Construction Superconference: Builder’s Liens

Construction Superconference: Builder’s Liens Alex Kotkas January 25, 2010

Techniques for Ensuring Protection under theBuilder’s Lien Act • General Overview: Purpose and Creation of Lien Rights • Operation • Applicability • Recent case law development • Concerns Relating to Condominiums • Registration of Liens • Re-registration of liens • Holdback obligations • Strategies in protecting lien rights

Purpose of the Builder’s Lien Act • The Act intends to strike a balance between the interests of the property owner and those who provide services, labour and materials to that owner • To this end, the legislation aims to provide both: • A quick and cost effective method for suppliers of labour, services and materials to enforce their rights against both those with whom they have a contract, and against the owner of the property • A limitation on liability for the owner (s.25)

Creation of the Lien • A lien is created by registering an interest against real property at Land Titles in the specified form (s.34) • Registration can occur without notifying or obtaining the consent of the real property owner • To validly create a lien claim, the registrant must have done work or furnished material for an “improvement” to the land • This work must also have been done for and (expressly or impliedly) requested by the owner

Operation of the Lien • Under the Act, an Owner, when making payment on the contract, must retain an amount equal to 10% of the value of the work actually done and materials actually furnished for a period of 45 days from the date of issue of a certificate of substantial performance or date of completion of the contract; • This holdback money goes into one of two lien funds as security in case a contractor claim arises: • Major lien fund (s.18): 10% of payments until substantial completion • Minor lien fund (s.23): 10% of payments from substantial completion to completion

Operation of the Lien (cont’d) • If the work or materials supplied by the lien-holder go uncompensated for, the lien-holder can file a statement of claim to bring an action on the outstanding payments • The remedies provided under the Act limit the owner’s liability to the total of the major and minor lien funds (s.25) • The Court can order the sale of the Owner’s property in order to satisfy claims (s.59)

Applicability of Liens • In order for a lien to apply certain requirements must be met: • The materials or labour must have been used in making “improvements” to the property • The land the lien it is attached to must be lienable • Value of the lien must be properly stated • Registration requirements must be followed • If a claim is intended to be brought on the lien, specific requirements and timelines must be followed

What is an “improvement”? • The Act defines an Improvement as “anything constructed, erected, built, placed, dug or drilled, or intended to be constructed, erected, built, placed, dug or drilled, on or in land except a thing that is neither affixed to the land nor intended to be or become part of the land” • Essentially, the Court looks at the nature of the attachment of the structure or equipment to the land and the intention that the attachment have some degree of permanency

What is an “improvement”?(cont’d)

What is an “improvement”?Strict Interpretation governs Important points to note in determining what the Court will view as an Improvement: • The Supreme Court of Canada has dictated that Lien legislation should be interpreted strictly. The justification for this interpretation is that builders' liens interfere with common law property rights, so no right should be found unless the law clearly expresses it (Gauntlet Energy Corp. (Re)[2003] A.J. No. 1720 (Alta. Q.B.))

What is an “improvement”?Provincial definitions differ Important points to note in determining what the Court will view as an Improvement: • Alberta’s definition of improvement is exclusionary, and the principle of strict interpretation is closely followed. • The definition in B.C. is inclusive, rather than exclusive, although reasoning often relies on the same principles as in Alberta • The definition in Ontario is exhaustive and restrictive

Is the land lienable? Generally, liens cannot be registered or enforced against certain lands: • Crown lands • Indian and Métis lands • Public Highways • Irrigation Districts

Is the land lienable?(cont’d) Crown Lands: • Generally: Liens are not enforceable against the Crown. S. 14 of the Interpretation Act provides that no enactment affects Her Majesty unless it expressly states that the Crown is bound. However, liens against Crown lands or Crown agents can still be registered at Land Titles, if the land is jointly owned with persons other than the Crown and the lien will then apply to the non-exempt portion of the land. • There is a public policy aspect at play: One of the remedies under the Act is for the Court to order a sale on the liened land; to have this remedy apply to public lands, which can host facilities like hospitals, would go against the public interest

Is the land lienable?(cont’d) Federal: The general rule- no liens are enforceable- applies, with certain exceptions: if the Crown holds an interest jointly with other persons; if a provincial agency occupies the land; and if the federal crown specifically legislates that the provincial legislation applies (i.e.: NEB Act specifies that it applies to pipelines). These exceptions are limited, however, by the concept of interjurisdictional immunity: even if there is a jointly held interest, if the purpose the land is being used for is one in which the federal crown has exclusive jurisdiction, then there is a possibility no lien can apply (ie: airports, nuclear facilities). See Vancouver International Airport v. Lafarge Canada Inc. (2009), 82 C.L.R. (3d) 285 (B.C.S.C.)

Is the land lienable?(cont’d) • Indian and Métis land: As an area of exclusive federal jurisdiction Provincial lien legislation does not apply (Palm Dairies Ltd. v. The Queen (1978), 91 D.L.R. (3d) 665 (F.C.T.D.)). An exception exists where the trust provisions of provincial lien legislation is used to apply to monies used or intended to be used in the construction of improvements on reserve lands (Skukowski v. James Conci Holdings Inc. [1998] O.J. No. 4343).This is dependant on the federal crown being an “owner” under the provincial lien Act (Jones Masonry Ltd. V. Defence Construction (1951) Ltd. (2009), 81 C.L.R. (3d) 277 (NBQB), affirmed by the NBCA in 2010); it should be noted that the Alberta Act does not expressly include or exclude the Crown in its definition of “owner”.

Is the land lienable?(cont’d) Provincial: The general rule applies with several exceptions: any joint interest with the Crown can be liened (Kardinal Homes Ltd. v. Alberta Housing Corp. (1978), 8 Alta. L.R. (2d) 56); Mineral Rights: Liens against mineral rights in provincial crown land must be registered with the Minister of Energy as per s.36 of the Builders Lien Act (rather than at Land Titles as with normal liens against surface rights).

Is the land lienable?(cont’d) Municipal: Unless public policy exempts the lien from applying then the regular provisions of the Act apply and municipal land can be liened (Prairie Roadbuilders Ltd. v. Stettler 23, 1983 CanLII 1085 (AB Q.B.)). Liens cannot be filed in respect of municipal streets.

Is the land lienable?(cont’d) • Public Highways & Irrigation Districts: s.7 of the AB Builders Lien Act prohibits a lien from applying to improvements in either of these areas

Major litigation themes in this area:Recent Alberta case law: • Applicability of liens to federal Crown land (Vancouver International Airport- BC case but potential effects in AB) • Who and what is caught by the definitions: • “improvement”- frequently an issue; • “owner”- frequently an issue; in E. Gruben’s Transport Ltd. v. Alberta Surplus Sales Ltd. 2010 ABQB 244, the prospective purchaser’s consent to subdivision did not make it an owner for the purposes of the Act; • “person”- in Canbar West Projects Ltd. v. Sure Shot Sandblasting & Painting Ltd., 2010 ABQB 372, individuals who entered into a contract as a company (pre-incorporation but then failed to follow through on incorporating) were found to not be a person for the purposes of maintaining a lien

Major litigation themes in this area:Recent Alberta case law (Cont’d) • Words not defined in the Act: • “interested party”- Schubert v. A-S4 Steel Ltd., 2010 ABCA 62 determined that a sublessee could be an interested party for the purposes of having standing to vacate a lien • Calculation of the lien amount: • non-lienable work cannot be sheltered under a lien for lienable work (John Barlot Architect Ltd. v. 413481 Alberta Ltd. 2010 ABCA 51)

Concerns Relating to Condominiums The Condominium Property Act R.S.A. 2000 c. C-22 deals with liens on condos in relation to: • Work Requested by Owner- s.78(1)(a) • A lien can be registered against the unit and also extends to the owner’s share of the common property • Work Requested by Corporation on Common Property- s.78(1)(b), s.78(2) • A lien can be registered against the estates of all of the owners in all of the units and common property • Work Requested by Corporation on Individual Units- s.78(1)(c) • A lien can be registered against the unit and also extends to the owner’s share of the common property

Registration of Liens:Procedure under the AB Builders Lien Act • Under s.41, a lien must be registered within 45 days from the date when the last materials were furnished, services were provided or the contract was completed or abandoned (90 days for oil and gas wells). • If substantial performance is achieved (and a certificate is issued) there is likewise 45 days to register the lien in order to have it attach to the major lien fund (s.21) • To keep the lien alive, within 180 days of registering the lien a claim must be commenced and a Certificate of Lis Pendens must be filed with Land Titles (s.43(1))

Re-registration of Liens • The only provisions for re-instatement of a lien are under s.38, which allows the Court to reinstate the lien if it was invalidated by an order or judgment under s.155 or s.156 of the Land Titles Act (for not being a properly attestedinstrument for registration) • If the lien is not registered within the 45 days provided by s.41, it ceases to exist (s.42) and cannot be subsequently registered • If the lien is initially registered but the s.43 provisions aren’t met in the required period (180 days), it ceases to exist and the Registrar can on its own initiative or on request cancel registration of the lien

Holdback Obligations S.18 of the BLA requires an owner who is liable on a contract under which a lien may arise to holdback the required funds. • The statute imposes a holdback requirement on owners who are liable on contracts where liens potentially exist • This lien right cannot be waived by agreement (s.5 prohibits this on policy grounds) • A payment schedule does not exempt the owner from the holdback obligation (s.18) • A direct purchase may not exempt the owner from the holdback obligation (ie: when material is paid for up front and delivered to the worksite, if the supplier knows that the materials are being used for an improvement on specified lands a lien can still arise)

Summary:Strategies in Protecting Lien Rights For Owners: • If there is a possibility that a lien may arise, make sure to meet the holdback requirements • Do searches and more searches before paying out • If a lien is claimed: • check to ensure that it can apply and registration procedures were followed • Ensure that the value is accurately stated and that lienable work isn’t sheltering non-lienable claims • Pay funds into trust to obtain removal if required For Lien-Holders: • Ensure activity allows for lien (requested by owner, work or material going towards an “improvement”, land is lienable) • Ensure registration steps and timelines are followed

Questions?

Construction Superconference: Builder’s Liens