BC Builders Lien Nightmares
Many of our local and international clients are interested in building their own homes to live in or for investment. In BC, we have the Builders Lien Act . This is a key piece of legislation when building or renovating a residential or commercial property in BC.
Too Easy and Too Costly
This Act is so important because any person or company that you hire directly or indirectly to build or renovate your property can easily put a builder’s lien on your property for the outstanding value of the work and materials. This can be done by filing a few documents with the land title office. Nothing has to be proven and the cost is minimal. You can only get the lien taken off your property if you put all of the money claimed plus 15% into Court or a lawyer’s trust account, go to court and fight the claim, or challenge the lien under the Act. All of these options are costly and take time and in the mean time you cannot sell the property or get financing with the lien. Notably, the lien must be filed within 45 days of certificate of completion or after the head contractor completes, abandons or terminates the project, or if there is no head contractor 45 days after completion or abandonment of the project (this can be a very difficult thing to prove).
If you are an owner the buck stops with you, or more accurately, your property. If you are managing the building project yourself, you must follow the procedure in the Act. If you have a general contractor, you have to make sure they follow the Act or you may be on the hook. You want to make sure that they are paying the sub-trades with your money. You should also have a building contract that makes it clear what will happen if subs are not paid (ex. they should indemnify you).
There are many important things that you have to know even before you start the project. For example, you must ensure a 10% holdback is kept back until the project is complete. The 10% should be the greater of the value of the work and materials used on the project or the amount you already paid. You should have a separate account that you keep the 10% in until it is released. If you are getting financing, the bank may hold back the 10% for you. This is not always an option but many times when we get involved it turns out our clients did not keep a holdback. The problem is that if you did not keep a holdback you are in contravention of the Act but equally important you may have to pay an extra 10% out of your pocket. For example, if you did not keep a 10% holdback and your general contractor did not pay his subcontractors but took your money, you will, at a minimum, have to pay his subs the 10%. Some contractors are fly by night or shell incorporations so even if you sue them they are gone.
Cheap can be Costly
Builder’s Liens are a very powerful way for unscrupulous contractors to force home owners into paying their inflated or unfair bills. Many times we have to get involved because a home owner wanted to save a few extra bucks and pay the contractors under the table. The problem is that the lien is often for a very large amount beyond what you wanted or agreed to but because there is no contract it is unclear to the Court what the terms of the work were. Years later you are still trying to prove you did not approve the work or it was never done.
Good contractors will always have a contract, a history, and good references. Saving a little now by paying cash under the table or going with the cheapest guy will often cost a lot more in the long run. The Builder’s Lien Act is supposed to protect contractors but it can be used as a way to pressure home owners into paying an inflated bill. Know the Act and your contractor before you start building.