The Builders Lien Act allows companies and individuals who contribute work or services on a project to file a claim of lien directly on title, without any prior judicial approval of the claim. The claim of lien encumbers title, and will likely stop further advances under the construction loan until the claim of lien is removed. This is an extraordinary remedy and can often cause delay and expense. Owners often tell us that the lien legislation unfairly favours the lien claimant. Our response is that, as an owner, there are a number of steps and approaches available to reduce the risk of liens, including:
- Invest in a suitable contract. Builders lien risk management starts with written contracts that adequately address builders lien issues specific to British Columbia. For example, if you are using a CCDC document, which is drafted for use throughout Canada, have supplemental conditions drafted to ensure that British Columbia’s builders lien legislation is addressed. You might be surprised to know that the standard form CCDC 2 2008 stipulated price contract does not obligate the contractor to remove liens filed by subcontractors, even where the owner is up to date on all payments due.
- Ensure accurate and complete records are kept. This will include ensuring all contracts are signed by all parties, and that invoices rendered relate only to the subject property, even if the company is working on multiple projects for the same owner. Another issue we often see is where a contractor has related companies (i.e. ABC Construction Ltd. and ABC Formworks Ltd.), and invoices are rendered from either company indiscriminately. It is important to ensure that the company on the contract is the company rendering the invoices, and receiving payments from the owner.
- Monitor title as the project is under construction. The easiest way to do so is to set up automatic electronic monitoring through your BC Online account. If you do not have a BC Online account, your lawyer will have one, and should be able to set up the monitoring for you. This will alert you to all new filings against that title, including builders liens.
- Keep communications with contractors open. A lack of communication regarding change orders or extras often leads to misunderstandings and disputes.
- Read the contract. If a dispute arises during a project, the first step is to read the contract, including any supplemental conditions. If the contract is a standard form, the disputed issue will likely be addressed.
- Follow dispute resolution protocol set out in the contract. If the dispute cannot be resolved promptly, follow the steps for dispute resolution outlined in the contract. Typically, these will involve fairly tight timelines. If the contract does not provide for dispute resolution, or the provisions are unclear, ask for input or advice from your lawyer.
- Issue Certificates of Completion for each contract. A Certificate of Completion starts the time period for filing a claim of lien. The current Act allows for a Certificate of Completion to be issued for each contract on the project. The lien period for claim of builders lien against title arising from work under that contract must be filed within 45 days. Additionally, 55 days after the issuance of a Certificate of Completion, the holdback monies on that contract may be paid out, and, once paid out, no lien against the holdback can be made.
Should you have any questions about risk management or builders liens generally, please contact the author at 604.343.3177 or email@example.com.