When a project is nearing completion, it is important to properly issue a certificate of completion and give adequate notice to contractors and subcontractors. As a recent decision of the BC Supreme Court shows, one owner found this out the hard way.
In Alterra Property Group v. Doka Canada and Peri Formwork Systems, the owner hired a general contractor to construct a condominium development in Nanaimo. The general contractor was unable to finish the final 15% of the contract and the owner issued a change order to remove the uncompleted work from the contract.
Shortly thereafter, the owner certified that the general contractor's work was complete in March of 2008. This certification was then posted at the project office, but the subcontractors did not see it. Fifty-five days later, the holdback of around $140,000 was released to the general contractor. However, the general contractor later performed a limited amount of work on the development under a new, second contract. The work was still ongoing at the time of the lawsuit.
Two subcontractors filed builders of almost $90,000 against the owner in August of 2008.
The owner argued it should only surrender the holdback on the second contract (~$3,700), as the first contract's holdback had already been released 55 days after work was certified complete in March 2008.
The subcontractors argued that the form of the certificate of completion was invalid and that proper notice of the certificate of completion was not given. Therefore, the work was still ongoing and a lien could be filed at any time.
Under the Builders Lien Act, the purpose of the holdback is to limit the liability of owners, contractors, subcontractors and sub-subcontractors to the amount properly held back against claims of lien that may exceed the amount of the holdback. Generally speaking, a builder's lien must be filed no later than 45 days after a certification of completion is issued and the holdback period expires 10 days later (i.e. 55 days after a certificate of completion is issued). If the holdback is released prematurely before the 55 days expires, no protection is provided for liens that are validly filed.
The Court's decision had 3 important aspects about issuing certificates of completion.
First, the court held that a certificate of completion must comply with the requirements of the Builders Lien Act. Contrary to the Act, the certificate of completion in the present case was not signed or dated, and did not identify the payment certifier or when the work was completed.
Second, the court stated that a certification of completion must be posted "prominently" and publicly on the development site. It was not good enough that the certificate was posted in the project office near the site, as in the present case. Even though the subcontractors were in the project office, and could have seen the notice, the notice had to be displayed (1) on the development site, and (2) in a prominent location to comply with the Builders Lien Act.
Third, the court stated that one cannot trigger the 45 days to file a lien period and 55 days before the release of the holdback by quietly changing the head contract in order to issue a certificate of completion. The court said such a scheme was contrary to transparency required in the Act.
The court found that the owner had prematurely released the holdback as no proper certificate of completion had been issued and posted. As a result, the court ordered the owner to pay back the full holdback amount of almost $140,000 so that the subcontractors could be paid.
This article was written by Ian Moes, lawyer, and Jonathan Maryniuk, articled student, who practice construction law at the law firm of Kuhn LLP. This article is only intended as a guide and cannot cover every situation. It is important to get legal advice for specific situations. If you have questions or comments about this case or other construction law matters, please contact us at 604-864-8877.