Removing a Builders Lien by Posting Security
Removing a Builders Lien by Posting Security
Once someone has filed a builders lien and started litigation, there are only a few ways that the builders lien is going to be removed from the title of the property on which the lien is registered. If there are defects in the lien, the owner of the property can apply to have it removed. Assuming that there are no defects, then the owner could potentially be stuck with the lien on title until the litigation is resolved and any judgment obtained by the lien claimant is satisfied. Of course, this poses a potentially huge problem for the property owner, who may want to clear the title of their property to arrange for new financing or to sell the property.
The Builders Lien Act
The Builders Lien Act [SBC 1997] c. 45 (the “Act”) creates two options for the property owner or other parties interested in the property to clear the lien from title. Section 23 of the Act allows removal of a lien upon paying into court the total amount recoverable under the lien. That amount will either be the total amount of the lien claim, or, in some circumstances, the amount that is owed by the person depositing security to the person who hired the lien claimant. The latter set of circumstances arises when the lien claimant was hired by a contractor or subcontractor, and the person seeking the discharge of the lien is an owner or someone higher up the contractual chain who has no direct contractual relationship with the lien claimant. Section 23 provides an easier avenue to have the lien discharged if you can provide the required amount of security, which will then be held in court until the lien claim is dealt with or the matter settled.
In many cases, it is cost-prohibitive to put up the full amount of the lien claim as security. The lien might be for an amount that seems excessive, or even if the amount doesn’t seem excessive it might be too large to place the full amount in court. Section 24 gives the court a broader ability to cancel a claim of lien if an owner, contractor, subcontractor, or other interested party posts security that the court considers sufficient for payment of the claim of lien. The concept of “sufficient security” opens up a broader range of alternatives than putting up cash as security.
What are Alternate Forms of Security for Builders Liens?
Two common forms of alternative security are letters credit and lien bonds.
What is a Letters Credit?
Letters credit are issued by a bank, and are essentially the bank’s guarantee that payment will be made. In the case of a lien claim, the bank would guarantee that the lien claimant’s judgment will be paid if the court awards judgment to the lien claimant. Banks are risk averse, and are often reluctant to issue letters credit in lien claims unless they have a long-term relationship with the party seeking letters credit. Many banks require 100% cash security as between the bank and the party who requested the letter of credit, and for this reason it is often impractical to use a letter of credit as security for a lien claim.
What are Lien Bonds?
The more common alternative is a lien bond issued by an approved surety company. The Registrar of the Supreme Court of British Columbia maintains a list of companies approved to act as sureties. Those companies can issue bonds promising to pay the amount of any judgment obtained by the lien claimant, and those bonds can then be filed with the court to secure the removal of the lien under section 24 of the Act. The surety companies charge a fee for issuing the bond, and also require security to ensure that they will be paid back if they are required to make good upon their bond. That security however is usually less onerous than the 100% cash security often required by banks, making lien bonds a practical alternative to putting up 100% cash security.
Having a lien removed from the title of the property is often imperative, particularly when it can take some time for a lien case to go to trial and be finally resolved one way or the other. Construction projects usually involve financing that makes it necessary to deal with any lien claims before the next financing draw can be issued. The Act provides two avenues for the owner or other interested party to clear title by providing security, and both of those alternatives are designed to ensure that the lien claimant is not prejudiced by the removal of their lien from title.
How do I remove a Builders Lien?
If you are looking to have a lien removed, it is always useful to contact a lawyer and utilize the guidance and knowledge they offer. Contact us today to find out how we can help.
A Cautionary Note
This article provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.