In the construction industry, it is common for a client to default on his payment obligations. For a contractor, who has already incurred expenses, this is an unpleasant situation. In such cases, the contractor has several legal options to still obtain payment. One of these options is to exercise the lien. Below, we explain what this right entails, when it applies and the limits.
The lien is the right of a contractor to withhold work performed until the client makes the payments due. In simple terms, the contractor “holds hostage” the work until the invoices are paid. An example is a contractor building or renovating a home; as long as the client does not pay, the contractor can withhold the keys to the home and lock down the construction site.
A contractor may not simply invoke the lien. The following three conditions must be met:
In construction, there is an additional requirement for exercising the lien. The contractor must explicitly state that he is invoking this right. This is usually done by erecting a fence around the construction site clearly stating that the lien is being exercised. It may be wise to have this process officially recorded by a bailiff or to take photographs as evidence.
Although the lien is a powerful tool, there are limits to its application. For example, the use must be proportional to the outstanding amount. For example, it is not reasonable to completely shut down a construction site for a small late payment. Nor should the lien result in excessive damages to the client. Nor should it be used simply to put pressure on the principal.
In addition, a principal can go to court to have the lien lifted. The judge may rule that the right was wrongfully applied, in which case the contractor must release the work and may have to pay damages.
Although the lien is a useful legal tool, it is often better to prevent payment problems. This can be done by making clear agreements on payment terms and by using phased payments. Good communication with the client is also very important, even when cooperation is difficult.
If it is nevertheless necessary to invoke the lien, it is wise to seek legal advice in advance. This will prevent legal problems and ensure correct application.
The lien provides contractors with an effective way to protect themselves from clients who fail to meet their payment obligations. By withholding work until payment is received, the contractor can assure himself of a secure position. However, it is important to proceed carefully and apply the lien proportionately.
Are you a contractor facing unpaid invoices and want to know if you can use the lien? Or are you a client facing a lien? If so, please contact our specialists Linda van der Knaap or Thijs van Munster for advice.
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