In previous posts in this series, we defined construction liens, then looked at registering liens, and preserving and enforcing liens. In this post, we’ll examine holdbacks and lien funds. They are distinct yet related to each other. These constitute the monies owners must keep in reserve or pay to remove liens from the title to the lands.
A holdback is the amount the owner of the land must keep in reserve. It equals 10 per cent of the value of the work being performed or of the materials delivered to do the work. A holdback protects an owner from having to pay liens out of pocket. Owners release holdbacks after the lien period ends if no liens are registered against their land.
The lien fund is the total of the holdback plus any extra amount payable but still unpaid under the contract when liens are registered. An owner pays money from the lien fund into court to remove liens from title. This amount is usually the total amount in the fund unless the amount of the lien claims are less than the total in the fund.
Lien funds are calculated using this formula:
- 10 per cent of the value of the work actually done or materials already provided plus
- Any amount payable under the contract over and above the 10 per cent which the owner has not paid under that contract in good faith before a lien is registered
The value of the work is the amount agreed in the contract if the contract work is completed.
If the work is not finished, the value of the work is calculated by determining what percentage of the work is completed and then multiplying that by the total price stated in the contract.
Consult an experienced construction law lawyer whenever you seek to calculate a holdback or discharge a lien. They can guide you as to the best way to do this.