Progressive Release of Holdbacks
Section 7 of the Builders Lien Act allows for what is commonly known as the progressive release of the holdback funds during the course of a project. These provisions of the Act are commonly used on larger projects to allow subcontractors to receive the holdback funds in relation to their specific work by requesting the project’s payment certifier (often the coordinating professional) to confirm that their contracts or subcontracts are complete. In theory, once the payment certifier confirms this, the holdback period can commence for that portion of the work and the funds can be released after the 55-day period has run its course. Although this appears to be a fairly simple way to have those funds released prior to the entire project completing, it is not that simple in practice.
Much like the remainder of the Act, these provisions require strict compliance in order for the parties to have met their obligations so that holdback funds can be properly paid out. If the payment certifier agrees that the specific portion of the work is substantially completed, they must within seven days deliver a copy of the certificate to the owner, the head contractor and the person who requested the confirmation of completion. In that time the payment certifier must also provide copies of the certificate to any lienholders who have requested it and post a notice of certification on the project site.
The issuance, delivery and posting of the notice must all be done in strict compliance with the Act in order to protect the parties. As an example, if the notice is posted on a security trailer on the street beside the project site it was found to not be posted “on the site” and therefore the posting is invalid for the purposes of the Act (see Alterra Property Group Ltd. v. Doka Canada Ltd., 2008 BCSC 1880). In the event that the payment certifier does not strictly comply with the Act, they can be held liable to any party who suffers loss or damage as a result of that non-compliance.
Not only can compliance with the Act in relation to the progressive release of holdback funds be difficult, but it can also be costly and can cause delays. Each time that the payment certifier has to review specific portions of the project, time will be spent away from other areas of the project which might need their attention. Further, additional time will also require compensation.
Each time the owner or head contractor is required to release holdback funds, in addition to internal administration time they are also required to perform the required searches to confirm that there are no liens or Supreme Court actions commenced in relation to the part of the project for which the funds are being released. If this is not done, the owner or head contractor could be liable for improperly releasing the holdback funds. All of these factors make it difficult to justify progressively releasing the holdback funds, which is why it is not often done on projects, especially smaller projects.
It is a common misconception that the issuance of a statutory declaration prior to the expiry of the lien or holdback period is sufficient to allow the owner or head contractor to release the holdback funds. Although a statutory declaration may give the party some peace of mind, it does not provide any further protection as it is not contemplated within the Act. Just because a statutory declaration was issued on day 25 of the holdback period by a contractor, it does not prevent a lien claimant from filing a lien prior to the 46th day or starting a Supreme Court action prior to the 56th day. Further, it does not protect a party who has paid out a holdback. As a result, releasing the holdback funds on the basis of a statutory declaration can still result in an improper release of the holdback and can increase an owner’s or head contractor’s liability.
Contact our Construction Lawyers today for a consultation on Builders Liens.The information provided above is for educational purposes only. This information is not intended to replace the advice of a lawyer or address specific situations. Your personal situation should be discussed with a lawyer. If you have any questions or concerns, contact a legal professional.