One of the most effective ways to deal with monies owing is to file a Mechanics’ Lien. On January 1, 2005, the Mechanics’ Lien became the Builders’ Lien. The Nova Scotia Legislature amended the Mechanics’ Lien Act with several important changes, including the name of the Act itself. A lien is still a very important tool to be used to collect monies owing, however, it can only be used in very specific circumstances, in order to be effective, it must be done in a very precise manner.
What does a builders’ lien do and when can it be used?
A Builders’ Lien is used in relation to property. It is a document filed at the Registry of Deeds to indicate that a contractor, sub-contractor or supplier has done work on, or provided materials in connection with a property. The Builders’ Lien allows you to reach into the pockets of individuals other than those with whom you have contracted directly. For example, if you are an unpaid sub-contractor you are able to sue the contractor who has not paid you; in addition, you have the right to claim from the owner of the property sums which he is required to hold back under the Builders’ Lien Act.
In addition, in some circumstances, it enables you to sell the property on which you worked in order to recover the funds outstanding which is an extremely powerful tool provided under this statute.
As well, the Builders’ Lien provides notice in the Registry that money is owed which generally prevents mortgage companies from advancing funds over the Lien.
How do I file a lien?
The placing of a Lien is a technical process and generally involves consulting a lawyer and indicating that you have done work for another party, how much you charged to do the work, when your last day of work was, and whether you supplied labour or materials (or both) to the site. It is the lawyer’s job to confirm who owns the property. It is important to get the correct information as it is necessary to name the people who have an ownership interest in the property so that they can be joined in the Lien.
The reason it is important to know the last day of work is that in order for the Lien to be effective, it must be filed within 60 days of the last day of work. The last day of work is generally considered to be the time when you last worked under the contract. The last day of work cannot be deficiency work.
Once a lien is drafted, a representative of your company will have to attend the lawyer’s offices to sign the Lien itself and also to sign an Affidavit swearing that you have done the work you have claimed, that you have read over the Lien claim and that it is accurate. Once the Lien is placed on the property, the party that is liened may not know about it until they have been served with the documents.
The Lis Pendens
The Lis Pendens is the next step in the Lien process and this must be filed within 105 days of the last day of work unless the Claim of Lien has been paid or settled. This involves filing a Statement of Claim at the Prothonotary’s, an office in the Courthouse, and then filing a document called the Lis Pendens, which means “action pending”, at the Registry of Deeds to indicate that you are in fact pursuing your Lien and that you have commenced a law suit to prove that the money is owed to you. The Statement of Claim sets out the facts that support your assertions as to why you believe the monies are owed to you. The Statement of Claim in a Builders’ Lien action is a specialized document because it must be drafted correctly to comply with the Builders’ Lien Act.
Once you have filed your Lis Pendens and Statement of Claim, the claim must be served upon the party whom you are claiming the money is owed from. From that point on the matter proceeds generally as if it were a standard lawsuit and you proceed to trial and recoup your funds in a similar manner. All liens filed in respect to a project must be consolidated so that they can be tried by the Court at the same time.
How do I get my money?
Initially, after you file your Builders’ Lien, you will have advised the other side that you have filed the Lien and in order to prevent any difficulties in them conveying the property or in receiving financing, the other side may have paid out your Lien in its totality. They may pay money into Court to “vacate” the Lien (lift it from the property) and argue about the validity or the amount of the Lien claim in Court at a later date. If they have not done this you will have proceeded to Lis Pendens in which case you file a Statement of Claim and have it served.
Once the other side sees that you are taking action to receive your funds, they may decide to pay the claim at that point or try and negotiate a settlement with you. If, however, they have not done either of these, you have the right to go to Court and seek Judgment against the person whom you contracted with directly for the full amount owed to you. If they do not have the funds to pay the full amount owing, you can look to the owner.
The owner of the property is required by law to keep a 10% holdback of any funds advanced to the contractors, as a Builders’ Lien holdback. If the party you had the contract with cannot pay you, then you can claim against this Lien Fund. It is important to note that Builders’ Lien holdbacks (and unadvanced funds under the contract) may not always be enough to cover the full amount of your contract price. The general contractor may have several other sub-contractors who are also owed money.
Sub-contractors have a right to claim from the Lien Fund in a manner which is known as “pari passu” or “pro rata”. This essentially means that all of the sub-contractors of the same level claim in proportion to the amounts owed to them. This can sometimes result in the Lien funds available to you being quite a bit less than the monies owed.
It is very difficult to say exactly how much money you will get out of the Lien Fund until it is established who all of the parties claiming on this Fund are. It can sometimes take a while if you are working on a project that involves numerous sub-contractors at various levels. However, it is a source of funds for you to claim against when some, or all of the parties may, have gone bankrupt or closed business.
Holding Money in Trust
The most important and far-reaching amendments to the lien legislation is the introduction of trust fund provisions. These provisions will require that any monies received by an owner of a construction project for financing that project will become the basis of a trust fund for the benefit of contractors. As the work proceeds and money becomes payable by the owner to the contractor, any monies held by the owner in an amount equal to invoices submitted by the contractor will be deemed to be a trust fund for the benefit of that contractor. Similarly, funds received by the contractor in an amount equal to that owed to sub-contractors will be subjected to a trust for the benefit of the sub-contractors or suppliers, as the case may be.
The rationale being that as a party (owner, contractor, sub-contractor, etc.) receives funds their first obligation is to pay whomever they owe with respect to the project before they can use the balance of the funds for their own purposes. If they use the monies for their own purposes, they will be deemed in breach of trust.
The trust provisions will protect project monies from the claims of creditors who are not a party to the construction and unlike a lien itself, a claim to the trust monies need not be registered or provide notice in order to preserve a claim against the trust fund. The amendments to the Act also provide that any person controlling a corporation (officers, directors, etc.) may be personally liable for the failure of their corporation to comply with the new trust provisions of the Act.
We suggest consulting a lawyer to ensure that you are taking adequate steps in both protecting and paying trust money. Companies and individuals should ensure that they are taking appropriate steps in implementing policies and accounting controls so as the new trust provisions are being obeyed. The trust provisions became effective January 1, 2005.
The Builders’ Lien Act now applies to the Provincial Government. The previous legislation did not allow liens against the Provincial Government. The new amendments do not allow a lien to attach to Crown (Provincial Government-owned) land, however a lien claimant can make a charge on the lien holdback which the Crown must now maintain and this claim can be made without the requirement of registration.
Under the former legislation, a lien claimant was able to “shelter” under the claim of another lien holder. As of January 1, 2005, this option no longer exists. This brought our legislation in line with the rest of Canada.
Other amendments eliminate the ability to lien ships and vessels, thereby focusing the Act on the construction industry and this brings the Act into conformity with lien legislation elsewhere in Canada. Those who do work on ships and vessels have other forms of legislation (for example, the Federal Court Act) to assist them in making a claim for unpaid services and/or materials.
There are other amendments dealing with the type of information which must be made available to lien holders, including a time period to respond to such a demand for information as well as provisions dealing with arbitration of lien claims. We invite you to consult a lawyer to discuss these other provisions as well as all of the amendments.
While a Builders’ Lien may have some shortcomings, it is the best tool available to businesses and individuals to recoup money when they have worked upon a property. It is also available to people who have lost wages or have not been paid by their employers in respect to work on a project.
This information has been provided for general reference only. For advice on an actual matter, you should consult a lawyer. To contact a member of our team call us at 902-469-9500 or 1-866-339-3400 or contact us online to make an appointment.