A contractor’s (or builder’s) lien is a powerful mechanism available to a contractor to enforce specific performance by the employer; ie. payment. The lien may be in respect of either works done in terms of a contract or improvements to property that has the effect of increasing its value.
Simply put, a lien is a common law right (ie not founded in contract, although oftentimes arising as a consequence of one) that entitles the contractor to retain possession of a construction site2, in respect of work done and for which the employer has not made payments that are due, until such time as these payments are made or appropriate security is provided.
A lien, therefore, has three components to it:
The contractor must have completed the work;
1. Payment for that work must be due; and
2. The contractor must be in possession of the site.
As an aside, the power of a lien is often underestimated. For example, should a contractor hold an enrichment lien (which is a lien in respect of improvements to a property that has increased its value) and the owner of that property is declared insolvent, the improvement lien takes preference above any other creditors to the insolvent party, including any mortgage bonds held over the property.
The first step in establishing a lien requires the contractor to demonstrate that it has physical possession of the site. It is important to understands the subtleties of what constitutes “possession” for the purpose of exercising a lien. The contractor cannot remove all of its equipment and resources, place a fence around the site, lock the gate and walk away and then claim that she holds possession of the site. Neither may he rely on “symbolic” possession.
In order to rely on a lien, the contractor must have physical control or occupation of the site and have the intention of holding and exercising this possession. Furthermore, the existence of the lien is contingent on this possession being continuous. Should the contractor relinquish possession of the site and subsequently regain possession thereof, the lien does not automatically revive.
Of course, the exception to this would be the circumstances where a contractor is lawfully exercising its lien and is subsequently unlawfully deprived of this possession forcefully, fraudulently or otherwise. The contractor will be entitled to have that possession restored to it and the lien will accordingly revive.
Unfortunately, in many instances a contractor unwittingly forfeits its right to exercise a lien without understanding, first, its rights and, second, the consequences of this forfeiture. More often than not, this occurs when the contractor has not been paid and then de-establishes from site pending this payment. In the circumstances, the contractor has relinquished possession voluntarily, the lien is forfeit and cannot be revived.
The remaining components of a lien require that it must be in respect of payments that are due for work that has been done. A common example relates to attempts to exercise a lien for payment of retention securities that are only due after the works have been completed. Until the retention is actually due, there is no lawful ground to retain possession by way of a lien.
Similarly, should a contractor be entitled to claim damages, either in delict or arising from the contract, a lien will not be enforceable.
Often in practice, contractors will be compelled to waive its right to exercise its lien, usually at the insistence of the bank or lending institution providing finance for the project. In these circumstances, contractors should make absolutely certain that alternative payment guarantees are in place before agreeing to waive a lien. Notably, the “waiver of lien” forms that accompany our standard building contracts explicitly provide for a waiver of the builder’s lien only in the circumstances where a payment guarantee is in place. In these circumstances, should the payment guarantee expire, be void or otherwise unenforceable, the contractor’s right to a lien would usually revive.
Andrew Seymour
Andrew Seymour is an admitted practicing attorney as well as a Professionally Registered civil engineer (B.Sc. Civ Eng) and with over 17 years' experience working in the Built-Environment Industry.
This article is intended for information purposes only and should not be taken as formal legal advice.
For more information, contact us on info@seymours.co.za or 074 125 1622 to arrange a consultation.
www.msattorneysinc.co.za
Andrew Seymour °
B. Sc Civ Eng, LLB, Pr. Eng, AAArb Practicing Attorney of the High Court of SA