One of the main purposes of the Construction Act is to protect parties who make improvements to the land but do not have a contract with the landowner. The Act does this by requiring each party to retain 10% of the payments it makes to the party below them in the construction pyramid. As an unpaid party, you can lien the property for the value of the unpaid work you have supplied to the property.
Construction lien holdbacks
A lien protects you by giving you access to the 10% holdback.
Holdback funds held by the owner are generally shared on a proportionate basis by you and other lien claimants. Recovery will vary based on the holdback amount and the amount of the liens. For example, if the holdback is $1 million, and there are three liens of $1 million each, you and the other lien claimants should each recover $333,333, that being one-third of the $1 million holdback. The lien will not help you recover your unpaid balance of $666,667.
Registering a construction lien
Generally, you must register your lien within 60 days of the earlier of:
- when you last did improvement work on site; and
- after substantial completion has happened.
Once your lien is registered and the owner is notified, the owner cannot advance further funds to parties in the construction pyramid unless certain rules are met. Practically, a lien can shut a project down until the lien is addressed. A lien can pressure the non-paying party to pay.
Construction lien litigation
Shortly after your lien is registered, you must start a lawsuit to prove your entitlement to the 10% holdback. If you do not, you lose your lien.
In the same lawsuit, you would also sue the party you contracted with, for breach of contract, and possibly, breach of trust. If you decide to not lien, you can still sue the party you contracted with.
Act early: Preserve your business relationships and avoid the lien
You should immediately contact your lawyer if you think you may need to lien. An early letter to your contracting party threatening a lien may get you paid, avoid the lien, and preserve the business relationship.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.