Complications Arise When Builders’ Lien Is Placed On Property Under Development feature image

Complications Arise When Builders’ Lien Is Placed On Property Under Development

When contractors or subcontractors perform work on a property and aren’t paid, they can rely on a mechanism known as a builders’ lien to obtain security for payment. The requirements for liens are very technical and rely on complicated legal precedents and a specialized regulatory framework. A great example of the types of complications that can arise is found in a recent decision from the Court of Queen’s Bench of Alberta.

The issue

The issue before the court was whether a registered owner of land, who knows that work is being done on the land, can defeat the liens of unpaid contractors on the basis that it is not “an owner” according to section 1(j) of the Builders’ Lien Act (the “BLA”) because it did not expressly request the work nor agree to pay the contractor for it.

The details as they apply to the issue saw the applicant, which was a developer and owner of land, sell 48 lots to a purchaser, who was able to occupy and build on the land. The contract stipulated the lots would only be transferred to the purchaser upon the sale of individual lots to individual homeowners. The purchaser ended up encountering financial problems and a number of contractors registered liens against the 48 lots. Of course, this is what muddied the waters. The land was still technically owned by the applicant, and as such, the liens impacted them. They applied to the court, asking it to determine if the liens were valid.

At trial

The court sated the key factual component to issues where a registered owner of land, who agrees to sell land, and allows the purchaser to build on the land prior to the completion of the sale, disavows liens placed on its land by unpaid contractors of the purchaser is the degree to which the registered owner becomes involved in the purchaser’s building activities.

In this specific case, the court found the applicant did not exercise its authority to become involved in the building process to any significant degree.

The contract between the applicant and the purchaser allowed the purchaser to occupy the land and build houses on it after paying two installments (equal to 15%) of the purchase price. The purchaser was to pay the remaining 85% of the purchase price after selling the completed homes and lots to individual buyers.

While the contract stated the applicant had the right to approve the style and colours of the homes being constructed, there was no evidence they ever gave approval or asked to give approval. The contract also stated that the purchaser could not apply for a building permit for a house until the applicant approved plans for it. Again, there was no evidence that approval was ever sought, provided, or asked for. There were other contracted rights the applicant had available to it but did not exercise, including asking the purchaser to keep the lots orderly and tidy, and to approve signage. The only instance of the applicant’s involvement was setting up and maintaining a website for the planned subdivision as a marketing effort, which indicated the houses were to be built by the purchaser.

The court’s decision

After reviewing relevant case law as well as the factors described above, the court found that the applicant did not become sufficiently involved in the purchaser’s construction process to a great enough degree to render it an “owner” under the BLA. As a result, the liens were invalid and the court ordered the purchaser to pay $245,045.21 in order to satisfy the liens.

At HMC Lawyers, our and experienced Construction Team offers exceptional legal advice on builders’ liens and related disputes to various segments of the construction industry. We provide personalized service to each of our clients to help them make well-informed decisions about their business while protecting their legal rights. To speak with one of our lawyers, call 1-800-480-3534 or contact us online.

 

 

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