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Real Estate & Lending -Builders' Liens
Builders' Liens
Builders' Liens
Someone once said, "Build a better mouse trap and the world will beat a path to your door." Nice theory, but in order to succeed at business, you need to build it, market it, sell it and promptly collect the money generated by the sale.
The last statement is often the hardest thing for business people to realize. You would be surprised at how many businesses with superior products have failed because they didn't work at effectively collecting their accounts receivable. In today's marketplace, more and more products are sold on the basis of credit. Most small businesses may not realize that they are granting credit to their customers by the simple act of waiting thirty days for payment. Serious repercussions regularly happen to businesses that fail to properly collect on their accounts receivable.
Often times there is little recourse for such businesses where they have supplied products and they are having difficulty collecting their account. If however, you happen to fit within a defined area of the construction industry, there is a powerful tool to help you. This tool is the Builders' Lien.
If the overdue account arises out of work done on or materials supplied to an improvement on property, or both, then the worker, material man or contractor who is owed payment may claim a Builders' Lien against the property. A Builders' Lien is claimed by filing an certificate in a prescribed form at the Land Title Office against the subject property. The certificate must be filed at the Land Title Office within forty five days of the date on which the contract was completed, abandoned or otherwise determined. Their are some complex court decisions which have interpreted what these words mean and their application in each case can vary depending on the circumstances.
The Builders' Lien claim secures the payment of the outstanding account until the matter can be resolved and can often result in prompt payment of the money. For example, if the account arises out of work on an ongoing project, then there is likely a bank which has granted mortgage financing and which will be making periodic searches of title to the property to make sure they continue to have the proper priority for their mortgage. If a Builders' Lien claim has been filed, then it will likely be paid out before the bank will advance any further money to the property owner. If the filing of the Builders' Lien claim happens to coincide with such search, then payment will usually follow soon after the filing.
Some people have a reluctance to use a Builders' Lien as it can be perceived in the industry as inappropriate or aggressive. However, it is extremely effective in securing an account and getting paid. The customer has already had time to pay, but has not yet done so. If you allow the time period to elapse without securing the account through a claim of Builders' Lien, and the project runs into difficulties, then you become one of what would undoubtedly be a long line of unsecured creditors.
You must assess what the chance of getting paid will really be and takes steps accordingly. Regardless of the disfavour that the filing may cause, if you are not getting paid for your work in a timely manner, then is that the kind of customer you want?
The opinions set out in this article reflect generally on this area of law. The impact of the law on any given situation depends upon each individual's circumstances and the opinions contained in this article should not be relied on for assessing anyone's legal position. Advice should be obtained directly from your own lawyer regarding your personal situation.
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