WHAT IS A BUILDERS LIEN?
A building lien is a right conferred by law and is the most powerful tool a building contractor has to ensure payment. In South Africa the lien is regulated by common law, in terms of which a lien will always apply unless there is agreement otherwise. This waiving of the lien is fairly common, particularly where the contractor obtains a payment guarantee from the employer.
Where there has been no waiver of the lien a builder has a lien or "jus retentionis" over the structure or article he has built until paid for his work and labour. He does not, however, have a lien on any retention money.
The lien may be effective against any of the following parties:
- The bondholder;
- The employer's insolvent estate;
- The purchaser at a sale in execution who at the time is also a bondholder;
- A purchaser under a judicial sale;
- A third party who has acquired the employer's property.
For a lien to be effective there must be actual possession on the part of the builder. There must be both physical control or occupation ("detentio") and the intention of exercising possession ("animus possidendi"). Possession must be clear but temporary absence will not constitute loss. A trespassing notice is not sufficient to protect the lien. If loss of possession occurs this destroys the lien and recovery of possession does not revive it.
Separate persons who have separate contracts with the employer, and perform different kinds of work in the building, may each have a valid right of retention against the employer, but will have to establish that the employer has been enriched.
Where a builder is deprived of possession by force, fraud, a clandestine act on the part of the owner or judicial pressure he will be entitled to have possession restored by an order of the court.
A Contractor who waives his lien without exchanging it for a suitable guarantee of payment gives up a very important common law right.
The JBCC Series 2000 Principal Building Agreement deals with payment guarantees and the Contractor's lien in clauses 3.1 and 3.2 and provides that before the Employer can require the Contractor to waive his lien he must provide the Contractor with a payment guarantee.
Some Employers call on the Contractor to waive his lien but insist that they will not provide him with a payment guarantee.
Contractors would be well advised to investigate the financial profile of Employers who refuse to provide security in such a case.
Since a builder's lien enjoys priority over a mortgage bond, it is understandable that banks and institutions advancing funds in the form of mortgage loans require by way of fairly general practice that the Contractor must waive his lien in favour of the mortgagor as a condition precedent to the operation of a loan.
In many instances the Employer needs this money to remunerate the Contractor and the Contractor is, therefore, compelled to waive his lien. Although this procedure has almost become standard practice, the Contractor should nevertheless exercise the utmost care in waiving the lien and special attention should be paid to the wording of the document, commonly called "waiver of contractor's lien".
It is also of primary importance for such a waiver to be coupled to an acceptable cession by the Employer in favour of the Contractor, of the proceeds of the loan. This cession is aimed at reinstating the Contractor for his loss of security and the following basic form of cession is suggested:
"In consideration of the Contractor (name) having renounced his builder's lien in favour of
(the mortgagee), on theproperty situated at I, the undersigned Employer cede to (the Contractor) all monies due to me from the loan granted to me by the Mortgagee against the security of the said property and the buildings to be erected thereon. The above monies shall be paid direct to the Contractor by the Mortgagee in installments as the work proceeds against production of payment certificates."
Understand that it is not a good idea, (as some Contractors seem to think), to make an arrangement whereby the Contractor will waive his lien in exchange for not having to produce a construction guarantee. This is not a good exchange!
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