As disputes over non-payment of construction costs increase, how can I protect my rights by exercising my ‘lien’?

As the high interest rate trend and rising raw material prices coincide, concerns in the construction industry are deepening, and subcontract disputes arising from failure to receive construction payments on time have been found to be increasing. According to the Korea Fair Trade Mediation Board, a total of 660 applications for dispute mediation in the construction subcontract field were received in 2024, an increase of approximately 34% compared to 492 cases two years ago. This figure accounts for 60% of all subcontract dispute cases, clearly revealing the reality that construction companies and subcontractors are being hit hard by the deepening fund crunch caused by the construction recession.

At a construction site, the cost of construction is directly related to the issue of survival. In the case of small and medium-sized construction companies or subcontractors with relatively limited financial resources, there is a high risk that even a slight delay in payment recovery will lead to serial bankruptcies as they will not be able to cover material and labor costs. At this time, the lien is considered the most powerful legal tool that a construction company can take to protect its rights.

A right of lien refers to the right of a person who possesses another person's goods or securities to retain (occupy) the goods until the claim accrued on the goods is repaid. Simply put, it is the right to hold out and not hand over the building until the overdue construction costs are paid. Since it is virtually difficult to dispose of a building with a lien or obtain a mortgage loan, it becomes a powerful weapon to psychologically and economically pressure the building owner.

However, a lien does not arise simply because money was not received. In order for a legally valid lien to be established, several requirements must be met. The first thing to consider is consistency (relevance). This means that there must be a direct relationship between the bond for which the lien is being exercised and the building in question. In other words, the money not received must be the cost of new construction or renovation of the building. You cannot occupy the construction site just because you have other debts from the building owner.

In addition, an important issue is ‘the timing of commencement of occupancy’. If the construction company began occupying the building after the court's auction start decision was registered due to the owner's debt, the lien cannot be filed against the successful bidder even if the construction payment was not received. In other words, the difference between winning and losing is whether possession is legally secured and a lien is obtained before the seizure takes effect. In addition, it is necessary to carefully consider whether there was any illegality in the possession process (trespassing, etc.) and whether the payment due date for the construction loan has arrived.

Therefore, in the event of a conflict, priority should be given to reviewing whether the legal requirements are met rather than attempting to retake the site by force. It is wise to clarify the fact that the payment due date has arrived through proof of contents, etc., and prepare a safety device for collecting the debt by filing a lawsuit to confirm the existence of a lien along with provisional seizure measures. In some cases, when a building owner counterattacks against a lien with a claim for extinguishment, it is necessary to find a way to protect the construction cost claim.

Attorney Kim Gwang-deok of Daeryun Law Firm said, "A lien dispute turns into a high-level legal battle from the moment it goes to auction. If possession is started even a day later than the auction start decision registration, the lien may be broken, and fierce battles will arise over the legality of possession or the statute of limitations on secured claims, etc." He added, "Especially in complex rights relationships, there are clear limits to the ability of ordinary people to respond alone, so seek the assistance of experts such as lawyers from the beginning of the dispute to determine the exact time of possession. “Only by proving the case and responding through legal procedures can we protect the precious construction funds,” he said.

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