order to contractor’s yard Appliance company – ovens to warehouse for storage until used in condo Trucker hauling material to site Excavator removes material and delivers to dump site – dump site operator liens job