Knowing the basics about builders’ liens aids both owners and providers

The act facilitates recovery of amounts owing to people who have provided materials or services to an owner, a contractor or a subcontractor in relation to an improvement made to land. | Getty Images

Have you supplied goods or services in connection with an improvement to real property? Are you the owner or financer of such an improvement? If so, it is important to consider your rights pursuant to The Builders’ Lien Act SS 1984-85-86, c B-7.1.

The Saskatchewan Court of Appeal recently stated that the act has two purposes:

  • The protection of those who provide services and materials on credit.
  • The protection of the commercial interests of others, including the owner and the financier of the improvement.

The court has, however, consistently emphasized that the principal object of such legislation is to ensure that those who contribute work and material to an improvement of real property are paid for doing so.

The act facilitates recovery of amounts owing to people who have provided materials or services to an owner, a contractor or a subcontractor in relation to an improvement made to land. The remedies involve a trust, a holdback and a lien.

Trust

The Builders Lien Act trust provisions create three levels of trusts:

  • owner’s trust
  • contractor’s trust
  • subcontractor’s trust

The responsibilities of an owner, contractor and subcontractor are set out in sections 6, 7 and 8 of the act, respectively. The trust provisions are designed to ensure that money intended to be used for the improvement is so used.

In the case of an owner’s trust, for example, all amounts received by an owner, other than the Crown, that are to be used in the financing of an improvement, constitute a trust for the benefit of the contractor under section 6(1).

The owner is the trustee of the trust fund and is not to appropriate or convert any part of the trust fund until the contractor is paid all amounts related to the improvement owed to him by the owner under section 6(4). Contractors and subcontractors must adhere to similar requirements in regard to monies they receive as set out in sections 7 and 8 of the act.

A claimant under the trust provisions does not need to have a registered lien.

Holdback

The act provides that a holdback must be maintained by a person (such as the owner of the land being improved, a contractor and/or a subcontractor) of 10 percent of the greater of the value of the services or materials (as they are actually provided under a contract or subcontract) or the amount of any payment made on account of the contract or subcontract, as laid out in section 34(1).

The amount of the holdback is to be calculated based on the contract price or, if there is no specific price, based on the actual value of the services or materials provided under section 34(3).

The holdback is to remain in place until it is releasable pursuant to sections 41-45 of the act. Each of the sections concerning release of the holdback are subject to the provision concerning a holdback trust account (see section 38) and are subject to a claim of lien not being registered. If a claim of lien is registered, then the holdback is not to be released.

The Builders’ Lien Act allows a payer to make payments on a contract or subcontract up to 90 percent of the contractor subcontract price unless, before making payment, the payer receives written notice of a lien. In that case, the payer may make such payments provided it retains, in addition to the holdback, an amount sufficient to satisfy the lien under section(40).

Lien

A party who provides services or materials to an improvement for an owner, contractor or subcontractor has a lien on the estate or interest of the owner in the land occupied by the improvement, or enjoyed therewith, and on the materials provided to the improvement for the price of the services or materials owing. The lien claim is an in rem remedy (it runs with the land) and if the lien is proven, a lien claimant can have the land sold to satisfy its claim.

After a lien arises, the lien claimant must protect the lien claim through registration with the Land Titles Registry and by providing written notice of a lien.

A claim of lien is a claim upon the holdback. A written notice of a lien is a claim upon any additional amount owed in relation to the improvement as well as upon the holdback. Accordingly, while the claim of lien is registered against the land, a written notice of a lien is given to the payer on the contract or subcontract in order to be a charge on any additional amount owed in relation to the improvement and to stop a payer from making payments to the payee.

Where there is a single contract for improvements on more than one parcel, the claimant may claim each parcel for the price of all services or materials provided to all of the parcels under section 29. The act also permits claimants to charge other kinds of interests in land including, but not limited to, joint interests or interests in common, a landlord’s or tenant’s interest and a condominium unit.

Derek Gianoli is a lawyer with Stevenson Hood Thornton Beaubier LLP in Saskatoon. Contact him at dgianoli@shtb-law.com. This article is provided for general informational purposes only and does not constitute legal or other professional advice and does not replace independent legal or tax advice.

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