Builders liens basics
British Columbia’s Builders Lien Act (the Act) tries to make people involved in a construction project pay what is owed. The Act uses holdbacks, liens, and certificates of completion to manage the flow of money and lien liability from lenders down to workers and material suppliers. The Act is complicated and has a lot of nuance that is not addressed in this post. If you have specific questions about your situation, then you should talk to a lawyer.
A 10% holdback is legally required for projects over $100,000. Nobody can contract out of the holdback regime and the minimum holdback is 10%. Holdbacks travel down the chain of contracts on a project. The owner holds back from the general contractor, who holds back from the subcontractors, who hold back from the sub-subcontractors, and so on. Nobody can holdback funds from workers or material suppliers.
Owners must hold back 10% from their contractor and the holdback amount must be in a bank account. This means that if a contractor gives an owner an invoice for $100,000, then the Owner only pays the contractor $90,000. The other $10,000 gets put into an account that the owner and contractor manage together.
The general contractor must hold back 10% from all their subcontractors. For example, if the electrical company and plumber each give the contractor an invoice for $20,000, then the contractor pays each of them $18,000 and holds back $2,000 from each. Unlike an owner, the contractor does not need to have a holdback bank account for the contractor’s holdbacks.
The Act allows workers, material suppliers, subcontractors, contractors, architects, and engineers (Non-Owners) to put a lien on property. A builders lien makes it difficult for the owner to sell the property, get a new mortgage, or get mortgage advances.
Non-Owners can file a lien if they have not been paid for work or materials supplied for a construction project when the amount owed is over $200. To file a lien, a person must fill out a Form 5 and then submit the form to the Land Title Office.
There is a 45-day time limit for filing a builders lien. Calculating when the time period starts and ends can be complex. Generally, the 45-day time limit starts when a contract is completed, substantially all the work under a contract is done, or after a Non-Owner requests a certificate of completion.
Certificates of Completion
The Act allows lien holders to request a certificate of completion for the lien holder’s part of the project once their part is done. Once requested, the owner or general contractor has 10 days to issue the certificate of completion. The issuance of a certificate of completion has two important consequences: first, it starts the timer on releasing the holdback for the work done; and second, it starts the timer for filing liens for all people under the contract that is complete.
Since this starts the timer for filing liens, a certificate of completion must be posted at the job site. A lien holder may (and should) request notice of any issued certificate of completion in relation to the relevant contract. Workers, material suppliers, and subcontractors should also check the job site for notices of certificates of completion.
On the 56th day after the certificate of completion has been issued, the holdbacks can be released if there are no filed liens or lawsuits in relation to the contract. This will often be significantly sooner for subcontractors than if the subcontractor waits until the whole project is done.
A further advantage of certificates of completion is that it frees up money for the general contractor as well. If a certificate of completion is issued and no liens or lawsuits are filed, then the general contractor can release the holdback, such as the $2,000 held back from the plumber in the above example. Once that money is released by the general contractor, the owner can release the same amount of money to the general contractor from the holdback bank account.
If you want more detailed information about builders liens in British Columbia but cannot afford a lawyer, then you can check out these websites: