Building a home? If you haven’t considered the Builders Lien Act requirements, you should!
Building a new home can be an incredibly exciting experience and will give a land owner the opportunity to work with builders, designers, and many others in the industry. The level of involvement can vary for land owners depending on whether they choose to hire a general contractor or to manage the project themselves. This article is based on the situation where a land owner has hired a general contractor to manage the entire project such that the land owner will not be entering into additional contracts with suppliers and workers.
While exciting, the process can also be a confusing and frustrating one in the event things do not go smoothly particularly if builders lien issues arise. The Builders Lien Act (the “Act”) in British Columbia provides a comprehensive structure which is intended, in part, to help provide comfort with respect to payment for those providing goods and services to the project. As a land owner who is contracting to build a home, it is very important to be aware of and properly provide for, the requirements under the Act to help reduce liability in the event subcontractors, workers or suppliers are not paid. This article focuses on one key piece of that requirement – the lien holdback.
Pursuant to the Act, as an owner, a statutory obligation arises to retain a 10% holdback from all amounts paid on account of a contract. Not only is this a statutory requirement imposed on the owner, if there is bank financing involved, there will also be a requirement to ensure compliance with the Act. The holdback funds are not simply to be held by the owner with their other funds – the legislation requires that the holdback funds be deposited into a separate holdback account in accordance with the requirements of the legislation. These requirements include that a separate account must be established at a savings institution for each contract under which a lien may arise. In most cases, the property owner will hire a general contractor to complete the build which means they would only require one account. All funds required to be held back under the Act must be deposited into the holdback account and the account is to be jointly administered with the contractor. A failure by the owner to do so will constitute a default under their contract with their builder which will entitle the builder to cease work pursuant to the Act by providing 10 days’ notice. The contractor is entitled to obtain information regarding the account to ensure that the owner is depositing sufficient holdback funds.
The construction contract should cover the various obligations of each party and provide for the appropriate holdback structure as well as the release of the holdback when the lien period has expired. It is important that the land owner carefully review and understand those requirements to ensure compliance with the Act. When in doubt, questions should be asked early in the process to set the process up properly from the beginning of the project.
There are also additional holdback requirements with respect to holdbacks by the contractor for subcontractors but that is a topic for another article.
Author: Una Gabie
This information is general in nature only. You should consult a lawyer before acting on any of this information. This information should not be considered as legal advice. To learn more about your legal needs, please contact our office at (250)448-2637 or any of our lawyers practicing in the area of real estate law at the following:Una Gabie: firstname.lastname@example.org Jennette Vopicka: email@example.com Danielle (Dani) Brito: firstname.lastname@example.org Jaime Boyle: email@example.com