Construction Law – The Legal Principles underlying the Builder’s Lien

In terms of common law a builder has a right of retention over the building or structure (site) or portion thereof that he has constructed, enhanced or repaired to secure payment of the contract price, by means of retaining physical control of the site, until such time as his claim has been satisfied or the contractor has been provided with appropriate alternative security in respect of his claim.

The following general requirements must be satisfied in order for a valid builder’s lien to arise and be enforceable by the contractor:

•    The owner of the property must be enriched and the amounts owing to the contractor must be due to him (and not merely owing or accrued). It was held in FHP Management (Pty) Ltd v Theron and Another 2004 (3) SA 392 (C) that the purported expenditure must in fact have been incurred and the improvements must have been necessary or useful, or must have maintained or enhanced the market value of the property.

•    The contractor must be and remain in possession of the site or the section thereof forming the subject matter of the builder’s lien. Such possession is made up of two elements: the contractor’s physical control or occupation of the site and the contractor’s intention to hold and exercise that possession over the site so as to secure some benefit for himself against the owner. The lien does not automatically revive if the contractor relinquishes its possession and subsequently regains it. The only exception to this rule would be if the contractor is deprived of his possession by force, the threat of force or as a result of fraud.

The contractor must be mindful of the fact that it is not enough for him to contend symbolic possession in that he has employees and/or a security guard on site or that he has stored materials and equipment belonging to him on site, although on the facts of the case this might well be sufficient evidence of natural possession. Rather, it is necessary for the contractor to prove that the site (or the relevant sections of the site) over which the builder’s lien is asserted is occupied and under the control of the contractor at all material times. A temporary absence, as occurs at the end of a working day, will not interrupt the lien provided that the contractor remains engaged in the work and in his assertion of his occupation of the site.

Possession need not be exclusive to one person. Where the employer engages several independent contractors to complete different sections of the work, whether as principals or as subcontractors, each one of them may enjoy a lien over the whole or a severable part of the structure, provided each retains possession and asserts his right thereto against the employer or owner as seen in Beetge v Drenka Investments (Isando) (Pty) Ltd 1964 4 SA 62 (W).

In Wightman v Headfour (Pty) Ltd 2008 (3) SA 371 SCA the Supreme Court of Appeal held that possession is not ipso facto lost where a contractor exercising a lien over a property allows the owner of the property access for limited purposes. In such instances the court will consider both the giving and receiving of access in context to determine if the physical possession was actually given up.

According to the Court, in the event that the contractor comes to an agreement with the owner in terms of which he allows the owner access to the property physical possession will only be lost if the contractor intends to abandon the control which he had hitherto exercised exclusively.

In this case the contractor delivered a duplicate set of keys to the owner because he had come to an agreement with the owner in terms of which he would allow the owner access to the property. At no stage did the contractor intend to relinquish control to the owner, and the owner had ostensibly received the keys on the same basis.

However, the owner then used the duplicate keys to obtain entry and in doing so manifested a state of mind to possess the premises despite the terms of the agreement. This was done by giving access to his own contractors and causing entry to be refused to the contractor.

The Court held that there was no doubt that the owner’s true intention was withheld from the contractor in order to gain control of the premises and that the owner accordingly took occupation without the contractor’s knowledge. The Court further held that this constituted spoliation and the owner was ordered to provide the contractor with satisfactory security or alternatively restore possession of the property to the contractor.

Accordingly, it can be seen from the above that the intention to maintain possession of the site will be of tantamount importance when the Court considers the existence of a builder’s lien.