A builders lien holdback is money that is held back at the time of sale of a property. The holdback is released after the time limit for filing a builders lien has expired. In B.C. a claim of builders lien may be filed against a property no later than 45 days after the date the improvement (building) is completed, abandoned or terminated.
To protect a buyer from a builders lien it is common to include in a contract of purchase and sale of a property in B.C. a builders lien holdback, if the property is new or substantially renovated. A common wording for a builders lien in a B.C. contract of purchase and sale for a non-strata property may look like this:
Pursuant to the Builders Lien Act, the Buyer will hold back from the sale proceeds an amount equal to 10% of the value of the improvements for 55 days after the date of issuance of the certificate of completion or, where there is no certificate, for 55 days after the improvement or the head contract is completed, abandoned or terminated. The Buyer’s lawyer or notary will place the holdback in an interest-bearing trust account with interest accruing to the benefit of the Seller. Improvements are valued at $(amount).
In most residential construction there will not be a certificate of completion. Also there is no definitive way to determine when a contract is completed, abandoned or terminated. In most cases when the construction is complete, we are only concerned with the date the improvement is completed. Generally the date the occupancy certificate is issued is used as the date the contract is completed. While the completion of the improvement is not necessarily the same as issuing an occupancy permit, it is frequently used as it is the best indicator of the date the improvement is completed.
Also the holdback is frequently held in a non-interest trust account because of the cost of opening an interest bearing trust account. The cost of opening the trust account normally exceeds the interest that would be earned on the holdback.
Except for a strata property there is no statutory requirement for a holdback. So there is no entitlement of the buyer to hold back for a non-strata property unless the holdback is in the contract of purchase and sale.
For a strata lot, a purchaser of a strata lot from an owner developer must retain a holdback of 7% of the purchase price. The holdback is normally retained until 55 days after the date the strata lot is conveyed to the purchaser.
The basic rule comes from section 88(2) of the Strata Property Act which provides:
(2) Despite any other Act or agreement to the contrary, a purchaser of a strata lot from an owner developer must retain a holdback of an amount set out in the regulations until the earlier of
(a) the date on which the time for filing a claim of lien under the Builders Lien Act expires, and
(b) the date which is 55 days after the date the strata lot is conveyed to the purchaser.
The amount set by regulation is 7% of the purchase price. It is the purchase price which includes the land and improvements (buildings). The non-strata holdback is normally 10% of the value of the improvements only.
To determine “the date on which the time for filing a claim of lien under the Builders Lien Act expires” you have refer to s.20(1) and (2) of the Builders Lien Act which provides as follows:
20 (1) If a certificate of completion has been issued with respect to a contract or subcontract, the claims of lien of
(a) the contractor or subcontractor, and
(b) any persons engaged by or under the contractor or subcontractor
may be filed no later than 45 days after the date on which the certificate of completion was issued.
(2) A claim of lien that is not governed by subsection (1) may be filed no later than 45 days after
(a) the head contract has been completed, abandoned or terminated, if the owner engaged a head contractor, or
(b) the improvement has been completed or abandoned, if paragraph (a) does not apply.
Because s 1.(2) of the Builders Lien Act provides for a formula for determining substantial performance of a contract which requires an assessment of the percentage of work complete the holdback period is usually 55 days.
The builders lien holdback is solely for builders liens. It is not a deficiency holdback. So it should be released if no builders liens are registered against the property.