When should a Home Buyer or Seller be Concerned about Builders Liens?

The Builders Lien Act of BC sometimes comes into play in the purchase and sale of a home in British Columbia. It’s important to understand how builders liens can affect the purchase or sale of a property and what steps you should consider to protect yourself when purchasing or selling real estate in British Columbia.

If you are buying a new home you need to be aware of builders liens

Protecting yourself against builders liens when you are buying a new home and taking possession soon after its completion is important. As your Realtors, we would add appropriate clauses to your purchase contract to protect you in this situation.

It’s not a new home, should I still be concerned about builders liens?

Builders lien issues also come up fairly frequently in the case of existing homes.

Here is a typical scenario. During the home inspection, it’s discovered that something needs to be repaired or replaced. It may be something very inexpensive, or it could be something that will cost thousands of dollars. Let’s assume that it’s a new chimney that will cost $40,000 to replace. And let’s say that the seller of the house is agreeable to the concept of replacing the chimney, but rather than agree to a price reduction and have the home buyer replace the chimney after the completion date, the seller feels that he can have the chimney replaced more economically before the completion date. An amendment is entered by the parties which obligates the seller to replace the chimney before the completion date.

Under the Builders Lien Act of BC, any time someone does work on a home or supplies materials that go into the home, they have a lien for any unpaid amount of their labour or materials (Section 2 of the Act)

Under section 4 of the Builders Lien Act of BC, the person primarily liable on the contract, which in this case would be the seller who is having the chimney replaced, is obligated to retain a holdback equal to 10% of the work and materials. This 10% must be held back for a period of 55 days after the chimney has been completed.

Anyone supplying labour or materials to the project has 45 days after the project is completed in which to file a lien for unpaid labour or materials. (Section 20 of the Act)

Back to our example. The completion date occurs on March 15th and the seller’s chimney contractor completes the replacement of the chimney on March 1st, two weeks before the completion date.

The chimney contractor hired by the seller buys $30,000 worth of bricks, mortar and other materials from a lumberyard. The seller pays the chimney contractor $30,000 to cover the materials, but the chimney contractor neglects to pay the lumberyard. The lumberyard can file a lien against the property up to 45 days after the chimney has been completed. So, the lumberyard can file a lien on the property up to about April 15th, which is a month after the March 15th completion date when the buyer takes title. Let’s assume that the 10% holdback required under the Act wasn’t made. (Many home buyers are not even aware that there should be a builder’s lien holdback)

If the lumberyard files their lien on March 7th (before the completion date), the seller will likely have to pay the amount of the lien into court in order to get the lien removed and meet the seller’s obligation to give the buyer a clean title.

If the lumberyard files their lien on March 20th (after the March 15th completion date), it will appear on the buyer’s title. Fortunately for the buyer, Section 35 of the Act says that if a lien is filed against the title of a purchaser in good faith, the amount that may be claimed is limited to 10% of the purchase price of the improvement. So, if the lumberyard is owed $30,000, the lien on the buyer’s title is limited to $3,000. The buyer will have to pay the $3,000 into court to get the lien taken off the buyer’s title. The buyer will then usually have a claim against the seller for the $3,000. However, collecting that $3,000 may be difficult, particularly if the seller has relocated to another city.

If the 10% holdback had been made, that holdback could be paid into court to discharge the lien and the buyer wouldn’t be out of pocket the $3,000.

This is a very simplified example. There are other sections of the Act that can affect the buyer’s position.

The bottom line is that in the case of new homes and homes in which repairs or replacements are going to be done prior to the completion date, buyers and sellers need to be aware of the potential effect of builders liens on their transaction and, if necessary, legal advice should be sought.

Have other questions about buying or selling real estate in Victoria, Oak Bay, Saanich or Sidney?  Just send us an email and we’d be happy to help.

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