Five tips for the successful exercise of liens

In the construction industry, it is still common for a contractor to retain a completed building in order to enforce payment of outstanding invoices by the client. This so-called lien can be an effective means of pressure, but in practice it still sometimes goes wrong. This was once again evident from a recent ruling of July 24, 2018 by the District Court of Limburg. A contractor from Sittard exercised the lien because of an outstanding claim of more than 300,000 euros. The client disagreed and initiated summary proceedings. The client was vindicated and the court ruled that the contractor had to remove the construction fencing immediately because he was wrongfully exercising the lien.

In addition to a court injunction against exercising a lien, if the lien is used unlawfully, a contractor also runs the risk of paying for any damages suffered by a client. This article therefore contains five practical tips to help ensure the successful exercise of the lien.

Tip 1: Check the contract

The right of lien is a legal authority of the contractor, but in many general conditions and standard specifications the lien is excluded by the client. So before exercising the right of lien, always check whether it is permitted under the contract documents.

Tip 2: Check whether the claim is due and payable

When the lien is exercised, it must be established that the client is not fulfilling its obligations. This means, for example, that the payment term of an outstanding invoice has expired. As a contractor, be especially careful with (extra work) invoices that are under discussion. If it subsequently transpires that an invoice has been invoiced wrongly or for an excessive amount, the exercise of the right of retention may be unlawful.

Tip 3: Ensure actual power

It must follow from the nature of the contract that the contractor has actual power over the construction site. In short, this means that the contractor determines who has access to the construction site. Actual power often exists if the contractor has set up the construction site with equipment, construction huts or materials and has fenced the construction site with construction fences. While exercising the right of lien, the contractor is well advised to guard the de facto power by keeping the construction site closed and only allowing third parties access in exceptional situations and under supervision. Please note that subcontractors usually cannot exercise a lien because they only realize part of the work and in that case only the main contractor has actual power over the construction site.

Tip 4: Make the lien known

The lien works not only against the principal, but also against third parties. This must then be clear to third parties. Therefore, place clear signs on the construction fence stating that a lien is being exercised. Another possibility is to register the lien with the land registry so that, for example, when the property is transferred or seized, the lien is noted.

Tip 5: Weigh the stakes

For a principal, the lien is a drastic remedy. After all, the principal cannot dispose of the property with all the consequences that entails. Especially if the client disputes the invoice, complex and costly legal discussions can arise. Therefore, consider in advance whether there are also less drastic means of enforcing payment.

Conclusion

In construction practice, the lien is a commonly used means of pressure in favor of the contractor. The practical exercise of the lien is often the subject of debate, resulting in legal proceedings. Reason enough to take the above tips to heart.