A Builders Lien Holdback is required by the BC government. Homeowners are required by law to withhold 10% of the cost of the job for 55 days.
Picture this: you are renovating your basement. The project ends and you are thrilled with the new space. You then learn that your trusted contractor did not pay his employee, and that employee has put a lien on your house. The Builders Lien Holdback would ensure that there is money available to pay that employee.
The holdback is only required on jobs that are over $100 000.
For more information, please refer to the following FAQ's from the Beacon Law Centre in Sidney, BC.
FAQs About B.C.'s Builders Lien Act
by Del Elgersma
B.C.'s Builders Lien Act came into force on February 1, 1998. It updated and in some cases significantly changed the law under the former Builders Lien Act. B.C. now has the most modern builders lien law in Canada.
In this article we answer questions about the Act from the perspective of a landlord, an owner building a house, a purchaser, a contractor and a lender:
Q. I am a landlord of a commercial building. How can I protect myself from lien claims for work done for my tenants?
A. The Act permits you to file a Notice of Interest against your property at the Land Title Office. The notice warns that the land cannot be liened unless the work was done at your express request. Any trades who supply work or materials to your property for your tenants will not be able to claim a lien against the property, unless you authorized the work.
Q. I am having a house built for me. What is a builders lien holdback and is it necessary?
A. The Act requires you to hold back 10% of each payment to the contractor (the builders lien holdback) in a special account so that there is money available for payment of liens. Without a holdback, you could be responsible for the full amount of all lien claims even if the contract price was already paid in full.
Q. What do I do with the holdback?
A. As the owner, you are required to pay the holdback into an account at a savings institution. If you don't, the contractor can stop working and sue you for damages arising from the work stoppage. If you don't have a general contractor, a separate holdback account is required for every contract. Withdrawals from the holdback account will require the contractor's signature as well as your own.
Q. Is a special holdback account always necessary?
A. Yes, with two exceptions. The first is where the value of work and material supplied is less than $100,000 (e.g. renovations). The second is where you have authorized the construction lender to disburse the mortgage money on your behalf, in which case the lender holds back 10% from each draw. However, this results in a new area of liability for lenders that most will not be willing to enter.
Q. I am purchasing a new home. Should I be worried about builder's liens?
A. Yes. If you purchase the home within 45 days of its completion, there could be lien claims filed after you become the owner. You could be in the position of having to pay the liens, even though you already paid the purchase price in full. The Act deals with this problem by permitting purchasers to hold back 10% of the purchase price from the seller until the time for filing liens expired, but these provisions have not been proclaimed. As a result, you must ensure that your contract permits you to hold back funds if the time for filing liens has not expired by closing.
Q. I am a framing contractor. Do I still have until 31 days after substantial completion of the building to file a builders lien?
A. No. You now have until 45 days after a payment certifier issues a certificate of completion for your contract. The payment certifier is usually the architect or engineer, but may be the owner or the owner and general contractor together if your contract does not identify the payment certifier. However, regardless of when or whether a certificate of completion is issued, you may not file a lien after 45 days from the date of substantial completion, abandonment or termination of the general contractor's contract (or, if there is no general contractor, of the project).
Q. Do I still need to wait until 41 days after substantial completion of the entire building to receive my share of the builders lien holdback?
A. No. Under the new multiple holdback system, the general contractor maintains a separate holdback for each subcontract, which will be released 55 days after the payment certifier issues a certificate of completion for that subcontract.
Q. I work for a bank. The bank is ready to advance a draw on a construction mortgage, but there are liens filed against the property. The draw is needed to complete the building. How can the bank's advance have priority over the liens?
A. The general rule is that advances made by a lender after a lien is filed do not have priority over the lien. However, it may be possible for the bank to apply the advance to the payment of the liens. The new Act also allows the bank to apply for a court order that the mortgage advance will have priority over the filed liens. The court will make the order if it is satisfied that the advance will be applied to complete the construction and will result in increased value to the property at least equal to the amount of the advance.
The new Act contains several other changes. For more specific information on how it affects you, contact us at your convenience.