Builders Lien Act #282

By Gerry Neely
B.A., LL.B.

February 1^st, 1998 is the date when the new Builders Lien Act became law, with the exception of a few sections which will only come into force if and when they are proclaimed by regulation at a later date. The sections are those against which the British Columbia Real Estate Association protested, because they allowed a buyer to withhold 10% of the purchase price. This discretion is so broad it created concern that it might be used by a buyer for a purpose other than protection against liens filed after the closing took place.

While the amount of the lien holdback continues to be 10%, the times for filing a lien and retaining the holdback are extended from 31 and 40 days respectively to 45 and 55 days. Several new concepts have been introduced to fix the date when the periods will commence. One is the date a certificate of completion has been issued by a payment certifier, who certifies to the parties when the contract/sub-contract has been substantially completed or performed.

Another is to tie the substantial performance of a contract to whether the remaining work to complete or correct the improvement, costs no more than 3% of the first $500,000 of the contract price, 2% of the next $500,000 and 1% of the balance. The improvement itself is deemed to be completed if a substantial part of it is ready for use or is being used for the purpose intended.

The Act deems that construction of a strata lot is completed, or the contract for its construction is substantially performed at a date no later than the date the strata lot is first occupied. The Condominium Act will be amended to change the times for lien filing and holdback retention to the 40 and 55 days referred to above.

Some additional protection is now provided for persons entitled to claim against the lien holdback, through the requirement that the owner must deposit the lien holdback in a savings institution in a joint trust account in the names of the owner and head contractor, if there is one. If the owner acts as the project manager, then the owner will have to establish separate joint holdback accounts for each contract.

The owner and the head contractor/contractors must administer the trust holdback account jointly, including presumably joint signing authority. The failure of the owner to establish the account is a default, which entitles the contractor dealing with the owner to suspend operations until the default is rectified.

It does not appear at first reading that the Act provides any other penalty for an owner who decides not to create a joint trust holdback account, if the head contractor/contractors with whom the owner is dealing, either do not care, or do not have the leverage to insist upon it. Nor does it appear that there is any obligation upon a contractor to establish with a sub-contractor a jointly administered trust holdback account.

All monies received by a contractor/sub-contractor in connection with a job are trust funds received for the benefit of the persons entitled to be paid under the contract. A contractor/sub-contractor must first pay for the work done or materials used before taking the money received under the new contract for its own use.

The trust continues to attach to monies owed to a contractor, which are garnisheed before the lien holdback account is established. Once established, the monies cannot be garnisheed.

The penalty for a breach of this trust is a fine of not more than $10,000, or imprisonment for not more than two years, for any individual who commits the breach, or a director or officer of a corporation who knowingly assents to asquiescences in the offense.

While the present Act requires only the owner to retain the lien holdback, under the new Act each contractor/sub-contractor must retain a 10% lien holdback. The advantage of this multiple system of holdbacks to the contractor/sub-contractor is that the 10% establishes the maximum liability each has if it becomes necessary to discharge liens arising from the particular contract. In addition, this system will permit the early release of the holdback for work completed during the initial stages of a project, rather than having to wait until the project is completed.

Assignments by contractors/sub-contractors of monies due to them from the performances of contracts, are invalid as against a lien or trust created under the new Act. An agreement that the Act or its remedies are not to apply is void.

Wrongful filing of a lien against property entitles the owner to damages. Anyone who knowingly files a claim containing a false statement commits an offense for which a fine, not exceeding the greater of $2,000, or the amount by which the stated claim exceeds the actual claim, can be imposed. 

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