Statutory lien of tradesmen in subcontracting

Statutory lien of tradesmen in subcontracting: real risks for the client

Anyone commissioning construction work in Switzerland faces a risk that many underestimate: the registration of a statutory lien on their property by a subcontractor whose very existence they were unaware of. This mechanism is provided for in the Swiss Civil Code (Art. 837 para. 1 no. 3 CC) and constitutes a strong protection in favour of tradesmen. Below, we explain how it works and, above all, how to protect yourself.

Why the statutory lien of tradesmen exists

The contract for work and services (Art. 363 et seq. CO) provides that the tradesman is paid only after completing and delivering the work. This arrangement exposes the party carrying out the work to a significant financial risk. The statutory lien addresses precisely this problem: it allows the tradesman to have a lien registered on the owner's property as security for his remuneration, without having to go through lengthy and complex proceedings.

If the claim is recognised and the owner fails to pay, the property encumbered by the statutory lien may be sold at auction. The proceeds serve to cover the tradesman's claim. It is a powerful instrument that the legislator introduced deliberately to balance the contractual position between the party ordering and the party performing the work.

The problem of subcontracting

Subcontracting occurs when the main contractor entrusts third parties with the execution of work that it had received under contract from the client. The client has no direct contractual relationship with these subcontractors: the contractual link exists solely between the contractor and the subcontractor.

This is where the situation becomes delicate. Three aspects warrant particular attention:

• Unless otherwise agreed, any contractor may engage subcontractors without needing specific authorisation from the client.
• The subcontractor also has the right to request the registration of a statutory lien on the owner's property under Art. 837 CC. This applies even to sub-subcontractors along the entire chain.
• The client, having no direct contract with the subcontractor, can hardly verify whether the contractor has actually paid them.

The risk of double payment

The most concrete danger is this: the contractor fails to pay its subcontractors, or pays them only in part. The unsatisfied subcontractors then turn against the client and request the registration of a statutory lien on the client's property.

The bitter part is that this can happen even if the client has already paid the contractor in full. In other words, the property owner risks paying twice: first the contractor, then the subcontractors. This is by no means a rare occurrence in Ticino's construction practice.

How to protect yourself: targeted contractual clauses

The first piece of advice is to choose a solid and solvent construction firm. It seems obvious, yet it is often overlooked. But even with a reliable contractor, it is advisable to include specific contractual safeguards.

Some measures that Studio Legale e Notarile Haab regularly recommends to its clients:

• Notification obligation: include a clause in the contract for work and services obliging the contractor to disclose to the client the identity of all subcontractors involved, including any subcontracting chains.
• Bank guarantee or surety: require the contractor to provide a guarantee that can be called upon if the subcontractors assert justified claims for non-payment. It is also advisable to contractually prohibit the assignment of contractual claims to third parties (Art. 164 para. 1 CO).
• Right of direct payment: provide that, should the contractor fail to pay the subcontractors, the client may pay them directly and deduct the amount from the remuneration owed to the contractor. It is important to specify that this does not constitute a contract for the benefit of third parties (Art. 112 CO).
• Precautionary retention: in the event of a provisional registration of the statutory lien, the client should be able to retain from the remuneration an amount equal to the subcontractor's claim, to be released only after payment or the provision of adequate security (Art. 839 para. 3 CC).
• Periodic proof of payment: stipulate that the contractor must demonstrate at regular intervals that the subcontractors have been paid, or that the final remuneration becomes due only after the expiry of the four-month period for registration of the statutory lien.

Contract drafting makes the difference

As the foregoing makes clear, careful drafting of the contract for work and services remains the most effective means of avoiding potentially serious situations. Avv. Hugo Haab and Avv. Roberto Haab of Haab Legal regularly assist clients and companies in the preparation and review of contracts for work and services, with particular attention to issues relating to subcontracting and the statutory lien of tradesmen.

Investing in preventive legal advice costs considerably less than dealing with a statutory lien that has already been registered. If you are planning construction work or already have a contract for work and services in place, contact us for an assessment of your situation.

For a personal consultation: info@haablegal.ch | +41 91 913 30 70