Builders lien act
 
Read the Lien Act - it's important.
Dynamite was developed for peaceful purposes but is frequently used off-label. Likewise, the Lien Act was developed for good so that contractors and sub-contractors get paid for their work. But the Act has been turned into a weapon.
The Lien Act is used as follows (this assumes you've got a written contract with your contractor - if you don't, you're potentially screwed and the Act only has limited relevance):
 - On a significant project - more than $20k, eg - you'll probably pay your contractor in installments or progress payments. You withhold 10% of each payment, whether the contractor likes it or not - and many won't like it. Some will even slap you with a lien for it (but trying to enforce it would be futile. Don't forget that an unenforced lien - which you may not find out about for years - can cause you problems long after the project is done). Note: the Lien Act tells you to hold back 10% - it's not an optional process and you'll probably regret it if you ignore it. You should also note that if your contractor goes into receivership and has unpaid creditors, the receiver will come after you for a percentage of the project cost, if you did not exercise the Lien Holdback option.
 - At the end of the project, you will presumably sign off on the project and make the last payment - minus 10%. At this point you're sitting on 10% of the total project cost - "the lien holdback fund."
 - After 60 days, you have to pay the 10% balance to the contractor. If there are minor deficiencies in the work, you can withhold 2.5% and only hand over 7.5%. There is a legal definition for "substantially complete" - see Section 13 of the Act. Also, never let a contractor browbeat you into releasing the lien holdback fund early. Again, some will put a lien on your house for not releasing the funds early - once again showing how easy it is to lien someone.
 - After 60 days, your financial exposure to the contractor and subcontractors expires. Anyone with unpaid bills has to get them settled in that 60 day period. The lien holdback fund is for the benefit of the subcontractors and homeowner, and if the prime contractor hasn't paid them, they can demand payment from the fund, up to the maximum of the fund. If you release the holdback fund before the 60 days are up, your financial exposure is unlimited.
return to main page                      next page