Builder’s liens: A practical legal review
South Africa’s ever-growing construction industry continues to reflect a significant rise in the growth levels of construction, infrastructure development and renovation. In the context of such a dynamic and demanding market, the builder’s lien represents an affordable, common sense approach to providing the contractor with an effective means of securing monies due to it by the employer. This is particularly so in projects which are self- funded by the employer.
A builder has a right of retention over the building or structure (site) or portion thereof that he has constructed, enhanced or repaired to secure payment of the contract price, by means of retaining physical control of the site, until such time as the claim has been satisfied or the contractor has been provided with appropriate alternative security in respect of its claim.
The builder’s lien is related to the amount owed to it in respect of the site detained. Accordingly, the amounts due to the contractor must be on account of the thing detained and as a result of expenses incurred by the contractor in respect of the site whilst it is in possession of the site. It follows that a portion of the site can be the subject of a builder’s lien where the contract is related to the whole site but retention is claimed only against amounts owing in respect of the portion of the site held. This conclusion is based on the principle that while the ownership of a building may be indivisible, the possession of the building clearly is.
In order for a builder’s lien to be applicable against a portion of the site, the balance of the amount due to the contractor must be capable of being specifically allocated to the portion over which the builder’s lien is held (and must not be a claim for a globular sum for the site as a whole).
The following general requirements must be satisfied in order for a valid builder’s lien to arise and be enforceable by the contractor:
· the amounts owing to the contractor must be due to it (and not merely owing or accrued); and
· the contractor must be and remain in exclusive natural possession of the site or the section thereof forming the subject matter of the builder’s lien. Such possession is made up of two elements: the contractor’s physical control or occupation of the site and the contractor’s intention to hold and exercise that possession over the site so as to secure some benefit for itself as against the owner.
Contractor’s must be mindful of the fact that it is not enough for the contractor to contend symbolic possession in that it has employees and/or a security guard on site or that it has stored materials and equipment belonging to it on site, although on the facts of the case this might well be sufficient evidence of natural possession. Rather, it is necessary for the contractor to prove that the site (or the relevant sections of the site) over which the builder’s lien is asserted is occupied and under the control of the contractor at all material times. Such control is evident in the functions performed and authority exercised on the site by the contractor.
A builder’s lien is obviously terminated when the contractor intentionally renounces or waives its rights to the builder’s lien. Contractors are, as a matter of course, often required to waive their builder’s lien in favour of a bank or other financier ("the financier") who provides funding to the employer, typically secured by a bond over the site. It is noteworthy, however, that such a waiver or undertaking by the contractor to the financier does not necessarily deprive the contractor of his builder’s lien vis-ŕ-vis the employer. The issue turns on the identity of the beneficiary of the waiver and the wording of the waiver itself
We have set out below a brief synopsis of the facts and the findings of two relevant cases as an illustration of this principle.
In the case of Ploughall (Edms) Bpk v Rae 1971 (1) SA 887 (T):
· The applicant (the contractor) had in terms of a written agreement undertaken to erect buildings on behalf of the respondent (the employer). The employer arranged with its building society that it would pay the contractor the amount owing to it in terms of the written agreement and as a consequence, a person authorised by the contractor signed a document addressed to the building society which provided that "I, the undersigned, do hereby waive and abandon any and all liens or preferences that I have or may have in connection with the said buildings in favour of your society. I agree to hand over and deliver up possession of the said buildings immediately the same are erected, notwithstanding any unpaid balance that may be due to me".
· The employer (who had a spare set of keys) took occupation of the premises prior to the contractor receiving the amounts owing to it under the agreement. It is important to note that the contractor still had the keys to the buildings and was accordingly found by the court still to be in possession of the premises.
· The contractor brought an urgent application and obtained an interim order (which was confirmed on the return date) ordering the employer to vacate the premises.
· This finding was based on the fact that the waiver of the builder’s lien in favour of the building society by the contractor did not constitute a renunciation of the contractor’s right of retention in favour of the employer. Accordingly, the contractor was still the rightful possessor of the premises (until paid in terms of the agreement).
In the case of NBS Bank Bpk v Dirma BK 1998 (1) SA 556 (T):
· The first respondent (the contractor) signed a "waiver of builder’s lien" in terms of which it agreed that the bond passed by the employer in favour of the applicant (the bank) shall "take priority to any lien" and that it would not enforce its right of lien or retention against the bank or the employer to the detriment of the bank’s interests.
· The court held that on a proper interpretation of the "waiver of the builder’s lien", the waiver did not amount to a general renunciation of the contractor’s rights but rather to a waiver of its rights to the builder’s lien only with respect to the rights acquired by the bank under the bond.
· Accordingly, the contractor’s waiver was restrictively interpreted as not amounting to a general renunciation of the builder’s lien, but rather the right of retention was found to have been waived only in so far as it could be detrimental to the rights of the bank in the case of the foreclosure of the bond.
Waivers should not simply be regarded as common place and of standard form. Contractors and employers should carefully consider the wording of waivers to ensure that their intention is correctly recorded.