What Is a Builder’s Lien?
A builder’s lien is a legal claim filed by a contractor, subcontractor, or supplier for unpaid work or materials provided to a construction project. In Alberta, builder’s liens are governed by the Prompt Payment and Construction Lien Act (formerly the Builders’ Lien Act).
Key Provisions of the Act:
Contractors and subcontractors must be paid within 28 days of issuing an invoice.
If payment is not received, the unpaid party has the right to file a lien against the property.
A lien must be registered within 60 days of the last day work or materials were provided.
If a lien is filed, it can create financial and legal complications for the condominium corporation, affecting unit owners and delaying future projects.
Example:
A roofing company completes work on a condominium’s common property but has not been paid. The company files a builder’s lien against the condominium, preventing any property sales or refinancing until the issue is resolved.
Impact on Condominium Corporations
A builder’s lien can be placed against the entire condominium property if the work was performed on common areas, such as:
Exterior repairs (roofing, siding, parking lot resurfacing).
Interior upgrades (hallways, elevators, fire suppression systems).
Infrastructure projects (plumbing, electrical, HVAC improvements).
Consequences of a Lien on a Condominium Corporation:
Legal and financial complications: If a lien is not resolved, legal action may follow, increasing costs.
Delayed property transactions: A lien can prevent unit sales or refinancing, as lenders may refuse to approve financing until the lien is discharged.
Negative impact on unit owners: If the condominium board fails to resolve the lien, owners may face special assessments to cover legal fees or outstanding debts.
Responsibilities of the Condominium Board
Condominium boards must ensure that all payments are properly managed to prevent liens from being placed on the property. This includes:
Reviewing contracts carefully before signing agreements with contractors.
Consider requiring bonding from contractors to protect the corporation from unpaid subcontractor or supplier claims.
Ensuring prompt payment to contractors and subcontractors within the required timelines.
Retaining holdbacks as required under the Prompt Payment and Construction Lien Act to cover potential disputes.
How to Manage Builder’s Liens
Proper management of payments and contracts can help prevent lien-related disputes. However, if a lien is filed, the condominium board must take immediate action.
A. Ensuring Compliance with Payment Timelines
Pay all invoices within 28 days to avoid non-payment disputes.
Confirm that subcontractors have also been paid by the general contractor.
B. Verifying Contractor Invoices and Retaining Holdbacks
Before issuing payment, review the scope of work to confirm that all contractual obligations were met.
Retain 10% of the contract price as a holdback to cover potential disputes, as required under the Prompt Payment and Construction Lien Act.
C. Resolving a Filed Lien
If a lien is registered against the condominium:
Step 1: Verify the claim
Request documentation from the contractor, including unpaid invoices and records of work completed.
Step 2: Review payment history
Check if payments were made in full or if a legitimate dispute exists.
Step 3: Work with legal counsel
If the lien is valid, negotiate payment or settle the dispute.
If the lien is invalid, apply to have it removed from the property title.
Step 4: Utilize Bonding for Resolution
If the contractor provided a payment bond, the condominium corporation can file a claim against the bond rather than paying directly for subcontractor disputes.
Key Consideration:
Even if the board believes the lien is invalid, it must still be addressed legally—ignoring a lien can lead to legal action and additional costs.
Practical Application: Handling a Lien Dispute
Scenario:
A condominium board receives notice that a subcontractor has filed a builder’s lien against the property for unpaid work related to a hallway renovation. The board was unaware of the issue, as the general contractor had already been paid in full.
Step-by-Step Resolution Process:
Step 1 Verify the Claim
Contact the subcontractor to request a copy of the unpaid invoice.
Review the general contractor’s records to confirm if they received payment.
Step 2 Investigate the Payment Trail
If the general contractor was paid but failed to pay the subcontractor, the board may need to withhold further payments or take legal action against the contractor.
If the subcontractor’s claim is legitimate, the board should negotiate a payment settlement.
Step 3 Consult Legal Counsel
If the lien is invalid, a lawyer can help file a legal challenge to have it removed.
If the lien is valid, negotiate a fair settlement to prevent further legal action.
Step 4 Use Bonding to Resolve the Lien
If the contractor was required to obtain a payment bond, the board can file a claim against the bond instead of using corporation funds.
Step 5 Implement Preventative Measures for Future Projects
Require proof of subcontractor payments before issuing final payments to general contractors.
Use contract clauses requiring bonding, ensuring financial protection for the condominium corporation.
