December 6, 2016

A construction worker busy working at a job site.  He holds a tool box full of tools and a hard hat. Framed house, building in background.  He is wearing a safety vest.

With the ongoing building boom in South Australia, there’s a huge demand for contractors and subcontractors, especially those with trade skills. In some ways things have never been so good, but with a fragile economy, sometimes bills don’t get paid and often it’s contractors and subcontractors who bear the brunt.

That’s when a worker’s lien can really come into its own.

What is a worker’s lien?

A worker’s lien is an option for recovering a debt. Where work has been done on land or to a building, or materials have been provided, a contractor or subcontractor can put a charge on the property to secure the debt. This means that the property can’t be sold, mortgaged or leased until the lien is discharged. This is usually done by the debt being paid.

Because a lien restricts the owner’s ability to deal with the property, a worker’s lien can be a very effective way of making sure that a debt is paid.

But there are limits on how it can be used.

The requirements

Although a worker’s lien can be very effective, there are a number of requirements that must be met:

  1. Worker’s liens can only be lodged for work done on land or buildings. They don’t apply to personal property.
  2. Only contractors and subcontractors can lodge worker’s liens. (If a subcontractor lodges a lien over the property because they are owed money by a contractor, it is likely that the property owner will put pressure on the contractor to pay the debt so that the lien can be removed.)
  3. The contractor or subcontractor must be licensed to carry out the work.
  4. There must be a contract in place that reflects the parties’ agreement for the work to be done.
  5. The lien can only be claimed for the work actually done (or the materials actually supplied). It can’t be claimed for damages for breach of contract, for example.
  6. A lien has no effect unless it is registered with the Lands Titles Office (LTO).

Lodging a worker’s lien

To lodge a lien, a form must be filled out and submitted with the LTO, along with a filing fee.

While it sounds simple enough, the legislation that applies to liens can be complex and there are other laws that may apply.

There is also a strict time limit for lodging a lien – you only have 28 days after the debt became due. This can be a very tight timeframe, especially because many contractors and sub contractors allow for longer periods to lapse before taking legal action. Often the debtor can promise payment but then fail to deliver, which can also delay legal action.

Once the lien is lodged with the LTO, you need to take legal action to enforce the lien within 14 days. This means that you need to commence legal proceedings (start a case) and be able to prove that the work was carried out and the money hasn’t been paid. If you fail to do so the lien will lapse and be removed from the property.

Even though the mechanics of lodging a worker’s lien are fairly straightforward, the surrounding legal issues are not. Liens should only be used when you are prepared to take the case to court to recover your money. This can often be a significant decision, so the sooner you involve your lawyer, the better.

A court can order the debt to be repaid, or even the sale of the property if the owner has no other money. It’s important to understand that although the lien secures the debt, you may still have to wait for any mortgage on the property to be discharged before you will be paid.

Worker’s lien in action

It’s not often that worker’s liens actually proceed to a court hearing. That’s because the inconvenience caused to the owner of the property can be significant, so liens are often quickly resolved.

But in a 2012 decision, a builder contracted with a woman to build two residential units. The woman had a mortgage pre-approved for around $830,000, but then a change in credit laws meant that she could only borrow about half of that money. She tried to find another lender with no luck.

The builder had commenced earthworks and delivering fill to the land. Then the woman cancelled the contract due to lack of money. The builder lodged a worker’s lien over the land, claiming payment for work done and materials supplied.

The woman applied to the court to have the lien cancelled, saying that because she’d terminated the contract, no money was due and payable to the builder. The court found that the builder was entitled to:

  • Payment for the work done up until the date the contract was cancelled.
  • Enforce the lien.

The woman’s application was refused.

A worker’s lien is an effective tool to secure a debt and to enforce payment, if time and circumstances are on your side. It can be a complex legal process, so getting legal advice is essential before deciding what to do. Websters Lawyers have experienced property and litigation lawyers who can assist you to lodge a worker’s lien. Contact us today for a free first interview.

Ian Wood Homes Pty Ltd v Susanne Langsforde District Court of South Australia Decision No 3 of 2012 (6 January 2012)