Construction industry in Canada is a strong indicator of the country’s economic strength. It is a $171 billion plus industry that employs approximately 1.24 million. It is a heavily regulated industry with many stakeholders from land owners, financial institutions, builders, developers, engineers, construction companies, and suppliers. However, it is not without risks, given that most work is often performed by different tradesmen as either sub-contractors or independent contractors, and who may or may not have privity of contract with the project owner.
At risk are these contractors, service providers, and material suppliers, and thus granted special protection under the Construction Lien Act (CLA), also known otherwise as the Mechanics’ Lien in the Bankruptcy & Insolvency Act (BIA). The Construction Lien Act spells out rules on who has lien against the property, and the process by which lien claimants can enforce their various rights. (Section 14(1) CLA).
Construction Lienholders have to take certain steps to preserve their lien within 45 days of the date the contract is either completed or abandoned for whatever reasons. Further in order to preserve a lien, it has to be attached to a property on which the work was performed, and a claim for lien must be registered with local land registry office. Where there is no property, then the lien claim must be served on the owner directly. In both cases the lien claim must include description of service provided, the materials supplied, the amount of the claim, and the description of the premises to which the lien relates to. The next step after preserving the lien is to ensure it is protected within 45 days by filing a Statement of Claim with the Court requesting remedy.
While the basic objectives of Construction Lien, Builders’ Lien and Mechanics’ Lien are essentially the same, subtle differences are as follows: Builder’s Liens or Construction Liens are used on real estate properties, or oil and gas leases for unpaid labour, services, and/or materials provided. Mechanics’ Liens (aka Garage Keepers’ Liens) are used on motor vehicles for unpaid materials and/or labour. The difference is in the timing of preservation. Mechanics lien generally must be filed within 21 days of the release of the motor vehicle to the customer.
Generally speaking a construction lien or mechanics lienholder who holds a lien against the property of an owner is technically a “secured creditor.” Similarly a sub-contractor who has a mechanics or construction lien on the property of the bankrupt is a secured creditor. However, a mechanics lienholder or construction lienholder who has a lien on the property of an owner from whom the bankrupt is purchasing the property but which has reverted to the owners is not a secured creditor.
If you as homeowner are planning a home renovation project or you’re buying a recently renovated or constructed home, it is advisable that you be familiar with the Builders’ Lien Act (BLA) which is a claim against a property for money owing, according to the Canada Mortgage and Housing Corporation (CMHC). It can be filed by a subcontractor or supplier who has provided labour or materials but has not been paid by the main / principal contractor. This Act gives subcontractors a way to secure partial payment for their work from the house owner. However, all is not essentially lost for the home owners, since under the Act, the homeowners are protected from Builders’ Liens provided they holds back 10 per cent of the total cost of the project. This “holdback” must be withheld for a minimum of 55 days following completion, abandonment, or termination of the relevant contract to give subcontractors or suppliers the legal allowable time to register a lien. Once you’ve verified that no liens have been filed, you can release the funds to your main contractor.
The definition of a “secured creditor,” in the Bankruptcy and Insolvency Act (BIA) has a much wider meaning than what is the ordinary meaning of the term; and so is the definition of the term “property” in the Act. The BIA defers to the provincial law for the creation of secured claims, but provincial legislation which has the effect of reordering priorities created by the BIA is of no effect. To be a “secured creditor,” the claim of a creditor has to be secured against some asset of the bankrupt.
The Builders Lien Act, the Construction Lien Act, and the Mechanics’ Lien are complex legislations, and the foregoing information does not constitute legal advice. Always contact an experienced lawyer or a licenced insolvency trustee.