Exploitation of Lien Rights - Part I
At this point, our committed readers may have noticed how much power a construction lien truly holds with respect to securing payment. Sometimes, this much power, coupled with unethical practices by industry players in general, could lead to claimants exploiting their rights.
Consider the following example: you are a general contractor employed by a homeowner for the renovation of their kitchen. Your contract price is initially set at $30,000, which may not account for any extras that would go into finishing the project. The owner pays you $15,000 by cheque and (for some reason or another) provides you with $10,000 in cash.
Suppose you have completed all the renovations, but the owner is unhappy about a specific component and is unwilling to pay you the remaining $5,000. Strategically, although you are only owed $5,000, you can preserve a lien for $15,000 since that is the outstanding amount officially recorded on the books. By preserving a larger sum, you also leave room for negotiation to lower the price down to $5,000 and receive exact payment owed. Albeit not the most ethical practice, everyone gets what they deserved.
While unethical, the above example is not entirely harmful. However, consider this real-life instance: one homeowner in British Columbia reported that a sub-contractor provided her with an invoice in the amount of $60,000 for a job that subsequent consultants valued at $19,000 – which, regardless, was performed in a negligent manner with significant deficiencies.[1] During the course of this project, not only did the sub-contractor dig holes in the wrong places, leading to numerous problems with the project, but it caused the owner’s neighbour to suffer a cave-in. The owner indicated that she felt stuck – handcuffed. She had to pay for the sub-contractor’s mistakes in addition to the costly invoice. The sub-contractor in this case responded by accusing the homeowner of simply not wanting to pay and justifying the registration of the lien as a necessary method of securing payment. He did not comment on whether the quality of the work justified compensation.[2]
It is a scary possibility that contractors intentionally exploit their rights. The opportunity exists for such contractors to register liens they know to be invalid in an effort to force the homeowner into deciding between fighting the lien and negotiating a settlement. However, such vexatious claimants do not make up the dominant group of people relying on the Construction Act (“CLA”). In fact, the underlying goal of lien rights was to promote fairness in the construction industry by protecting against the threat of non-payment by non-contractual parties with more leverage or in positions of power. Thus, when contractors exploit this tool of fairness they inevitably tarnish the industry’s reputation and create an unfair leverage to secure potentially undue payment.
Although the CLA exists to protect claimants, there are provisions which specifically guard against such possible exploitations. Section 35 – and to a lesser extent Section 86(1)(b)(i) – of the CLA exists to protect owners and/or other Defendants in Lien Claims against such conduct. Exploitation – or “abuse” as it is otherwise referred to – under the CLA, occurs in two possible ways: first, when claimants preserve their lien rights for an amount they know or ought to know is grossly in excess of the amount owed. Second, where claimants know or ought to know that they do not actually have a right to lien in that specific situation.
Stay tuned for next week when we discuss how these sections have been used to protect owners and criticisms and criticisms surrounding same.
Until then!
The foregoing is for informational purposes only and should in no way be relied upon as legal advice. For legal advice tailored to your circumstances and business, please contact any of Sutherland Law's lawyers by email or telephone.
[1] Kathy Tomlinson, “Sub-Contractor abusing law meant to protect trades, says homeowner” CBC News (14 October 2008), online: <https://www.cbc.ca/news/canada/british-columbia/sub-contractor-abusing-law-meant-to-protect-trades-says-homeowner-1.736305> (last accessed 7 November 2018).
[2] Ibid.