Construction liens are legal claims for money expended or unpaid compensation filed by a contractor or other professional on a building or design. This is done by filing a public notice on a property stating that the owner of the property owes the contractor a stated sum of money. It can also be filed by a subcontractor or materials supplier for any work done on a building.
The purpose of a construction lien is to serve as an encumbrance on the property upon which a lien is filed. It also gives notice to a bonafide purchaser for value that there is an unpaid sum outstanding to the contractor, subcontractor, materials supplier or other professional. It may prevent interested purchasers from purchasing the property until the unpaid sum is liquidated.
Benefits of a Construction Lien
When a Construction lien has been effectively filed, it acts as an encumbrance on the property and any third party who goes ahead to buy the property obtains title subject to the lien. It prevents the sale or refinance of the property because a prudent purchaser or mortgagor will not want to obtain a property that has a lien on it. The lien helps contractors, sub-contractors, material suppliers and other professional to quickly resolve payment problems.
Constructive lien also gives the holder of the lien an equitable interest in the property because failure of the property owner to clear the outstanding debt can grant the lien holder the right to foreclose the property after a period of time.
Furthermore, when the lien is placed, it hastens the property owner's decision to clear the unpaid sums. It is an additional remedy granted to contractors in addition to the right to sue for a breach of contract. Nevertheless liens are not absolute; a property owner who is disputing the sum claimed can challenge the lien in Court.
Construction lien in its modern form originated in the United States of America after it was introduced by Thomas Jefferson to encourage the construction of Washington. Today, it is applicable in all states in US and a lot of developed countries like England, France and Canada. However, Countries in Latin America and United Arab Emirates specifically prohibit the lien except where the parties voluntarily adopt it as binding on them.
Construction liens are strictly regulated by statutes. Unless there is a law stipulating its procedure it can generally not be applied. In Nigeria, construction liens are generally not applicable due to the absence of a statute enacting it. Given the benefits of the concept of construction liens, one wonders why Nigeria, a country growing at a tremendous rate, where real estate is on the rise has not adopted this concept which seeks to protect the contractor while encouraging economic development.
Furthermore, the Nigerian judicial system is slow and before unpaid contractors can recover their money, a lot of productive time may have been wasted. There is also the issue of the depreciating value of our naira which stalls economic growth and development.
Another consideration is the number of people involved in the construction business who actually need protection and prompt payments; these include bricklayers, architects, quantity surveyors, materials suppliers, engineers etc.
Escaping the Current Situation
There are instances where contractors can take advantage of construction liens. An example is where a right of a contractor to a construction lien is expressly stated in the construction contract. This is advisable because it guarantees the contractor payment for his labor and expenditure.
Another instance is approaching the Court to place a lien or encumbrance on the property. This will usually be done by filing a suit for breach of contract claiming for the unpaid fees. The contractor can ask for an interlocutory or perpetual order of the court, placing a lien on the property to prevent the property owner from disposing it or mortgaging it until the unpaid sums or Judgment sums are liquidated.
Since the Court has discretion on whether or not to grant the remedy of placing a lien on the property, it is advisable that contractors should insist on a construction lien clause being part of the construction contract. This is because it is settled Nigerian law that parties are bound by their agreement.
The Way forward
Construction lien is a creation of statute and to effectively utilize it in Nigeria, our legislators need to promulgate a law recognizing and enforcing it or amend our existing real property and construction laws in Nigeria to accommodate it.
The benefits of construction liens are numerous and a developing Country like Nigeria needs to use the concept to its benefits. This will curb the excesses of recalcitrant property owners who wish to take advantage of the loopholes in the Nigerian legal system to deliberately refuse to pay sums owed by them to professionals who constructed the property.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.