Legalese: Lien into it

Some of you may have heard of builder’s liens, but don’t know whether they apply to you and your company. Builder’s liens are typically thought of in the context of construction and often relate to unpaid accounts incurred during the course of a construction project. They can also be used as a helpful tool for collection in the rental industry. However, in my experience they are underutilized by rental companies in general. Specific builder’s lien legislation varies from province to province. I’ll be discussing Manitoba law here, but consult an attorney in your jurisdiction before taking any action.

Generally, a builder’s lien can provide those who supply labour, services and/or materials to a property with certain rights that are not other-wise available to general creditors. A builder’s lien secures a claim for payment on work completed or materials and labour supplied to a construction project. Typically, when a lien is registered against a property, it becomes a charge against that title to the land or property involved and thereby allows the lien claimant the ability to secure payment for work done or materials and labour supplied to the property.

A general creditor who has not supplied labour, services and/or materials to a property does not have the right to file a builder’s lien against the debtor’s property. For example, a lawyer who performs work for a client does not have the right to file a builder’s lien against the client’s property when the client fails to pay.

On the other hand, an equipment rental company may have the right to file a builder’s lien against the property where its equipment has been used.

A builder’s lien can be an extremely effective tool for collecting on an outstanding account, as it constitutes a charge against property. As a result, the builder’s lien will impede the property owner’s ability to sell the land or obtain financing in connection with the property. Ultimately, a builder’s lien can be used as a tool to sell the property affected and use the sale proceeds to satisfy the lien. This is a powerful tool for any creditor to possess.

Suppliers of labour and materials to a property, such as general contractors, can include the renters of equipment in a builder’s lien claim, provided that the rental equipment was used on the particular property in question. However, you should not rely upon this to your detriment by assuming that a general contractor has included your claim for builder’s lien within theirs. Rather, you should make sure that your claim is included. If you are not sure, you would be best advised to file your own builder’s lien.

As noted above, the legislation dealing with builder’s liens varies from province to province. One thing that is common throughout the various provinces, however, is the fact that there are strict timelines that a lien claimant must adhere to in order to ensure the proper registration of a builder’s lien. Failure to adhere to these strict timelines (the actual number of days and technical requirements vary) can be fatal to a particular claim.

There are additional requirements that must be completed by a lien claimant, both before and after a lien is filed in order to secure and maintain the proper registration of a builder’s lien. These requirements should be discussed with your lawyer. On a relatively straightforward builder’s lien file, the total cost I charge to file a lien against a property (and thereby protect your interest in the property) is roughly $1,000. If you have a receivable of, say, $3,000 or more, it might make sense for you to consider filing a lien.

As a matter of practice, I advise my clients that they must have a system in place to trigger the filing of liens. People get very busy and often forget that they could have filed a lien if they had only thought about it at the time.

So, you should develop a practice with your lawyer whereby your internal systems automatically refer problem files out to your lawyer for the purpose of his/her potentially filing a lien. This is a matter for you and your lawyer to address.