The Builders’ Lien Act is commonly misunderstood. Many people believe that its purpose is to protect the rights of contractors, sub-contractors, and suppliers who would otherwise have no recourse if they were not paid for their services.
This is inaccurate. Contractors and sub-contractors already have protection under the law without the Builders’ Lien Act. Under common law, you can take legal action based on work completed on a project, even without a contract with the property owner.
The Builders’ Lien Act limits and simplifies remedies for contractors, sub-contractors, and suppliers who have yet to be paid. Under the Act, both property owners and general contractors gain clarity. It also provides sub-contractors and suppliers with remedies that – providing they follow all necessary rules – can be straightforward.
What Falls Under the Builders’ Lien Act?
All property can be liened under the Act, excepting property on First Nation reserves, Métis settlements, or any other such government-owned lands as crown corporations, highways, and irrigation districts. Certain procedures do exist for claims on these land types, but they are not covered under the Builders’ Lien Act.
Who Can Lien?
Any person who does or creates work on the site can potentially file for a lien. This includes those who have provided materials to sites.
Technically, very few restrictions are placed on who can register a lien. The majority of restrictions come from proving that the object or service provided fits within the Builders’ Lien Act. This is mostly a result of an issue in the wording:
“6(1) Subject to subsection (2), a person who (a) does or causes to be done any work on or in respect of an improvement, or (b) furnishes any material to be used in or in respect of an improvement […]”
The legal issues stem from the word, “improvement.” Legally speaking, an improvement on the land must be a fixture to the land. Case after case, lawyers across Alberta have dealt with the issue of what is or isn’t considered a fixture.
If you’re installing drywall, lumber, cement, or similar products that become a part of the structure, you’re eligible for a lien. If you happen to be providing a different item – one more easily removed from the land – it can create issues. The court may be unable to find a basis for a lien.
We can illustrate this with a few examples: laundry facilities installed and hooked up have been found to be non-lienable items. On a larger scale, a 2.5-million-pound paper machine that had a building constructed around it was also considered a non-lienable item.
When a supplier applies for a lien, they’ll also have to prove that the specific materials were provided to the site in question. Failing to make an actual connection to the site will cause the lien to fail.
What to Consider When Filing A Lien
Generally speaking, a lien should be filed within 45 days of the installation of the material or delivery of the service. This period of time is extended for work completed for an oil and gas well to up to 90 days.
An important thing to note is that you can file a lien as soon as materials or work has been provided to the project or job site. You don’t need to wait for the full completion of the project. You’re also not required to wait until your portion of the work is complete. You have these rights from day one.
After the completion of the work – or installation of the material or product – the 45-day countdown clock begins. You must file for your lien within that next 45 days or your right to lien expires.
How Much To Lien For
The value of materials, work, services, and/or wages put into the site is the amount you lien for. Be generous, but also realistic: if you are unsure err on the side of too much rather than too little. It is extremely difficult to convince a court to give you more in a judgement than is requested on the initial lien documents.
Major & Minor Lien Fund
Major Lien Fund
A major lien fund is held by the property owner. This fund becomes active once a Certificate of Substantial Performance (CSP) is issued. If one has not been issued, it becomes active once the project is completed.
The amount in this fund is 10% of the job’s actual cost, including work done or any materials provided, plus all amounts still payable under the contract. The fund must be held for 45 days after the CSP is issued or the project is completed.
Contractors and sub-contractors on the project have access to the major lien fund, provided that their liens are filed within 45 days of the CSP or project completion.
Sub-contractors and sub-sub-contractors can only claim against 10% of the value of work actually performed or materials actually furnished by the contractor that they worked under.
Pros & Cons of the Major Lien Fund
The major lien fund creates clarity and certainty for property owners. Dually, it makes it easier for contractors and sub-contractors to determine the funds they can draw on.
Alternatively, it does create a situation where sub-contractors can be shortchanged without recourse. Suppliers of these groups can also suffer from being shortchanged.
Minor Lien Fund
The minor lien fund is money withheld by the owner for work done after the CSP is issued. It is therefore normally a much smaller amount that the major lien fund. Most of the same rules apply as with the major lien fund. It is comprised of 10% of the actual value of work completed and supplies provided after the CSP is issued. You also have 45 days from the issuance of the CSP or from the project completion to file this lien.
The division of the funds is also similar, except it applies to those providing work after the project completion.
As per the Builders’ Lien Act, an owner cannot be held liable for more than the total of the major lien fund and the minor lien fund. If a minor lien fund does not arise, then they cannot be held liable for more than the major.
Should you not receive adequate payment, your first step is to file a lien. Most entrepreneurs, contractors, and sub-contract are familiar with this process, at least in theory.
When filing a lien, the information within the document must be accurate and complete. Since it’s the foundational document of your claim, accuracy is vital. Be as clear as possible what work was done or what materials were supplied. When deciding on the amounts to claim, be both generous and reasonable.
But don’t wait. As previously mentioned, managing the timeframe is crucial to a successful lien.
The Last Thing You Need to Know About the Builders’ Lien Act
The Builders’ Lien Act was intended to make the process of collecting unpaid invoices for work completed and materials provided easier on contractors, subcontractors, and suppliers. However, simplicity can be both good and bad.
The only way to ensure the process is carried out smoothly is to follow the process set out in the Builders’ Lien. Missing steps or deadlines can completely upset the lien process.
If you are unsure about the protocols involved, it’s always best to speak to your lawyer for personalized and accurate advice specific to your needs. To speak with one of our capable business lawyers, contact us today.