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7. New Construction

(d) Builders Lien Holdback

[12/03/2010 The following information updated]

The Builders Lien Act allows contractors, sub-contractors, workers and suppliers to file a lien against the title to properties where they supply work or materials. The lien provides some level of security for the lien claimants to ensure they get paid. Liens can be filed at any time up to 45 days after the work has been completed, and thus when buying a newly constructed home, a buyer can find a validly registered lien registered against the title to their property, that was filed after their closing but within 45 days of the work being substantially completed. Buyers can protect themselves from the potential for such liens by holding back a portion of the purchase price, until the lien period has expired. The holdback can be used to pay out the lien claimant or paid into court to discharge the lien.

It is a common belief that buyers are entitled to retain a builders lien holdback from the seller when purchasing newly constructed property. The belief may have developed because when the current Builders Lien Act was introduced in 1997, it included provisions allowing buyers of newly constructed homes to retain a holdback. However, this provision has never been brought into force. Additionally, because the Strata Property Act does provide for a holdback for newly constructed strata lots (see below), many buyers assume that a builders lien holdback is also permitted on non-strata titled property.

For new single-family construction, a buyer is not entitled to retain a holdback under the Builders Lien Act unless the contract of purchase and sale or building contract specifically allows for it. A buyer should attempt to negotiate such a provision into their contract of purchase and sale or building contract with the builder. However, a buyer must be advised that the builder may not agree to such a provision. If a holdback is not negotiated into the contract of purchase and sale or building contract, the builder has no obligation to allow a holdback and typically will not consent to such a holdback later.

If the builder agrees to a builders lien holdback, a licensee can use the following clause to provide for a holdback. A building contract typically will have much more extensive provisions detailing the builders lien holdback process that is in place throughout the entire construction period, not just a holdback on the conveyance.

Builders Lien Holdback Clause

The Buyer will holdback from the sale proceeds, as a builders lien holdback under the Builders Lien Act, an amount equal to 10% of the value of the improvements for (number of days) days after the date of issuance of the certificate of completion or, where there is no certificate, for (number of days) days after the later of the date the head contract is completed, abandoned or terminated or the occupancy permit is issued. The Buyer’s lawyer or notary will place the holdback in an interest-bearing trust account with interest accruing to the benefit of the Seller. The parties agree the improvements are valued at $(amount).

NOTE: Licensees are advised that the timing requirements for builders lien holdbacks is a complex area of law and they are well advised to have their clients seek legal advice in situations involving new or recent construction.

If builders liens are filed against the title to the property, the builder’s liens holdback funds can be used as part of the process of clearing the lien off title. The parties should be referred to their respective legal advisers if liens are filed.

It should be noted that unless the parties agree otherwise, a builders lien holdback cannot be used as a deficiency holdback and a deficiency holdback cannot be used as a builders lien holdback, as they serve two distinct purposes at law. To fully protect a buyer, both a deficiency holdback and a builders lien holdback should be negotiated as part of the contract.

If no builders lien holdback is provided for, the buyer will still be obligated to close on their purchase. The title should be monitored by the buyer’s conveyancer to see if a lien is filed within the lien period. If it is, the buyer, typically with the assistance of a lawyer, should demand the seller take steps to have the lien discharged. If the seller fails to do so, the buyer will have to seek a discharge, which may require payment of a substantial sum to the lien claimant or at least the payment of a sum equal to the amount of the lien into trust or into court. The buyer may be able to sue the seller for damages, but that may not be an easy or successful task.