Client Update: “Lien”-ing Towards Efficiency: Upcoming Amendments to the Builders’ Lien Act
Bill 81 and Bill 15, receiving Royal Assent in 2013 and 2014 respectively, are due to take effect this month. On June 30, 2017, amendments to the Builders’ Lien Act (“the Act”) will introduce new regulations following recommendations from the 2013 Builders’ Lien Act Report by the Nova Scotia Law Reform Commission.
Why the Change?
The goal of these amendments is two-fold: to improve the flow of payments between certain stages of a construction project and to ensure that notice of important milestones, as defined by the Act, is given to parties involved.
To achieve these goals, the following amendments will take effect:
- A progressive release of holdbacks to subcontractors through certification
- A change in “finishing holdbacks”
- The creation of a written notice requirement of substantial performance and subcontract completion
These amendments respond to a number of concerns related to the management of construction projects, specifically related to holdbacks and notice of contract performance timelines. As stated in a backgrounder on the upcoming amendments to the Act, the holdback system currently operates through a “construction pyramid,” whereby the owner retains a holdback from the contractor, and in turn, the contractor retains a holdback from the subcontractor. For example, if a contractor fails to pay their subcontractors, these individuals have the ability to place a “lien” on the owner’s property for the amount owed. If the construction project finishes and no liens are registered, the holdback is released. In other words, a holdback is used to protect owners by limiting liability and subcontractors in the event that the contractor defaults on the contract. These protections will not change.
Progressive Release of Holdbacks through Certification
Under the current Builders’ Lien Act, the holdback retained by the owner may only be partially released (absent any liens being held) upon substantial completion of the contract and fully released upon final completion of the contract. However, earlier subcontractors are often disadvantaged by the delay in receiving the holdback payment, with no interest payable on the holdback amount in the interim.
The amendments due to take effect will allow owners to release a subcontractor’s holdback earlier by having the completion of the subcontract certified under Subsection 13A of the Act by an architect or an engineer, or in their absence, by a court. In other words, owners and purchasers of a particular construction project will be able to rely on verification from an independent and qualified third party to release the holdback as opposed to waiting until substantial completion of the entire project occurs. The earlier subcontractor can be paid sooner while the owner still retains the protection afforded by the Act.
Once the subcontract is certified as complete, the owner must pay out a proportion of the holdback amount within 60 days. If the subcontractor’s holdback is not paid out within 65 days of certified completion, the owner will be liable to the subcontractor for interest on the holdback amount at a rate of prime plus 2 percent.
A Change in Finishing Holdbacks
Another change to the Act is the way that finishing holdbacks will be calculated moving forward. The current Act requires the owner to retain a holdback of 2.5 per cent of the entire contract price to cover any potential liens against the property registered after the substantial performance deadline. In practice, this amount is often disproportionate to the actual cost of the work remaining.
The amendments will change the calculation percentage of the finishing holdback to 10 per cent of the cost of the remaining work (such as the cost of remaining supplies and materials) rather than using 2.5 per cent of the entire contract price.
Written Notice Requirement of Substantial Performance or Completion
The amendments will also introduce a new set of regulations, NS Reg 72/2017 to improve the notice to be given to parties involved in the contract upon substantial performance or upon final completion. In practice, parties involved in a construction contract may not be informed of these particular milestones. Notice is important as it often acts as a trigger for the release of holdbacks if no lien against the property is filed.
The new regulations will impose a duty upon owners to make written notice available to parties working on a particular construction project, whether it be contractors, subcontractors, suppliers, or employees. The application of the regulations will not apply to an owner, their spouse, or common law partner for constructing a structure or for improving a building or land for single-family residential purposes, up to $75,000.
When and how does an owner give notice?
- Post notice of substantial completion or subcontract completion of the construction project (depending on the milestone) within 10 days of the milestone date
- Post notice on the publicly available portion of the Construction Association of Nova Scotia (CANS) website at www.substantialperformance.com (no fee for publishing, viewing, or searching for notices)
- If there is a job site office, post notice in a prominent location
What does an owner include for notice of substantial completion?
- Name and address of the owner
- Name and address of the contractor
- Description of the work or services performed
- Description of the land upon which the work or services were performed
- Date the contract was substantially performed
What does an owner include for notice of subcontract completion?
- Name and address of the owner
- Name and address of the contractor
- Name and address of the subcontractor
- If a subcontract is certified as complete under Subsection 13A of the Act, the name and address of the architect, engineer, or other person to whom the certificate payments are to be made
- Description of the work or services performed or the materials placed or furnished
- Description of the land upon which the work or services were performed or the materials were placed or furnished
- Date the contract was certified as complete
The foregoing is intended for general information only. If you have any questions about how these amendments may affect your business, please contact a member of our Construction Law practice group.
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