Encore on Enforceability of Defective Liens

January 15, 2018 | Jonathan Martin

Our November 2017 article entitled “MT November 2017 Case Summaries” highlighted Norson Construction Ltd. v Clear Skies Heating & Air Conditioning, 2017 ABQB 544 which upheld the decision of Master Prowse upholding a lien registered against the correct land but which incorrectly named the contractor as the owner instead of the registered owner. In Encore Electric Inc. v Haves Holdings, 2017 ABQB 803 Master Prowse was once again asked to strike out a lien based on incorrect information. This time, however, the owner of the land had been correctly named but the leasehold interest and holder of that interest had not been included. The owner and landlord in that case was Albari Holdings Ltd., but a leasehold interest was held by Haves Holdings Country Hills Gym Ltd., operating under the name Gold’s Gym, and it was for Gold’s Gym that the work had been performed.

Master Prowse was first asked to determine whether the lien at issue could be validly registered against the ownership interest of the registered owner. He found that the registered owner had not received notice of the work from Encore Electric pursuant to section 15(1) of the Alberta Builders Lien Act and that the registered owner’s involvement in or benefit from the work was not sufficient to create a lien on his interest. The case law has found that if a registered owner benefits from an improvement, a lien can be registered against his interest even if he did not directly contract for the work. A direct benefit is a question of fact. It could, for example, include evidence that the improvements are necessary for the tenant’s business combined with participation rent in the lease agreement, as was found in Suss Woodcraft Ltd. v Abbey Glen Property Corp., [1975] 5 WWR 57 (Alta QB).

Master Prowse turned to the question of whether the lien should nevertheless be upheld against the leasehold interest of Gold’s Gym. Master Prowse distinguished this situation from that in Norson on the basis that a lien that names the incorrect owner can be rectified and upheld because of the substantial compliance provisions of the Act, so long as it is registered against the correct interest. However, a lien registered against an incorrect interest cannot be rectified. In this case, the lien was registered against the ownership interest instead of the leasehold interest and could therefore not be rectified. The result was that the lien for unpaid work worth $686,000 was vacated.

Lien claimants should be aware of the potentially serious consequences of failing to properly identify the interest against which a lien is registered. The source of confusion often stems from the use of the term “owner.” All builders’ lien acts define “owner” very broadly to include the owner of any estate or interest in land, including a tenant.[1] But we don’t normally think of tenants as owners in common parlance. Alberta’s form is the only one to even mention that the “owner” can be the owner of an interest other than a Fee Simple, but not everyone outside of the legal profession knows what a Fee Simple is.[2]

An obvious solution may be to simply create better forms, which include an easily accessible definition of “owner” under the legislation. The British Columbia form, on the other hand, does not even ask for the owner to be identified. So long as the correct people are given notice and the land is correctly identified, all is well.

The consequences of naming the wrong interest holder may vary in different provinces. For example, although the Saskatchewan court in Boomer Transport Ltd v Prevail Energy Canada Ltd, 2014 SKQB 368 agreed that liens registered against the wrong interest could potentially be a problem, Saskatchewan’s Act has a unique provision at section 49(5) which permits liens to be registered after the 40 day statutory period. This possibility in practice means that if a lien is found to be defective, a corrected lien can subsequently be registered. Section 49(5), however, does provide that late registration may affect the usefulness of the lien since it will not be valid in regards to intervening payments made to lien claimants after the 40 day period, and will also not be valid in regards to third party interests registered after the expiration of the same period.

It is also possible to register a lien against a leasehold interest; however, such a lien is much less effective than a lien against the interest of a registered owner, which permits the land to be sold to satisfy the lien. Builders’ lien acts address this by providing that a lien claimant performing work for a tenant can, prior to commencing work, provide written notice of the work to the registered owner and thus gain the right to place a lien on the ownership interest itself unless the registered owner, within a prescribed time after receiving notice, gives notice to the contractor or subcontractor that they will not be responsible for the work to be performed.

We remind our readers that registering liens can be risky business in some provinces. Lien claimants are encouraged to get legal advice to ensure their lien forms are correctly filled out, otherwise the consequences could be catastrophic. Even if mistakes can sometimes be subsequently made right, the old adage attributed to Benjamin Franklin “an ounce of prevention is worth a pound of cure” remains true for all.

[1] BC: Builders Lien Act, SBC 1997, c 45, s 1(1); Alberta: Builders’ Lien Act, RSA 2000, c B-7, s 1(j); Saskatchewan: The Builders’ Lien Act, SS 1984-85-86, c B-7.1, s 2(1); Manitoba: Builders’ Liens Act, CCSM c B91, s 1(1).

[2]  A Fee Simple is legal speak for unconditional ownership. It is defined by thefreedictionary.com as “The greatest possible estate in land, wherein the owner has the right to use it, exclusively possess it, commit waste upon it, dispose of it by deed or will, and take its fruits. A fee simple represents absolute ownership of land, and therefore the owner may do whatever he or she chooses with the land. If an owner of a fee simple dies intestate, the land will descend to the heirs.”

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