The Builders Lien Act (“BLA”) has now been in effect for over a year. Its provisions are important to the construction industry and deserve review to ensure the rights of parties are clearly understood.
Why Should I Care?
If you are a contractor or material supplier, a lien is the single most important tool you have to assist you in obtaining payment for your work.
If you are an architect or an engineer the BLA provides you with lien rights that may not have previously existed. It also imparts obligations on you which will increase your liability.
If you are an owner or a surety, you need to know what your obligations are in relation to the requirement to hold back funds. You also need to be familiar with the provisions that apply in the event that liens are filed.
The BLA contains significant changes in the following areas:
- Who Can File Liens
- Time for Filing Liens
- How Liens are Prepared
- Substantial Performance
- Multiple Holdback System
- Holdback Trust Account
- Early Release of Holdback
- Payment Certification
- Offence for Wrongful Liens
- Cancellation of Liens
- Right to Information
Who Can File Liens?
The changes in this area are most important to architects and engineers. Under the BLA, the definition of “contractor” is expanded to include architects and engineers. Now architects and engineers can file liens for services even where no on-site services are provided. Moreover, the lien can include claims for services provided before the construction of the improvement.
The BLA also clarifies the long standing controversy over the claims of material suppliers whose products are transformed prior to delivery to the site. The BLA limits lien rights to products which are “transformed” on site. Accordingly, a material supplier whose product is transformed off site (for example: gravel to cement) will not be entitled to lien rights.
Time for Filing Liens
Under the old Builders Lien Act there was a difference in the time limits established for contractors, material suppliers and workers (based upon the commencement of the lien period). Under the BLA, the time limits for all categories of lien claimants is the same (45 days) and the lien period commences when a certificate of completion has been issued or when the head contract or improvement has been completed or abandoned.
How Liens Are Prepared
The form of lien is no longer an affidavit. This makes it easier for claimants to prepare their own liens (although this is not recommended). As before, liens are filed in the Land Title Office.
Previously there was no way of knowing for sure if substantial performance had been attained. Now there is a formula in the BLA which defines when a contract or subcontract is substantially performed.
Multiple Holdback System
Previously only the owner was required to retain a 10% holdback. Now all persons who make payments under a contract or subcontract must retain a 10% holdback.
This has two important aspects. First, it provides some security for persons engaged by or under the contractor or subcontractor. Second, it sets the maximum liability (10%) of the person who retains the holdback if it becomes necessary to clear liens.
Holdback Trust Account
For all contracts in excess of $100,000, an owner must establish (at a bank) a holdback account for each contract under which a lien may arise. If an owner acts as a project manager and engages several contractors, the owner must open a “holdback account” with respect to each contract. Failure to establish a holdback account is an act of default (by the owner) which allows the contractor to suspend operations.
Early Release of Holdback
Under the BLA, there is a mechanism for subcontractors to access their holdbacks at the completion of their work. A Certificate of Completion may be issued for part of a project allowing the holdback period to start. This can result in payment of the holdback to the subcontractor (55 days following certification) prior to completion of the project as a whole.
These new provisions under the BLA will be of particular interest to architects and engineers. Under section 7 of the BLA, an architect or engineer can be required to make a determination if a contract or subcontract is complete (to accommodate a request for the early release of holdback). These new requirements should be considered by architects and engineers in fee proposals in light of the potential requirement to perform this work and the attendant liability.
If there is no architect, engineer or identified “payment certifier”, then the owner performs this function in respect of the contract. In relation to any subcontractor, the owner and contractor together perform this function.
Offence for Wrongful Liens
The BLA makes it an offence to knowingly file a lien containing a false statement. In that event, the person filing the lien is subject to a fine.
Cancellation of Liens
Previously only the owner could make an application for the removal of liens upon the posting of security. Under the BLA, owners, contractors, subcontractors and other interested parties can make this application. In addition, previously one had to post the full amount of the lien plus costs in order to obtain a discharge. Now the court can “consider all relevant circumstances” in determining the amount of security required. Accordingly, applicants now have the ability to argue that a lien is excessive or is duplicitous at the security hearing.
Right to Information
These provisions will impact the owner and the surety. The BLA grants broad new rights to lien holders to request information such as: the state of accounts between the owner and head contractor, particulars of the holdback account, particulars of labour and material payment bonds and particulars of advances under mortgage financing.
Prepared by former Associate, Lyle E. Braaten