As we continue to see the building and construction industry work through the fragile economy, it is timely to revisit the options that builders, sub-contractors and workers have in securing payment on time.
In the building and construction industry, a worker's lien is a common tool used by builders to recover a debt owed by a landowner (client) for work performed on the landowner's property. A worker's lien, while distinguishable from a caveat, has the same purpose and effect as a caveat. It prohibits any further dealings (for example, sale of property) with the property without the consent of the person who has lodged the lien or caveat.
Another useful and effective tool in securing payment for building work which is often overlooked is a statutory charge. This is created under section 7 of the Worker's Liens Act 1893 ("the Act"). A statutory charge facilitates a creditor (sub sub-contractor) to claim debts from the landowner/principal if it is delayed or not paid by the sub-contractor.
For example, let's say that A is the landowner/principal and engages B to construct a building. B in turn engages C for specialised services, such as electrical installations. C in turn sub contracts certain portions of its electrical services to D. Should C fail to pay or is slow in making payments to D and providing B has already received payment for the relevant electrical portion from A but have not paid C, then D is in a position to claim a charge on the contract monies payable by B to C.
In order to do so, D will have to issue and serve a notice of claim to a Statutory Charge against B.
It is important for the notice to state that if B chooses to ignore the Statutory Charge and proceeds to pay any contract monies owed to C, effectively disregarding to D's rights to be paid, B would be liable to pay D the amount subject of the Statutory Charge.
In these circumstances, D can bring an action against B to enforce the Statutory Charge. The amount subject to the Statutory Charge will determine the Court in which proceedings should be issued.
When properly implemented, a statutory charge is a useful and effective tool for credit control. However, given the strict timeframes and requirements for issuing a statutory charge, it is important to seek legal assistance in pursuing this option so that it will not be disputed, disrupted or contested.
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.