What are the Construction Lien Act and a Claim for Lien?
The rationale behind the Construction Lien Act is to enable those individuals who contribute work and or materials to a construction project to be paid for their work and, conversely, so that the owner of the project does not wrongfully benefit from the improvements without paying for them. The remedy of the registration of a Claim for Lien allows an individual to make a claim directly against the project owner’s interest in the project or lands. As such, a Claim for Lien permits those individuals, which includes sub-contractors, and even those without a contractual claim against the owner, to make a claim against the owner’s interest in the project or lands. Ultimately, the lien claimant has a right to have the lands sold to satisfy its claim. It cannot be stressed how effective a remedy a Claim for Lien can be over a mere contractual claim and, of course, where there is not even a contractual claim because there is no “privity of contract.”
The Construction Lien Act also includes trust provisions to ensure that the monies to be used for the completion of the project are paid to the individuals entitled to the funds absent sharing them with third-party claimants, such as judgment creditors. The trust provisions exist to ensure that an individual who has received funds for the benefit of the claimants below it in the so-called “construction pyramid” will pay those funds to those individuals and not siphon them to a personal use, or a use inconsistent with the trust.
Because most construction projects are pyramidal, as referred to above, which term basically means that the owner is at the top of the pyramid, the general contractor is just below the owner, and the sub-contractors and suppliers are below the general contractor and form the base of the pyramid. It is because of this structure that the payments normally flow from the top of the pyramid to the bottom. The Construction Lien Act also creates a system of holdbacks so that each individual in the various level of the pyramid must hold a percentage back from the level just below it for the benefit of the individual two levels below. In most cases, the holdback is calculated based on the total price of the contract.
A Claim for Lien arises by virtue of the performance of work or the supply of materials to an improvement to the lands or project. Once it has arisen, a Claim for Lien exists until it expires. A claim expires if it is not preserved in sufficient time by the registration of a Claim for Lien. There are various time periods set out in the Construction Lien Act for the preservation of a claim. In particular, a claim on or before the date certified or declared to be the date of substantial performance expires unless a Claim for Lien is registered within 45 days following the earlier of (1) the date on which a copy of the Certificate or the Declaration of Substantial Performance of the contract is published; and (2) the date the contract is completed or abandoned, if there is such a Declaration or Certificate. In the event there is neither, or where a claim is made for services or materials supplied after the date certified or declared to be the date of substantial performance of the contract, the Claim for Lien will expire 45 days following the completion or abandonment of the work by the individual.
A preserved Claim for Lien, as described above, expires unless an action is commenced to enforce that Claim for Lien and a Certificate of Action is registered within 45 days following the last day that the Claim for Lien could have been preserved.
Construction Lien work is very technical, and the failure to follow the Construction Lien Act will result in the Claim for Lien and/or the Certificate of Action being adjudged invalid and of no force and effect by the Court.