How to stay protected as a contractor: understanding the Builders’ Lien Act
The Builders’ Lien Act is designed to provide builders with a simple way to ensure they get paid for their work without having to resort to expensive and complicated litigation. A contractor, subcontractor, labourer or supplier of materials who does not receive payment under their contract as agreed can register a builders’ lien against the title to the property at the Land Titles Office. The legislation provides a mechanism for the property to be sold if necessary to pay the owner’s debts to those with liens against the property.
While the legislation was designed to make life easier for builders, it can still be intimidating for those starting out. Our construction law professionals can ensure that you have a comprehensive understanding of the Builders’ Lien Act and how to stay protected as a contractor.
Are you a contractor?
Not every individual invited to build or improve a building is a contractor under the Act. The contractor is the person or company that entered into a contract with the owner of land to do work or provide materials to improve the land. A labourer is not a contractor, even if they are hired directly by an owner. A labourer is anyone employed for wages in any kind of labour.
A subcontractor is a person that is contracted with or employed under a contract but is neither:
- a contractor
- a labourer
- a person who only provides materials (for example, the lumber supply store)
- a person who only provides a service.
A subcontractor is hired and paid by the contractor, rather than by the owner directly.
What protection does the Act provide to contractors?
A builder who does work or provides material to improve land or a building attached to land is protected under the Act by the ability to file a lien against that land. The lien prevents the owner from selling the land (and the builder’s work or materials, which are now attached) without first dealing with the lien.
In order to take advantage this protection, the contractor must:
- register the lien within the specified time period (currently 45 days after the work is completed)
- preserve the lien by starting an action against the owner in respect of the unpaid contract
- enforce the lien by applying for an order from the court.
Holdbacks
Because the owner is often not personally responsible for paying every subcontractor, labourer and material supplier involved in their project, the Act provides for the owner to hold back a certain amount of the contract price until the work is substantially completed. That way, if the general contractor fails to pay the subcontractor installing the plumbing, the owner of the property has some funds set aside to pay that debt and can have the subcontractor’s lien removed from title.
A contractor needs to understand when and how to issue a certificate of substantial performance in order to have the holdback released when a job is complete.
Prompt payment and other changes coming in July 2021
The Government of Alberta has recently enacted major changes to the Builders’ Lien Act, which are currently scheduled to be in force in July 2021. These changes include:
- time limits to ensure that contractors and subcontractors are paid promptly
- an extension of the period in which a lien must be filed (from 45 days to 60 days)
- a formal adjudication process to help resolve the payment of disputed amounts without the courts.
If you have any questions related to how to stay protected as a contractor, understanding the Builders’ Lien Act or the changes to the Act that are coming this year, contact our Edmonton construction law lawyers today!