Contractors, subcontractors, suppliers and consultants cite “not getting paid” as one of the biggest challenges to operating in the construction industry in Qatar. Understandably, companies are starting to look for opportunities to secure payment. Effective, practical methods are proving difficult. Liens are not without their difficulties but are perhaps another method to throw into the mix.
A “lien” is a priority right over property (moveable or immovable). Liens can arise where money is due from one party to another in order to satisfy or secure that debt. In its simplest form it is hanging on to goods/materials/equipment which are properly in your possession but belong to someone else; someone who owes you money. In the construction context this becomes more difficult when those goods or materials are delivered and incorporated into a building or structure. At this stage the lien is exercised as a “priority right”, or an “attachment”, broadly similar to a mortgage over a property.
A supplier has a lien or priority right over the materials supplied for as long as they maintain their “intrinsic nature”. Again, in the construction context, once incorporated into a building or structure they are likely to be inseparable, no longer of the same intrinsic nature. A further problem arises if the goods or materials are sold on and the purchasing party knows nothing of the debt owed to the supplier – in these circumstances the lien may be lost.
There is a risk that the goods or materials may be subject to other priority rights. Judicial costs, costs of sale, costs of preserving or storing the materials, and wages to workers all taking precedence over the supplier’s right to recover the debt it is owed.
Qatari law makes specific provision to cover the fees of contractors and designers whose work is in immovable property. i.e. the construction, rebuilding, restoring or maintaining of buildings or installations. Such contractors and designers have a priority right over the building or installation up to the value in the building or installation which is directly attributable to the work of that contractor or designer.
Such a priority right must be registered as a charge over the property. They will rank behind other prior registered charges save where the prior registered charges were in existence before the works carried out by the contractor or designer added value to the property.
However, registered charges whilst securing a debt may do little to assist in the short term as the contractor or designer, the lien holder, may not be able to force the sale of the property to recover its money.
Some contractors are deprived of the opportunity to secure payment by way of lien or priority right because they are obliged to provide waivers or releases: A release will indicate that the contractor accepts that he has completed the work and received payment (whether it is true or not), or that his claim has been satisfied. Releases may be required by employers as a pre-condition to payment or to the issue of a taking over or initial acceptance certificate. A waiver is typically obtained before commencement of the works and may be drafted into the terms of the contact itself. A waiver relinquishes any existing or future right to a lien/priority right.
It is sensible for the construction client to protect itself by requiring that a contractor provide waivers or releases from its subcontractors. This avoids a subcontractor registering a priority right over a property due to non-payment by the contractor where the contractor has been correctly paid by the client.