Canada: Lien Rights – When The Developer Doesn't Have An Interest In The Land

In an earlier article, we warned of the risk of loss of lien rights if a transfer of land occurs during construction. A 2018 court decision reminds us that there is also a risk of loss of lien rights if the party contracting the work doesn't have a legal interest (ownership) in the land, such as when (for example) an expected transfer of land doesn't go through.

The Recent Example

In Georgetown Townhouse GP Ltd v Crystal Waters Plumbing Company Inc, 2018 ABQB 617, the developer/owner Georgetown agreed to sell 48 lots to ReidBuilt Homes. The contract between Georgetown and Reidbuilt allowed ReidBuilt to occupy the lands and begin construction. However, the lands would be transferred by Georgetown only upon sale of the lots to individual homebuyers.

When ReidBuilt came into financial problems, many trades registered liens against the lots in question. The problem is, the trades were working for ReidBuilt but the lands were owned by Georgetown. On a court application to determine if the liens (against the lands owned by Georgetown) were valid, Master Prowse determined that Georgetown was not "sufficiently involved" in the construction process to make Georgetown an "owner" as defined in the Builders' Lien Act (BLA). The liens were all invalid.

That Quirky Legislation

This issue arises in large part because the BLA has a unique definition of "owner," and it is only the interest of an "owner" as defined that is subject to claims of lien. Section 1(j) of the BLA defines an owner as follows:

"owner" means a person having an estate or interest in land at whose request, express or implied, and

  1. on whose credit,
  2. on whose behalf,
  3. with whose privity and consent, or
  4. for whose direct benefit,

work is done on or material is furnished for an improvement to the land and includes all persons claiming under the owner whose rights are acquired after the commencement of the work or the furnishing of the material.

There is now a substantial body of case law around the question what it means to expressly or impliedly request the work. Mere knowledge by the registered owner that the work is being done is not sufficient. Rather, the courts have decided the registered owner must be actively involved in the building process for lien rights to exist.

What is Sufficient Involvement to Trigger Lien Rights?

In the Georgetown case, the lien claimants argued that the registered owner Georgetown expressly or impliedly requested the work based on the following facts:

  • Georgetown had the right to approve the style and colours of the homes to be constructed.
  • ReidBuilt was required to obtain Georgetown's approval for the plans for the house before applying for a building permit.
  • ReidBuilt was to provide utility servicing within the lot boundaries but only with contractors approved by Georgetown, and the work was to be supervised by Georgetown's engineers.
  • ReidBuilt was required to keep the lots with an orderly and tidy appearance to the satisfaction of Georgetown.
  • Georgetown was to provide marketing support to ReidBuilt for the sale of homes on the lots.
  • Georgetown's approval was required for ReidBuilt's onsite signage and advertising.

However, despite all of these obligations, there was no evidence that Georgetown in fact gave any of the approvals, or participated in any of the ways contemplated in the agreement between Georgetown and ReidBuilt, aside from Georgetown setting up and maintaining a website that referred to ReidBuilt as the builder for the subdivision. The court concluded that Georgetown's contractual authority over the development is a relevant factor to consider, but not as significant as what in fact happened. With no evidence of Georgetown's active involvement in the building process, the liens were invalid.

Not An Isolated Case

Similar situations have led to similar conclusions by the court in the past.

In Stealth Enterprises Ltd. v Hoffman Dorchik, 2000 ABQB 311 (CanLII), S & U Homes Ltd. was the registered owner of an apartment building. They made an agreement to sell the building to the developer (632766 Alberta Ltd.) who intended to convert it into condominiums. 632766 refinished four of the apartment suites into show suites and spent other money on refreshing the lobby, before the land transfer was completed. The deal collapsed and an unpaid contractor (hired by 632766) registered a lien against S&U's title. The only evidence of active participation by S &U related to some directions regarding cleaning the apartments for rental. The court determined the lien was not valid.

In E. Gruben's Transport Ltd. v Alberta Surplus Sales Ltd., 2010 ABQB 244 (CanLII), the landowner Alberta Surplus Sales agreed to sell 150 acres of land to 1327923 Alberta Ltd. Alberta Surplus allowed 1327923 to move ahead with development (road construction) prior to closing the deal. The roadbuilding subcontractor (E. Gruben's Transport) liened the lands when the deal fell through (and consequently Gruben's didn't get paid). The court determined that Alberta Surplus Sales "had no direct or indirect involvement in arranging for the road work to be done;" so the lien was not valid.

Finally, in Acera Developments Inc. v Sterling Homes Ltd., 2010 ABCA 198 (CanLII), the issue went to the Alberta Court of Appeal. Acera was the developer/landowner who agreed to sell the land to Sterling and allowed Sterling to build on the land prior to completion of the purchase and subdivision of the land. When subdivision approval of the land was refused, and Sterling did not get paid, Sterling registered a builders' lien. Acera's architectural and construction guidelines required that Acera approve the construction plans, elevations, finished grades, finishing materials and colours, final grade slips, setbacks, foundation designs, auxiliary buildings and fencing, and landscaping. All such plans were in fact approved prior to construction. Further, the construction was inspected by Acera as work progressed. In these circumstances, the court sided with the lien claimant – the lien was valid because there was sufficient evidence of Acera's active involvement in the work.

Three Categories of Similar Cases

As Master Prowse states in the Georgetown case: "There are three common categories of cases where this issue arises:

  1. a landlord (registered owner of land) disavows liens placed on its land by unpaid contractors of a tenant,
  2. a purchaser who agrees to buy land upon which a building is to be built, and later takes a transfer of the land after the structure has been built, disavows liens subsequently placed on his/her land by unpaid contractors of the builder,
  3. a developer/vendor (registered owner of land) who agrees to sell land, and allows the purchaser to build on the land prior to completion of the sale, disavows liens placed on its land by unpaid contractors of the purchaser."

The present article deals with category (iii – contracting with purchaser of lands before completion of the sale of the lands). We have addressed the other two categories in prior articles: (i – landlord and tenant) and (ii – vendor and purchaser).

Room For Mischief

Contractors should be very attentive to these risks. Most of the time, these situations arise innocently enough when a developer becomes insolvent. But we have also seen developers deliberately arrange their affairs to protect the project from claims of lien (i.e. isolating the registered owner of the lands from any active involvement in the work). In either case, contractors should be alert to situations where their statutory lien rights may be compromised.

In the present context, this means making some investigation if the party who is contracting the work has a legal interest in the lands. If the party contracting the work has no legal interest in the lands, further inquiry is required to determine if the party who actually owns the lands is actively participating in (requesting) the work. Keep in mind, the registered owner's right to actively participate in the work is not sufficient; there must be active participation by the registered owner in fact. If these inquiries suggest that lien rights may not exist, the prudent contractor will mitigate risk in some other fashion, such as requiring other security for payment from the party contracting the work.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions