In Georgetown Townhouse GP Ltd v Crystal Waters Plumbing Company Inc, 2018 ABQB 617, Master Prowse addressed the question of whether a registered owner, that knows work is being done on its land but does not expressly request or agree to pay for it, can defeat a lien on the basis that it is not an ‘owner’ for the purposes of the Builders’ Lien Act (the “BLA”).
Georgetown Townhouse GP Ltd. (“Georgetown”) was a developer/owner that agreed to sell 48 lots to a numbered company operating as RiedBuilt Homes (“167”). The contract allowed 167 to occupy the land and build houses upon payment of 15% of the purchase price to Georgetown, with the remaining 85% payable at a later date. Subsequently, one of 167’s subcontractors liened Georgetown’s interest in the land. Georgetown resisted on the basis that it was not an owner for the purposes of the BLA.
Master Prowse began by noting the expansive definition of “owner” contained in subsection 1(j) of the BLA, which states:
“owner” means a person having an estate or interest in land at whose request, express or implied, and
(i) on whose credit,
(ii) on whose behalf,
(iii) with whose privity and consent, or
(iv) 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…
He then outlined three common categories of cases where a registered owner may not be an “owner” under the BLA:
- When the work is done by a tenant;
- When a purchaser 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; and
- When a developer/vendor that is also the registered owner of land allows a purchaser to build on the land prior to completion of the sale.
Master Prowse recognized that this case belonged to the third category. He stated that the key consideration was the degree to which Georgetown became involved with 167’s building activities on the project.
In its contract with 167, Georgetown reserved the right to involve itself heavily in the building process. The contract gave Georgetown the right to approve of the style, colour and plans for the new homes, approve of and supervise 167’s utility subcontractors, and approve of 167’s onsite advertising and signage. It also required 167 to keep the lots tidy to Georgetown’s satisfaction and stated that Georgetown would provide marketing support for the newly constructed homes. However, the Court found little evidence that Georgetown actually exercised any of its rights to become involved in the building process.
The lienholder argued that Georgetown’s contractual right to involve itself was sufficient to ground liability as an owner under the BLA. Master Prowse disagreed, stating that “[w]hile Georgetown’s contractual authority is a relevant factor to consider, to me it is not as significant as what in fact happened.”
Master Prowse cited K & Fung Canada Ltd v NV Reykdal & Associates Ltd, 1998 ABCA 178 for the following propositions: (i) the degree of a landlord’s involvement in a tenant’s construction activities was a question of fact; and (ii) the degree of actual involvement is determinative, rather than simply the rights available under the contract. He also considered three cases involving developers that allowed purchasers to begin building prior to conveyance: Stealth Enterprises Ltd v Hoffman Dorchik, 2000 ABQB 311; E Gruben’s Transport Ltd v Alberta Surplus Sales Ltd, 2010 ABQB 244; and Acera Developments Inc v Sterling Homes Ltd, 2010 ABCA 198.
In Stealth and E Gruben’s, the courts held that the developers were not “owners” under the BLA because they had insufficient involvement in the purchaser’s construction activities. In Acera, the court found the developer liable because it had encouraged and participated in the construction process prior to subdivision taking place, obtained a benefit and then prevented title from passing to the builder by failing to obtain approval to subdivide the property. In obiter, Master Prowse noted that the unfairness of the developer’s actions in Acera may have been one of the factors in the court’s decision to uphold the lien.
Master Prowse concluded that Georgetown “did not become sufficiently involved in 167’s construction process so as to render Georgetown an ‘owner’ for the purposes of section 1(j) of the BLA.” Therefore, he invalidated the liens.
This case serves as a cautionary tale to owners and developers that involving themselves in a purchaser’s construction activities may expose them to lability under the BLA. While the terms of the contract between such parties is a relevant consideration, courts will focus on the degree of actual involvement in the construction process. For those providing services or materials, this decision illustrates the importance of moving quickly and obtaining legal advice prior to registering a lien. A construction lawyer can also provide your company with other contractual means for securing payment of your contracts.