Posting Security to Discharge a Builders Lien
A builders lien can be an effective, powerful and inexpensive tool for helping unpaid contractors, subcontractors, suppliers receive payment for their materials and services. Often times receiving financing, continued retention as a contractor or the sale of a property may be dependent on discharging a builders lien from title and so debtors and/or owners may be highly motivated to get a lien off title as soon as possible.
One of the means available to discharge a lien quickly is to apply to the Court further to s. 24 of the Builders Lien Act. Through this section any land owner and any party liable on contract or subcontract in connection with the improvement giving rise to the lien can apply to post money into court that will stand as security for the lien.
Most frequently the amount that is posted as security is the value of the lien on its face; however, the full amount of the lien does not need to be posted. Where there is some serious dispute as to whether amounts are properly claimed as a lien, an applicant may attempt to have the Court order the security amount to be less than the lien claim. As is recited in the recent decision of Centura Building Systems v 601 Main Partnership, 2017 BCSC 1727 (CanLII) the test the Court applies in determining the security amount:
- first, the Court considers what claims should be taken into account and whether they are sustainable; and
- second, the Court then considers what amount is appropriate security based on what claims are sustainable.
Underlying the Court`s analysis is the objective of the Builders Lien Act: to protect those who supply work and materials to a construction project so long as the owner is not prejudiced (Centura Building Systems, supra).
In Centura Building Systems, supra, the defendants were the owners and developers of certain lands and retained the plaintiff to provide steel studs framing, insulation, drywall and related work. Disputes arose concerning alleged deficiencies and delays by the Plaintiff and it was terminated. The Defendants withheld ordinary holdbacks under the Builders Lien Act as well as the final draw in relation to their claims against the Plaintiff for alleged delays, deficiencies and costs to complete the project.
Among other things, the Plaintiff claimed the value of its work exceeded the value of the contract and that it was entitled to charge and include in its lien costs beyond the contract price. Among other things, the Defendants alleged that the lien claim where more than twice the Plaintiff`s billings on the project and exceeded all amounts remaining outstanding on the contract all despite the contract being terminated before completion.
In applying the two-pronged test for the amount of security property posted, the Court found that a significant portion of the difference between the amounts the two sides claimed was lienable should not be secured by the powerful pre-judgment weapon that is a builders lien. The Court instead reduced the amount that had to be posted from the $1.136 million claimed to $550,000 and, in so doing, noted the large sum of money that was already required to be held back.
Centura Building Systems, supra is an example to both those who would claim and those who would seek to discharge builders liens that the amount that might be required to be posted to secure and discharge a lien may be far less than the face value of the lien. The case is a reminder that claiming the proper lien amount can substantially reduce the issues in dispute when a lien is claimed and avoid potentially adverse cost consequences to a lien claimant. Generally, lien claimants are held to a very high standard in properly filing a lien considering the powerful tool that builders liens are and the potential harm that can be wrought by filing a lien.
While beyond the scope of this article, it should be noted that parties represented by legal counsel can and often arrange to have a lien discharged by funds being held in trust with a lawyer to secure the lien. Such funds are held on undertakings not to dole out the funds unless in accordance with the mutual agreement of all relevant parties or further to the order of the Court. This is often a cost and time-savings measure to clients and should be explored with clients by legal counsel assisting them in lien disputes.
If you have any questions about any construction disputes including, but not limited to, those matters related to builders liens please do not hesitate to contact me, Jeremy Burgess, via 1-800-558-1155, 250-869-1156 or at email@example.com. You may also contact anyone in our construction law group.
The foregoing is for informational purposes only and is not legal advice, nor should be construed as such.