CONSTRUCTION LIENS: SOME ISSUES
The construction lien remedy was introduced over 100 years ago
to make it simpler and cheaper for trades people to get paid for
their work. From a review of the issues below, one may
legitimately ask if the legislation now fulfills its original
purpose.
New Home Buyer Exception
A good proportion of construction work is the building of new
housing. In our society, we want to encourage the building of new
homes, so it has been decided that new home buyers receive their
home free and clear of any lien claims. This means that if the
new home sale is closed before the lien period has expired, then
the trades people and suppliers cannot thereafter lien the
premises.
General Liens
It often happens that a claimant supplies small amounts of
service or materials, but for several premises, such as in a new
housing development. The Construction Lien Act allows for a
"general lien", whereby the entire amount owing can be
claimed against any one of those premises--unless the contract
with the general contractor provided that lien rights expire on a
lot-by-lot basis. Further complexities arise if some claimants
have a general lien against certain premises, and some claimants
have only their own lien against that particular building.
Sheltering
Some potential claimants believe that their claim is protected
when another person issues a lien claim. They believe they can
"shelter" under that other person's lien. The best
general advice in regard to sheltering is not to rely on it. For
example, sheltering does not protect a lien for which a claim for
lien has not been registered.
Trust Remedies
In 1983 a new remedy was created by which money received in
the construction process is impressed with a trust for the
persons below on the payment pyramid. For example, the owner
receives mortgage funds which are impressed with the trust for
the benefit of the contractor. Similarly, the contractor or
subcontractor, when they receive money from the person above
them, must hold that money in trust for their own suppliers and
subcontractors. To be protected for this remedy, one does not
need to register a construction lien. A breach of trust action is
in fact becoming a popular alternative to a construction lien
claim.
Holdbacks
Every payer in a construction situation is required to hold
back 10% of the "price" of services or materials as
they are supplied, until 45 days after the last supply. This
seems fairly straightforward but in practice, becomes quite
complex. In nonpayment situations, there is almost always a
counterclaim by the payer against the payee, so that rules had to
be made that there could be no setoff against the holdback, even
if the counterclaim exceeded the amount of that holdback.
Tenancies
If a commercial tenant does renovations on leased premises,
the landlord is not usually considered an "owner" whose
interest is subject to a construction lien. The lien claimant's
only lien is on the "leasehold interest" of the tenant.
If the work is done at the request of the landlord, however, the
landlord might be found to be an "owner". This issue is
frequently the source of controversy and litigation.
Timing Issues
The date of last supply is frequently a disputed issue. The
trades person quite often claims that his minor cleanup work,
performed long after he has really left the job, preserves his
lien. The owner usually puts the supplier or trades person to the
strict proof of these dates. We strongly recommend to our clients
that a contemporary diary of their work be maintained for all
construction work.
Legal Costs
The maximum amount that can be recovered for legal costs in a
construction lien claim is 25% of the amount recovered. This can
be quite discouraging for minor lien claims.
The discussion above touches on only some of the issues that
arise under the Construction Lien Act. When you consult our law
firm regarding a potential lien claim, we will review the claim
to determine whether it is indeed simple enough to make a lien
claim worthwhile, or whether some of the alternative remedies,
such as Small Claims Court or a breach of trust claim, would be
more suitable in the circumstances.
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