• Builders' Liens, Trade Contractors and Suppliers in Atlantic Canada
  • March 19, 2012 | Author: Kenneth B. McCullogh
  • Law Firm: Stewart McKelvey - Saint John Office
  • Subcontractors and suppliers who perform work or furnish materials to a construction site in Atlantic Canada enjoy the benefit of builders' lien legislation which is intended to provide them with a degree of protection against the default of persons with whom they have contracted to deliver such work and materials. Under the legislation, a lien on the interest of the owner of a construction project arises in favour of subcontractors and suppliers by operation of law as soon as they begin to do work or furnish materials to the project. However, following the substantial completion of the lienholder's last work or the final delivery of his materials, his lien will lapse unless he files a claim for lien within the time specified in the legislation. Filing a claim of lien within the requisite time will preserve the lien for a further period within which an unpaid subcontractor or supplier may commence a law suit to enforce his lien.

    The lien legislation is not intended to expose an owner to liability for any more than the amount properly owed to the person with whom he has contracted directly to perform the contract, the prime contractor. In each of the provinces, an owner who retains the "holdback" mandated by the legislation from the prime contractor is provided with the right to have all builders' liens against his property discharged by paying the amount of the holdback into court or in accordance with a court order. In such circumstances, the holdback takes the place of the owner's land. In the event the prime contractor does not or is unable to pay the amount owed those lienholders, their recourse against the owner who has followed the requirements of the legislation will be limited to a proportionate share of the holdback fund.

    In each of the Atlantic Provinces, the owner may release the holdback fund to the prime contractor at the end of the holdback period and, provided no claims for lien have been filed, that payment will discharge all liens which have arisen in favour of those claiming under the prime contractor.

    The end of the lien holdback period is tied to the substantial completion of the prime contract. In Newfoundland and Labrador, the holdback period expires 30 days after substantial completion of the prime contract unless in the meantime proceedings have been started to enforce a lien. In Prince Edward Island, New Brunswick and Nova Scotia, the holdback period ends 60 days after substantial completion of the prime contract unless in the meantime a claim for lien has been filed or registered.

    Generally speaking, a building contract is substantially complete when the work contracted for is finished in the ordinary sense of that term even though there may be defects and deficiencies. It is not always easy to determine the precise point at which substantial completion has been reached on a particular project. The certificate of the consultant on the matter is a good indication, but courts have held that it is not necessarily conclusive. It has been said that substantial completion is achieved when the project is sufficiently complete that it can be used for the purpose intended. This may be as good a rule of thumb as any. In Newfoundland and Labrador and in Nova Scotia, the lien legislation defines substantial completion. In those provinces, the contract work is deemed to have been substantially performed when the work is ready for use, or is being used, for the purpose intended and where the cost of remedying defects or deficiencies does not exceed a significant percentage of the prime contract price.

    The important thing to note is that subcontractors and suppliers will seldom be in a position to know when the prime contract work has reached substantial completion and that it is possible for substantial completion of the prime contract to occur before substantial completion of a subcontract or before a supplier has furnished the last of his materials to the job site. This means that in some circumstances, the lien of a subcontractor or supplier can be discharged even before the time prescribed in the legislation for the filing of a claim in respect of that lien has run out. The risk of this happening is particularly acute for subcontractors whose work is sequenced or for suppliers whose materials are delivered towards the end of the project.

    What This Means for You

    This means that subcontractors and suppliers intent on preserving their lien rights must not only ensure that they file claims for lien within the time stipulated for doing so under the applicable lien legislation, but they must also be aware of the state of progress of the project as a whole and take care that their claims for lien are filed before the end of the holdback period for the prime contract.