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Why Construction Liens Should Be Adopted In Nigeria

Construction liens are legal claims for money expended or unpaid compensation filed by a contractor or other professional on a building or design. This is done by filing a public notice on a property stating that the owner of the property owes the contractor a stated sum of money. It can also be filed by a subcontractor or materials supplier for any work done on a building.

The purpose of a construction lien is to serve as an encumbrance on the property upon which a lien is filed. It also gives notice to a bonafide purchaser for value that there is an unpaid sum outstanding to the contractor, subcontractor, materials supplier or other professional. It may prevent interested purchasers from purchasing the property until the unpaid sum is liquidated.

Benefits of a Construction Lien

When a Construction lien has been effectively filed, it acts as an encumbrance on the property and any third party who goes ahead to buy the property obtains title subject to the lien. It prevents the sale or refinance of the property because a prudent purchaser or mortgagor will not want to obtain a property that has a lien on it. The lien helps contractors, sub-contractors, material suppliers and other professional to quickly resolve payment problems.

Constructive lien also gives the holder of the lien an equitable interest in the property because failure of the property owner to clear the outstanding debt can grant the lien holder the right to foreclose the property after a period of time.

Furthermore, when the lien is placed, it hastens the property owner’s decision to clear the unpaid sums. It is an additional remedy granted to contractors in addition to the right to sue for a breach of contract. Nevertheless liens are not absolute; a property owner who is disputing the sum claimed can challenge the lien in Court.

Other Jurisdictions

Construction lien in its modern form originated in the United States of America after it was introduced by Thomas Jefferson to encourage the construction of Washington. Today, it is applicable in all states in US and a lot of developed countries like England, France and Canada. However, Countries in Latin America and United Arab Emirates specifically prohibit the lien except where the parties voluntarily adopt it as binding on them.

Current Situation

Construction liens are strictly regulated by statutes. Unless there is a law stipulating its procedure it can generally not be applied. In Nigeria, construction liens are generally not applicable due to the absence of a statute enacting it. Given the benefits of the concept of construction liens, one wonders why Nigeria, a country growing at a tremendous rate, where real estate is on the rise has not adopted this concept which seeks to protect the contractor while encouraging economic development.

Furthermore, the Nigerian judicial system is slow and before unpaid contractors can recover their money, a lot of productive time may have been wasted. There is also the issue of the depreciating value of our naira which stalls economic growth and development.

Another consideration is the number of people involved in the construction business who actually need protection and prompt payments; these include bricklayers, architects, quantity surveyors, materials suppliers, engineers etc.

Escaping the Current Situation

There are instances where contractors can take advantage of construction liens. An example is where a right of a contractor to a construction lien is expressly stated in the construction contract. This is advisable because it guarantees the contractor payment for his labour and expenditure.

Another instance is approaching the Court to place a lien or encumbrance on the property. This will usually be done by filing a suit for breach of contract claiming for the unpaid fees. The contractor can ask for an interlocutory or perpetual order of the court, placing a lien on the property to prevent the property owner from disposing it or mortgaging it until the unpaid sums or Judgment sums are liquidated.

Since the Court has discretion on whether or not to grant the remedy of placing a lien on the property, it is advisable that contractors should insist on a construction lien clause being part of the construction contract. This is because it is settled Nigerian law that parties are bound by their agreement.

The Way forward

Construction lien is a creation of statute and to effectively utilise it in Nigeria, our legislators need to promulgate a law recognising and enforcing it or amend our existing real property and construction laws in Nigeria to accommodate it.

The benefits of construction liens are numerous and a developing Country like Nigeria needs to use the concept to its benefits. This will curb the excesses of recalcitrant property owners who wish to take advantage of the loopholes in the Nigerian legal system to deliberately refuse to pay sums owed by them to professionals who constructed the property.

Practical Completion and Defect Liability Period Under Nigerian Law

Though the date of practical completion is of great importance to a building project, it does not have a unanimous definition. Generally, the date of practical completion is not merely the date in which the Client takes over possession of the building. In fact, practical completion may be achieved without the Client taking over physical possession of the building.

Technically and legally, practical completion is the date when the responsibility of insurance, security and maintenance of the building passes from the Contractor to the Client; the Client pays the contract retention sum to the Contractor and the defect liability period begins to run.

A Construction Agreement may provide for practical completion of a building or it may be inferred from the conduct of the parties or deemed upon the happening of an event. The defect liability period is a period for the Contractor to rectify the latent defects it discovers in the building or brought to his attention by the architect or Client’s agent on the building project.

Practically, the date of practical completion of the building is the date in which the works are reasonably ready for its intended use even though there may be outstanding snags or defects. In essence, practical completion is achieved where construction is completed and there are no patent defects in the construction of the building.

It is easier to ascertain the date of practical completion where the Construction Agreement clearly spells out same. Most Construction Agreements usually provide for the architect or the Client’s agent on the project to issue a Certificate confirming practical completion of the works under the Agreement. But what happens where there is no Agreement defining the date or medium to signal practical completion or the architect or Client’s agent on the project refuses to issue a Certificate of practical completion of the construction works in the building even though same has been achieved?

In such an instance, practical completion would be deemed from the intention of the parties which can be inferred from their conducts. For instance, if the Contractor informs the architect or Client’s agent on the project that he has completed the construction works and the architect or Client’s agents submits a list of latent defects on the project to the Contractor, practical completion is deemed to have taken place and the defect liability period shall begin from that date.

Upon completion of the rectification works submitted to the Contractor by the architect or Client’s agent, the defects liability period shall come to an end and the Contractor will ordinarily not be liable to carry out further maintenance works on the building.

However, where there are patent defects on the project, it is the responsibility of the Contractor to rectify the patent defects on the building before practical completion will be deemed and the defect liability period begins. For instance if Mr Tanko Ahmed employ Main Construction Limited to construct a 4 storey building and upon completion of construction, the parties discover that the walls are cracked or the ceilings are licking, Main Construction Limited would have to effectively rectify the cracked walls and licking ceilings before practical completion will be deemed and the defect liability period would begin.

Again where there is no Agreement on the duration of the defect liability period, it may be deemed from the conducts of the parties. For instance, if upon practical completion, the Client informs the Contractor that he will take over possession of the project after the rainy season. The rainy season constitutes the defect liability period. The end of the rainy season signifies the expiration of the defect liability period and the Contractor will no longer be liable to carry out maintenance works on the building.

This is because the Contractor cannot maintain the building project indefinitely. Even the law does not expect that. In such a circumstance, after the rainy season, the Contractor should advise the Client to immediately take possession of the building because practical completion of the building has been achieved and the defect liability period has ended. The Contractor is legally entitled to withdraw from the building and send the keys of the building to the architect or Client’s agent.

The New Company Law and the Constitutional Rights of Nigerians

The Companies and Allied Matters Act, 2019 (“the new CAMA”) recently signed into law by the President of the Federal Republic of Nigeria is a welcome development to Nigerian businesses. It has addressed the bottlenecks in formation of business entities and improved Nigerian corporate governance. It has also given leverage to small companies to thrive and incorporated technological innovations to the processes of the Corporate Affairs Commission (“Companies’ Registry”) to facilitate the ease of doing business in Nigeria.

However, the legislature in extending the powers of the Companies’ Registry to effectively regulate the activities of Churches, Islamic Religious Organisations, Charity and Non-Government Organisation which are registered as Incorporated Trustees (“associations”) has introduced some new provisions in the new CAMA which are capable of usurping the fundamental rights of citizens to their freedom of thoughts, conscience and religion, freedom of peaceful assembly and association and constitutional rights of access to Courts.

It is upon this premise that the Plaintiff, a Nigerian Citizen and Legal Practitioner, commenced Suit No. FHC/ABJ/CS/1076/ 2020; Emmanuel Ekpenyong Esq. v. National Assembly, Corporate Affairs Commission and Attorney General and Minister of Justice of the Federation at the Federal High Court, Abuja Division, challenging the constitutionality of some provisions of the new CAMA.

The Plaintiff contends that Section 839 of the new CAMA which gives power to the Companies’ Registry to remove trustees and appoint an interim manager to take over an association where it reasonably believes that there is misconduct, mismanagement, fraudulent practices, for protection of the property of the association and public interest; Section 842, Section 843, Section 844 of the new CAMA which gives the Companies’ Registry the powers to control the proceeds of a dormant account of an association and dissolve an association on account of its dormant account; Section 845, Section 846, Section 847 and Section 848 of the new CAMA which directs associations to keep and submit their statement of affairs and accounting records to the Companies’ Registry, infringes the Plaintiff’s freedom of thoughts, conscience and religion enshrined in Section 38 of the Constitution of the Federal Republic of Nigeria, 1999 (as amended) (“the Constitution”).

The Plaintiff opines that Churches, Islamic religious organisations, Charity and Non-Governmental Organisations give hope to the Plaintiff and the Nigerian people. The activities of associations augment the efforts of government. They act as watchdogs for the people and put the government in check. It is unfortunate for the provisions of the new CAMA to put the activities of associations under the complete whims and caprices of the Companies’ Registry which is an agency of the Federal Government.

The law provides for every association to have a Constitution which regulates the affairs of the association and protect them against misconduct, mismanagement, fraudulent or other activities which are contrary to the objects of the association. Hence, the Companies’ Registry has no business whatsoever in suspending trustees and appointing interim managers for them. This is a sure recipe for disaster. The activities of associations are not against public interest to warrant such draconian provisions.

The funds of associations are not public funds. They are contributions, offerings and freewill donations of members to carrying out their objectives. There is no legal justification for the Companies’ Registry to be interested in the dormant account of associations. Associations are non-profit making organisations. They are not business ventures as such the Companies’ Registry cannot be ingrained in the affairs of associations by expecting them to submit statement of affairs or accounting records to the Registry.

The Plaintiff has a freedom to his thought, conscience and religion alone or in community with others. The Plaintiff has a right to propagate his religion, worship, teaching, practice and observance in public or private and does not even need to register same with the Companies’ Registry to propagate same. Therefore, giving powers to the Companies’ Registry who is an outsider and complete stranger to determine the affairs of a place where the Plaintiff professes his thoughts, conscience and religion is an aberration which is in contravention of Section 38 of the Constitution.

Furthermore, the Plaintiff contends that Section 839, Section 843, Section 844, Section 845, Section 846, Section 847 and Section 848 of the new CAMA infringe his freedom to peaceful assembly and association. This is because the Companies’ Registry has a wide discretion to appoint interim managers to replace suspended trustees. The interim managers to be appointed by the Companies’ Registry may have nothing in common with the members of the association and the members will not have a right to challenge such appointment.

This will impair the rights of members of associations to actively participate in activities of their associations and determine its direction. The enormous and dictatorial powers given to the Companies’ Registry to intrude and interfere with the operations and management of associations is not legally justifiable. The use of phrases such as “is satisfied”, “reasonably believes”, “deem it necessary”, “public interests” in relation to the powers of the Companies’ Registry over associations are ambiguous phrases that can easily lead to an abuse of power by the Companies’ Registry and contravene the Plaintiff’s freedom to associate peacefully with other persons enshrined in Section 40 of the Constitution.

Again, the Plaintiff contends that the provisions of Section 851 of the new CAMA which gives powers to the Administrative Proceedings Committee to hear cases arising from the provisions of the new CAMA limits the Plaintiff’s constitutional rights of access to Courts. Section 6 (1) and 6 (b) of the Constitution confers judicial powers to the Courts. Section 36 (1) of the Constitution gives citizens the right to access an independent and impartial Court to determine their civil rights and obligations. Section 251 (1) (e) of the Constitution provides for the Federal High Court to hear any matter arising from the provisions of the new CAMA.

Hence, the provision of Section 851 of the new CAMA comes as a very huge surprise. The composition of the Administrative Proceedings Committee is made up mostly of employees of the Companies’ Registry who are involved or aware of the issue which caused the dispute in the first place. It is against the principle of natural justice for a person to be a judge in his own case. In most disputes arising from the provisions of the company law or regulations, the Companies’ Registry is usually a party to the dispute.

The Companies’ Registry cannot independently and impartially determine a dispute which it is also a party. If this is allowed the Companies’ Registry will be a party and judge in its own case. It is without doubt that Section 851 of the new CAMA is contrary to the Plaintiff’s rights of access to Courts enshrined in Section 6 (1) 6 (b), Section 36 and Section 251 (1) (e) of the Constitution.

In conclusion, the Plaintiff contends that his freedom of conscience, thoughts and religion, freedom of peaceful assembly and right to access to Court are so serious and the only way to ensure that the rights are protected in the circumstance, is for the provisions of Section 839, Section 843, Section 844, Section 845, Section 846, Section 847 and Section 848 and Section 851 of the new CAMA to be expunge from the new CAMA. The Plaintiff prays for an order of mandatory injunction of the Court directing the Defendants to expunge the offending provisions of the new CAMA.