Builders Lien Clause #69

By Gerry Neely
B.A. LL.B.

I recently reviewed a proposed contract for the purchase of a lot and a home to be constructed by the owner/builder. The licensee who prepared the contract prudently included a clause to provide for a lien holdback. The percentage to be held back was fifteen per cent. However, since September 1, 1984, ten per cent is the percentage which an owner should retain to protect himself against liens filed by contractors, subcontractors, workers or materialmen who do any work or supply any material on the job.

The importance to a purchaser of having a lien holdback is illustrated by the facts of a case in which purchasers bought a builder's package from an owner/builder. By the terms of the contract of purchase, the owner/builder was to complete the construction of a home for the purchasers in accordance with specifications attached to the contract. No reference was made to a lien holdback, and when the home was complete, the owner/builder swore a Statutory Declaration that all claims for wages and materials had been fully paid.

After the owners took title and paid over their monies, liens in excess of $30,000.00 were filed. The purchasers were held to be liable for the payment of the liens which they would have been able to discharge in full had they held back ten percent of the contract price. Failing a holdback, the lien claimants could force a sale of the purchasers' home if the purchasers failed to pay the liens.

The first point to note is that one should never substitute a builder's declaration for a lien holdback if one can provide for the lien holdback. While a false Statutory Declaration may result in a criminal prosecution, that doesn't help a purchaser out of his financial problems. The second point to note is the importance of including within the contract of purchase, a clause allowing the purchaser to retain a lien holdback. Some lawyers, when acting for a vendor who is selling a recently constructed home, will refuse to agree to a lien holdback unless the contract provides for it.

We understand that the following clause has been adopted by the Real Estate Board of Greater Vancouver as part of the clauses and phrases to be used by its members, and one similar or identical to it could be used where appropriate:

In compliance with the Builders Lien Act, the vendor is aware that ten per cent of the value of the improvements shall be held back from the vendor's proceeds by the conveyancer for a period of forty one days from date of issuance of the Certificate of Occupancy.

In most circumstances, the date upon which the Certificate of Occupancy is issued probably indicates the date when the contract was substantially completed. However, the circumstances of the specific case must apply since neither the date of issuance of the Certificate of Occupancy, nor even occupancy itself may establish when the holdback period commences.

These comments do not apply to a strata lot. In that case, a purchaser is entitled to hold back seven per cent of the gross purchase price for a period of forty days after the transfer of title and no lien may be filed later than thirty days after the transfer.

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