Docstoc

NOVA SCOTIA (PDF)

Document Sample
NOVA SCOTIA (PDF) Powered By Docstoc
					NOVA SCOTIA


                                     BUILDERS’ LIEN ACT

                                                         Summary prepared by John Kulik, Q.C.

What is the name of the lien legislation in Nova Scotia?

       Builders’ Lien Act, R.S.N.S. 1989, c. 277 as amended

Who is entitled to claim a lien?

       Unless a person signs an agreement to the contrary, any person who performs work or
       service or furnishes any material on a construction site has a right to register a builders’
       lien against the interest of the owner of the property on which the work was being
       performed. A contract between a general contractor and owner cannot deprive
       subcontractors or suppliers of their right to lien. Furthermore, any contractual provision
       purporting to deprive manual labourers of their lien rights is null and void.

Does the Act bind the Provincial Crown?

       Yes. However, liens cannot be registered against Provincial Crown property: a notice of
       lien must be served upon the Department of Justice and forms a charge against the 10%
       holdback fund which the Provincial Crown must now maintain. Furthermore, a lien
       action to perfect a lien cannot be commenced against the Provincial Crown unless 30
       days previous notice in writing has been served. This means that unless notice of
       intended action has been served upon the Provincial Crown 75 days after the lien
       claimant’s last day of work, the lien claimant will be out of time. The simplest way to
       avoid this issue is to serve on the Provincial Crown both the notice of the lien and the
       notice of intention to commence a lien action at the same time.

Is there a minimum amount for which a lien may be claimed?

       No.

Is there a lien for interest?

       The Act does not specifically provide for entitlement to claim interest as part of a lien. If
       the lien claimant has a direct contract with the owner, then the lien claimant may be able
       to claim interest as part of his lien. However, where a lien claimant has a contract with
       someone in the construction chain other than the owner, then failure by that other
       person to pay is not the responsibility of the owner and therefore the lien amount against
       the owner’s land does not include interest. The lien claimant can still recover interest as
       part of his debt action against the party with whom he has the direct contract.

       In addition, there is a provision for payment of interest in the amount of prime + 2% on
       any holdbacks maintained for more than 5 days after the statutory release period (i.e. 60
       days after substantial performance).
                                               2

Are there circumstances for which a lien claim may not be available?

      No lien is available for work carried out on federal Crown property. In addition, the Act
      does not apply to a public street or highway.

What is the holdback amount?

      The holdback amount is 10%. The holdback must be deducted from and maintained
      with respect to each progress payment. The 10% holdback is to be reduced to 2.5% 60
      days after the work is substantially performed. The 2.5% “finishing holdback” is to be
      retained for 60 days after all required work is performed completely.

How is the holdback calculated?

      The holdback is to consist of 10% of the value of the work, service and materials actually
      done, placed or furnished. Such value is calculated on the basis of the contract price or,
      if there is no specific itemized contract price from the particular parts of the work
      performed, on the basis of the actual value of the work, service or materials.

Who must retain a holdback, and specifically how is this done?

      A holdback must be retained by the person primarily liable under any contract under
      which a lien may arise. In other words, an owner of property and every contractor who
      works on that property who retains subcontractors /material men/labourers to perform
      work must maintain a 10% holdback from the amount that said owner or contractor owes
      to those contractors or suppliers they retained directly. There is no mechanism set out
      as to how this is to be done nor is there any requirement that the holdback be
      maintained as a trust fund.

For how long must the holdback be retained?

      The holdback must be retained for 60 days after “substantial completion” (the work is
      97.5% complete and can be used for its intended purpose). Sixty days after substantial
      completion, the amount is to be reduced to 2.5% which is to be retained by the person
      primarily liable on the contract until the required work is performed completely. This is
      sometimes referred to as the finishing holdback.

      The 10% holdback is not discretionary and must be retained for a minimum of 60 days
      after substantial completion. In order to protect itself, the person primarily liable on the
      contract should retain the 2.5% holdback amount for 60 days after all work has been
      completed. Before each progress payment is made and before the release of any
      holdback amounts, a search must be conducted at the Registry of Deeds to see if there
      are any liens or lis pendens filed.

Is a set off against holdback permitted?

      No.
                                                 3

How long does a claimant have to preserve/register the lien?

      In cases not otherwise provided for, a lien by a contractor or subcontractor may be
      registered during the performance of the contract, or within 60 days after the completion
      or abandonment.

      A claim of lien for materials may be registered during the furnishing or placing thereof, or
      within 60 days after the last material was furnished or placed.

      A claim for lien for services may be registered at any time during the performance of the
      service or within 60 days after the completion of the service.

      A claim for lien for wages may be registered at any time during the performance of the
      work for which such wages are claimed, or within 60 days after the last work is done.

      If the contract is under the supervision of a certifier (ie. an architect, engineer etc.) a lien
      may be registered during the performance of the contract or within 60 days after the
      completion or abandonment of it; or within 7 days after the certifier has given or has
      refused to give a final certificate.

What is a “prevenient arrangement”, and how does it affect lien rights?

      A “prevenient arrangement” is where a supplier agrees with the contractor or
      subcontractor that he will supply materials as ordered from time to time upon terms then
      agreed upon or to be fixed later as the material is supplied. The time for registering a
      lien for the entirety of the material supplied will commence to run from the date of the
      last delivery of materials, regardless if there were gaps of more than 60 days between
      delivery.

What is the procedure for preserving/registering a lien?

      A claim of lien, verified by an affidavit of the lienholder or agent, may be registered in the
      Land Registration Office for the registration district in which the land is situated. Lien
      claims can now be registered electronically but only by certain solicitors who have a
      specialized designation.

      The claim for lien shall state the name of:

      (1)    the person claiming the lien;

      (2)    the owner of the property to be charged; and

      (3)    the person for whom the work was done (if other than the owner).

      The lien should also contain:

      (a)    a short description of the work or service done or the materials furnished or
             placed;

      (b)    the sum claimed; and
                                               4

      (c)    a legal description (or Property Identification Number) of the land charged.

How long does a lien claimant have to commence a lien action, and what procedural
steps must be taken?

      An action must be commenced within 105 days of the claimant’s last day of work or in
      the case of a contract under the supervision of an architect, engineer or other person
      upon whose certificate payments are to be made, within 30 days of registering the lien
      claim.

      An action is commenced by filing a Statement of Claim in the office of the clerk of the
      Supreme Court (the “Prothonotary”). At the same time, the Prothonotary will issue a
      Certificate of Lis Pendens which must be registered at the same Land Registration
      Office in which the lien was originally registered within 105 days of the lien claimant’s
      last day of work. This can now be done electronically by certain designated solicitors.

      The Statement of Claim must be served within one month after it is filed unless the court
      extends the service time. The delivery of the Statement of Defence has the same time
      period as a defence for an action in the Supreme Court [20 days if the defendant is
      served in Nova Scotia, 40 days if served in Canada but outside Nova Scotia]. However,
      since a lien claimant cannot obtain default judgment, often a defence is not filed.

What may be included in a lien action and what may not be included?

      A lien action can only include claims for work, service or materials. It cannot include
      claims for damages such as a delay claim etc.

How does a lien action differ from any other court action?

      The procedures for lien trials set out in the Builders’ Lien Act differ in some respects
      from the Nova Scotia Civil Procedure Rules. In particular, once the time for filing a
      defence has passed (whether a defence is filed or not) either party may immediately
      apply to a judge to set a trial date. The party who obtains the trial date must serve a
      Notice of Trial at least 8 clear days before trial on all interested parties including other
      lien holders and any encumbrancers of the property in question.

      The trial judge has power to order the sale of the property, the sale of any materials,
      authorize the removal of materials etc. Furthermore, even after a lien judgment is
      entered and the property is sold, another lien claimant can still apply to the court to
      prove his lien at any time before the amount realized on a lien sale has been distributed.

What about priorities?

      A lien takes effect upon the registration date against subsequent purchasers,
      mortgagees, or other encumbrances.

      The lien shall have priority over all judgments, executions, assignments, attachments,
      garnishments and receiving orders recovered, issued or made after the lien arises, and
      over all payments or advances made on account of any conveyance or mortgage after
      the giving of notice in writing of the lien.
                                                5

       No person entitled to a lien shall have priority over another in the same class. Each
       class of lien holders shall rank pari passu for their amounts and the proceeds of any sale
       shall be divided among them pro rata according to their class and rights.

       Anyone who files a lien for unpaid wages shall, for up to 30 days wages (not 30 calendar
       days), have priority over all other liens registered against the same contractor and/or
       subcontractor. Such claimants will rank pari passu with one another.

       A mortgage lender who has registered his mortgage obtains priority with respect to funds
       advanced in good faith over any lien which has not been registered at the time the funds
       are paid to the owner.

       Mine workers who have a lien for wages have priority over all other liens, mortgages or
       charges on the property as well as mining leases or licenses whether these are prior or
       subsequent to the performance of work or labour.

What about trust funds?

       As of January 1, 2005, there are now trust provisions in the Nova Scotia Builders’ Lien
       Act.

       The Act requires an owner, contractor or subcontractor who receives money (the
       “trustee”), which money is to be used to fund a project or which money is paid pursuant
       to a contract for work on a project, to use that money to pay those who provided services
       or materials for the project. A failure to do so will constitute a breach of trust for which,
       in certain circumstances, the directors, officers or controlling minds of the trustee may be
       personally liable.

       Since the nature of a trust fund is such that the money contained in the fund is never
       really owned by the trustee but is merely held in trust by the trustee in order to pay
       his/her contractors, subcontractors and/or suppliers, such funds do not constitute a
       receivable that can be assigned to the trustee’s lender or banker under a general
       security agreement. If a third party seizes such funds, they will have to be returned.

       The case law indicates that contractors are not entitled to use trust funds to pay their
       own overhead expenses until all subcontractors, suppliers, labourers etc. have been
       paid.

Are there any limitation periods to be concerned with respect to trust fund claims?

       No. Since a breach of trust is considered a breach of a fiduciary duty and in Nova Scotia
       there is no time limitation periods with respect to claims for breach of fiduciary duty,
       there are no time limits with respect to trust claims.

Is a set off against trust funds permitted?

       Yes.
                                                6

Does the Lien legislation deal with the consolidation of a number of lien actions?

       Where more than one action is brought to realize liens in respect of the same property,
       any party or interested person can apply to the court to consolidate the actions.

What rights of information are available to lien claimants, trust fund claimants, owners
and mortgagees?

       Any lien holder may, at any time, by written request, require certain information be
       provided within 21 days by the owner, a contractor or a subcontractor (from all the
       parties above the lien holder in the construction pyramid). In particular, the information
       may include:

       (a)    the names of the party to the contract;

       (b)    the contract price;

       (c)    the state of accounts between the parties to the contract;

       (d)    a copy of any labour and material payment bond in respect to the contract; and

       (e)    a statement of whether a subcontract has been certified as complete, etc..

       Where the person required to provide information does not do so as required, that
       person may be liable for any damages arising from their failure to produce the
       information. The court can make an order requiring production of the requested
       information and may even order payment of solicitor and client costs.

When a lien attaches to a property that is destroyed (e.g. by fire), how does the Act deal
with insurance proceeds?

       The insurance money takes the place of the property that is destroyed and is subject to
       lien claims as if the money was realized by sale of property in an action to enforce the
       lien.

Is a lien claimant entitled to assign his/her rights?

       A lienholder can assign their right by an instrument in writing. If it is not assigned, the
       lien will pass to the lienholder’s personal representative upon death.

In general terms, what is the practice and procedure for enforcing a lien claim, from the
commencement of a lien action to trial?

       The procedure is to:

       (1)    register the lien with the Land Registration Office in the appropriate district
              according to the location of the land within 60 days after the lien claimants’ last
              day of work;

       (2)    commence an action within 105 days of the lien claimant’s last day of work by
              filing a Statement of Claim;
                                                7



       (3)    register a Certificate of Lis Pendens within the 105 day period; and

       (4)    either party may then apply to the court for a trial date and serve a Notice of Trial
              within 8 clear days of the trial date on all other interested parties.

In which court and before which judicial officer are lien trials usually held?

       Lien trials are held before a justice of the Supreme Court of Nova Scotia.

What “extraordinary remedies” may be available under the Act?

       The judge can order the estate or interest of the owner of the project to be sold and
       direct the sale to take place anytime after judgment, allowing a reasonable time for
       advertisement. The judge can also order the sale or removal of any materials.

How does the existence of a labour and material payment bond affect lien rights?

       No effect.

How does an arbitration clause in a contract affect lien rights?

       The Act specifically provides that despite the fact that there may be an arbitration clause
       in the contract and/or that the contract is governed by one or more pieces of arbitration
       legislation, a contractor still has the right to file a lien, commence the necessary action
       and file a lis pendens in order to perfect its lien rights. However, the lien action may then
       be stayed until the arbitration is completed.


(#1222615)

				
DOCUMENT INFO