A Guide to the Builders Lien Act

What is the Builders Lien Act?

The Builders Lien Act provides a form of security to contractors, subcontractors, workers and suppliers who work on a building that is under construction – the builders lien. A builders lien is a charge on property by a person who has supplied work or material to a building under construction. A builders lien may be claimed by a contractor, subcontractor or worker.

How it works

The Builders Lien Act also creates a pool of money out of which claims may be paid, by requiring an owner to hold back 10% of each payment to the contractor – the builders lien holdback. The builders lien holdback provides two functions:

• It ensures that there is a pool of money out of which builders lien claims can be paid, although it does not guarantee payment of those claims. The requirement for owners to establish a holdback account is clearly intended to give the contractor and the subcontractors comfort that the holdback funds are indeed available. It also aims to assure the contractor and subcontractors that they will not be, for example, at the mercy of a mortgagee or owner who must come up with the holdback funds at the end of the project.
• It limits an owner’s liability for lien claims. If an owner complies with the holdback provisions of the Builders Lien Act, the owner’s maximum liability for lien claims will be limited to the amount of the 10% holdback or the unpaid balance of the contract price, whichever is greater.

The Builders Lien Act helps to ensure that money intended to finance construction is used for that purpose by imposing a trust on money received by contractors and subcontractors in connection with the construction project – the statutory or deemed trust. The holdback account will be treated like a trust account. Contractors and subcontractors are deemed to be trustees of the money received by them. The persons engaged directly by them are the beneficiaries of the particular trust fund.