For commercial developers and general contractors in British Columbia, cash flow management is as critical as the construction itself. When a claim of lien is filed against a project, one of the responses is immediate and procedural: obtain a court order under section 24 of the Builders Lien Act, post a lien bond or security, and clear the title to ensure financing continues uninterrupted.
However, a (5-judge panel) 2025 decision by the British Columbia Court of Appeal, Kingdom Langley Project Limited Partnership v. WQC Mechanical Ltd., has underscored a persistent and often misunderstood risk in this process. The Court affirmed that securing a lien against the land does not automatically extinguish a subcontractor’s separate statutory right to the holdback fund.
This legal distinction—often referred to as the “Shimco lien”—means that a developer may post a bond to secure a claim and yet remain legally obligated to freeze the corresponding cash holdback. This results in a scenario of “double security,” where capital may be tied up twice for a single debt.
The Legal Context: Two Separate and Distinct Liens
To understand the commercial risk, one must first understand the unique statutory architecture of the Builders Lien Act. Unlike some jurisdictions, where a single lien attaches generally to the project, British Columbia’s legislation creates two distinct remedies for unpaid contractors.
1. The Lien Against the Land (Section 2)
The primary remedy is established under section 2 of the Builders Lien Act. This provision grants a worker or material supplier a lien on the “interest of the owner in the improvement,” the improvement itself, and the land under which it is located.
When a developer uses section 24 to “bond off” or post security for a lien, they are specifically addressing this claim. The security posted stands “in place of the land,” effectively substituting the physical property with a financial instrument to allow the project, including its financing, to proceed.
2. The Holdback Lien (Section 4)
The second, more obscure remedy is found in section 4(9). The Act states that the holdback required to be retained is “charged with payment of all persons engaged”.
This provision creates a separate and distinct in rem (property) claim against the holdback fund itself. This legal principle was first established in the 2003 decision Shimco Metal Erectors Ltd. v. North Vancouver (District) and has been a source of contention within the construction bar for over two decades. The Kingdom Langley decision has now confirmed this provision, clarifying that the holdback lien exists independently of the lien against the land.
The Facts
The Kingdom Langley Project involved a large-scale residential development in Langley, B.C. The owner, Kingdom Langley, engaged a general contractor, Metro-Can Construction, who in turn hired WQC Mechanical as a subcontractor. Following a payment dispute, WQC registered a claim of lien against the land.
Consistent with standard industry practice, Metro-Can applied for an order under section 24 to cancel the land lien. They posted a lien bond as security, and the Court issued an order discharging the lien from the title.
The Dispute Regarding the Holdback
While the land lien was discharged, a dispute arose regarding the source of payment for WQC’s proven claim.
- The Developer’s Argument: Kingdom and Metro-Can argued that by accepting the lien bond, the subcontractor had effectively exchanged their claim against the project (including the holdback) for a claim against the bond. They asserted that WQC should seek payment solely from the bond.
- The Court’s Ruling: The Court of Appeal disagreed. It held that the Section 24 order only cancelled the lien against the land. It did not cancel the separate statutory lien against the holdback.
As a consequence, despite the existence of a valid lien bond intended to secure the debt, the Court ordered the owner to release funds directly from the cash holdback to satisfy the subcontractor’s claim.
Why Standard Security Orders Fail?
The outcome in Kingdom Langley was not a result of judicial overreach, but rather a strict interpretation of statutory text and the specific language used in court orders.
1. The Statutory Limitation of Section 24
The Court emphasized that section 24 of the BLA explicitly provides for the cancellation of a “claim of lien filed” against the land. The statute does not contain a parallel provision for the cancellation of a holdback lien.
Therefore, obtaining a standard order to “cancel the lien” affects only the Section 2 land lien. Unless the court order explicitly addresses the Section 4 holdback lien—and does so with sufficient security and precise language—the holdback lien survives.
2. The Preservation of Rights
In Kingdom Langley, the security order obtained by the contractor contained language that proved fatal to their argument. The order stated that the security would “stand as security” for the holdback claim but also explicitly preserved the subcontractor’s rights:
“The release of the Holdback… shall not deprive [Metro-Can] nor [WQC] of the benefits of the provisions of the Builders Lien Act applicable to any lien against any released Holdback”.
The Court interpreted this to mean that the bond was merely additional security. It did not extinguish the subcontractor’s in rem property right to the cash holdback.
The Commercial Implications: “Double Security”
The confirmation of the dual lien doctrine in Kingdom Langley presents financial risks for developers, landowners, and general contractors.
Capital Inefficiency
If a separate lien against the holdback survives the posting of a bond, the developer effectively faces an additional liability for the duration of the dispute.
- Cost of the Bond: The developer incurs the cost of premiums and collateral to issue the lien bond or lien bonds.
- Frozen Liquidity: The developer must simultaneously retain the full 10% holdback in cash. They cannot utilize these funds to rectify deficiencies or pay other trades without risking a claim that they have dissipated the assets secured by the holdback lien.
The “Long-Tail” of Liability
Perhaps the most concerning aspect for owners is the procedural uncertainty of the holdback lien.
In Kingdom Langley, the appellant argued that the holdback lien, due to the nature of the holdback requirements, creates indefinite, or at least protracted, liability, presenting fresh evidence of over 50 subcontractors who had not filed liens but could, in theory, assert holdback claims. While the Court declined to admit this specific evidence, it acknowledged that the Shimco lien allows for claims to be made against the holdback outside the strict filing windows applicable to land liens.
Contractual Clauses are Insufficient
Developers often rely on “Pay-When-Paid” clauses to align their downstream liabilities with their upstream financing. However, the Kingdom Langley decision reaffirms that statutory lien rights override contractual payment terms. Under section 42(2) of the BLA, any agreement that purports to render BLA remedies unavailable is void. A subcontractor’s right to the holdback, therefore, cannot be contracted away.
Strategic Recommendations for Developers
In light of Kingdom Langley, relying on standard-form consent orders to discharge liens is no longer a prudent commercial strategy. Developers and general contractors must adopt a more rigorous approach to lien litigation and holdback management.
1. Bespoke Drafting of Security Orders
The failure in Kingdom Langley lay partly in the drafting of the security order, which preserved the subcontractor’s rights to the holdback rather than extinguishing them. To avoid double security, the moving party must draft Section 24 applications that explicitly request the security to stand in place of both the land lien and the holdback lien. The order should expressly state that the in rem claim against the holdback fund is cancelled upon the posting of the security.
2. Strict Segregation of Trust Funds
To mitigate the risk of a claim over holdback funds, developers must ensure they are strictly segregated and accounted for. Treating the holdback as general operating cash—even after a bond is posted—exposes the company’s directors and officers to personal liability for breach of trust.
3. Proactive Resolution of Holdback Claims
Given that holdback liens do not expire in the same manner as land liens, owners cannot simply wait for the 55-day period to elapse. If a dispute arises, proactive steps must be taken to resolve the holdback claim, preventing it from lingering as a liability that impedes the final financial close-out of the project.
Conclusion
The Kingdom Langley decision is a definitive judicial affirmation that the “holdback lien” is a fixture of British Columbia’s construction law landscape. It creates a complex environment in which securing a debt requires more than a single simple bond.
For commercial developers, the takeaway is clear: the assumption that a Section 24 order resolves all lien-related liquidity constraints is a dangerous fallacy. Without precise legal intervention, you may find your capital secured by a bond and your cash frozen by a statute.
Contact Roland Luo in Vancouver for Dynamic Advice in Construction Litigation
For the past two decades, we have specialized in construction litigation. Should you encounter such a claim or need to defend against a claim, contact Roland Luo.
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