This outline is necessarily brief, does not cover all issues, and certainly does not provide all of the information needed to prosecute or defend a lien action. Builders liens law is a technical area of law and both lien claimants and owners should seek legal advice to protect their rights.
Step 1 – Check the time limits
Builders liens must be filed within strict time limits to be valid. Generally, a lien must be filed within 45 days of the earliest of the following triggering events:
- The certificate of completion for the contract of the lien claimant, or of any contract up the chain from the lien claimant (including the head contract). If certificates of completion are not issued (often the case on small jobs) then this triggering event may not apply.
- The head contract is abandoned or terminated.
- The entire project is completed or abandoned.
- Where the land in question is a strata lot, the strata lot is conveyed.
Lien claimants must beware of multiple triggering events and keep in mind that a lien period will often start to run before completion of the head contract. Although there are some simple cases such as when the lien claimant is still proceeding with work on the project (lien period not likely expired), or when the entire project was finished more than 45 days ago (lien period likely expired), calculation of the time limits for filing a lien can be complicated and lien claimants should seek legal advice to confirm which time limits apply.
Step 2 - Collect relevant information
Before a lien can be filed in British Columbia, the following information is required:
- the legal name of the entity that is owed money and claims the lien;
- the legal name of the entity that owes money to the lien claimant;
- the legal description of the land the lien will be claimed against. If the lien claimant can provide the residential address the lawyer should be able to obtain the legal description of the land. Where multiple properties are involved, or the lien will be claimed against an individual strata lot, this step can become complicated;
- a short description of the work done or material supplied; and
- the amount due, and a statement as to when it was due.
Step 3: File the lien
Once the information in Step 2 is obtained, the lawyer can file the lien against the property. On a simple case, collecting information and filing the lien should cost about $300.00 + taxes. Care must be taken to file the lien in the correct Land Title office.
Step 4: Commence a Supreme Court Action to enforce the lien
Filing a lien does not guarantee payment, but may put pressure on the owner to pay and allow the lien claimant to reach a negotiated solution. However, if no negotiated solution is reached the lien claimant has to file a Supreme Court action to enforce the lien. Care must be taken to file the action in the correct Supreme Court registry.
Filing fees for a Supreme Court action are approximately $250.00 + taxes and legal fees to prepare the documentation for filing will typically be at least $300.00 + taxes even in a very simple case i.e. a case where the lien claimant has clear documentation indicating all of the information listed in Step 2 above.
Step 5: File a certificate of pending litigation
After filing the Supreme Court action to enforce the lien, a certificate of pending litigation must be filed in the land title office in which the lien was filed. In simple cases, this step should cost approximately $100.00.
Step 6: Prosecute the lien action
If the lien claimant cannot reach a negotiated solution with the owner or contractor from whom payment is due, the only option is to proceed with the lien action and prove to a judge that the lien is valid and that payment is due. The lien claimant is required to prove that work or materials were actually delivered to the land the lien was claimed against, and this generally involves proving that the owner, or contractor that the lien claimant contracted with, breached the contract it had with the lien claimant by not making payment. As for all claims for breach of contract, the defendant(s) may counterclaim (for deficiencies, delay, etc.) and argue that the amount due to the lien claimant should be reduced, or even eliminated, on account of the counterclaim.
Prosecution of a lien claim by proceeding with a Supreme Court action is expensive and in many cases the legal costs will be prohibitive. Simple cases generally settle early on and the total legal costs from information collection to settlement may be only a few thousand dollars. Complicated cases (those were the facts are in dispute, counterclaims are made, there are arguments as to whether the lien is valid, etc.) may not resolve without a trial and it is common for legal fees for complicated / protracted cases to be in the tens of thousands of dollars.
Important Note: A lien is merely security, and may not cover the full amount due
It is important to keep in mind the following two fundamental aspects of British Columbia builders liens:
- having a lien does not make it easier for the lien claimant to prove its entitlement to payment; and
- having a lien does not guarantee payment of the full amount due.
With respect to the first point, a lien merely stands as security for payment of amounts that the court declares are payable to the lien claimant. Whether or not the court will declare payment is due to the lien claimant will depend on the lien claimant proving that it provided work or materials to the land and that fair payment was not made. Merely having filed a lien does not help the lien claimant prove that it is entitled to payment.
With respect to the second point, the British Columbia Builders Lien Act, S.B.C. 1997, c. 45 provides protections for owners, and contractors up the contractual chain from the lien claimant, which limit the amount a lien secures as payment. Explaining the rules for determining how much security a lien will provide is complicated and beyond the scope of this article. But, by way of example, where A hires B who hires C, the amount secured by a lien filed by C may be as little as 10% of the value of the contract between A and B. Therefore, if B acts as a middle man who does little work and passes most of the work on to C, the amount a builders lien will secure for C may be far less than the amount B actually owes C. Having a lien for less than the amount due does not mean that the lien claimant will never receive the full amount due, but does mean that:
- the lien claimant cannot rely on the lien as security for the full amount due;
- the amount the lien claimant can recover from the owner of the land as a non-contracting party is limited; and
- to recover the full amount from the contracting party the lien claimant must resort to regular creditors remedies procedures (e.g. garnishment, seize and sell personal property).
Filing a builders lien may put pressure on an owner, or contractor up the contractual chain, to make payment to the lien claimant, but where that does not occur the lien claimant must proceed with a court action to prove entitlement to payment; and that can be a very expensive process. Further, a lien is merely security which may not cover the full amount due and does not help the lien claimant prove the amount due. For all of these reasons, filing a builders lien does not guarantee full payment and it can be very expensive to complete all the steps required to prove a lien claim at trial. For the above reasons, contractors should be cautious when providing credit (i.e. performing work or supplying materials in advance of receiving payment) to those they contract with.