The builder’s lien – an (almost) uncontrollable risk
The builder's lien protects contractors and tradesmen in the event of outstanding receivables. An entry represents a massive risk for the landowner.
Requirements for registration
Any contractor who has supplied work and materials or labour alone on a property can register a builder’s lien directly on the property (see Art. 837 ZGB). This provides the contractors, who are usually only paid afterwards, with a means of security. A contractual relationship between the contractor and the landowner is not necessary. Nevertheless, the claim for registration of a lien is always directed against the landowner. The right of registration cannot be contractually waived in advance.
In principle, works that are directly connected with the building and cause a physical change to it are entitled to a lien. However, the legislator and case law have extended the authorised work to include demolition work, scaffolding, securing excavations and the like. Suppliers of building materials without installation services, on the other hand, are not protected unless they are materials specially manufactured for the work (otherwise unusable). Furthermore, the lien must be entered in the land register within four months of completion of the work (“last hammer blow”).
The procedure
The procedure consists of several stages. Firstly, the court at the location of the building plot decides on the provisional entry in summary proceedings. The requirements for provisional registration are very low; the contractor only has to show that he has carried out or will carry out work on this property that is subject to a lien and that the registration deadline has been met. The definitive claim must then be enforced in ordinary proceedings within a period set by the court so that the lien is definitively recognised. Otherwise the entry will be cancelled. In this case, the registering entrepreneur must fulfil significantly higher standards of proof.
Options for action for the landowner
A registered builder’s lien is a serious risk for the landowner. In the worst case – if the builder’s lien is permanently registered – the property may be forced to be realised. However, even provisional registration often leads to difficulties in the sale of residential units or plots of land because the banks are unwilling to provide a financing guarantee. There are various options available to counter this risk: Firstly, the owner can settle the claim asserted, which can lead to unjustified double payments in the case of subcontractor relationships. Secondly, there is the option of redeeming the lien, both in definitive and provisional proceedings, by providing sufficient security – for example in the form of an irrevocable bank guarantee or by depositing a sum of money. If the landowner is not in a direct contractual relationship with the contractor, it is advisable to involve the actual debtor (e.g. seller, technical contractor, general contractor, etc.) in the proceedings by means of a so-called third-party notice.
Conclusion
The building contractor’s lien is an effective means of security in favour of the service providers involved in the construction. For the affected property owners, it is advisable to seek legal advice at an early stage, consistently observe deadlines and quickly take suitable measures to protect their interests.