Multiple Contracts Raise Question About Limitation Period For Liens
October 22, 2021
One of the most valuable tools available to contractors is using liens to encourage payment for completed projects. However, a lien must be registered within 45 days after the completion of building services in order to preserve the builder’s rights under Alberta’s Builders’ Lien Act. Although this timeline may appear straightforward, determining the start of the 45-day period can be difficult when there are multiple contracts and subcontracts involved.
Parties Disagreed Which Contract Triggered Deadline to Register Liens
In 1406676 Alberta Ltd. v. Five Star Engineering Inc., the respondent (the subcontractor), registered liens against two buildings it constructed on behalf of the applicant (the owner). The Builders’ Lien Act requires liens to be registered within “45 days from the day that the performance of services is completed or the contract to provide the services is abandoned.”
The subcontractor’s liens were registered against the owner’s buildings on January 20, 2017. The owner said that the services provided by the subcontractor were pursuant to two distinct contracts. The first was between the subcontractor and the general contractor, whose contract was terminated by the owner prior to the project’s completion. The second contract was subsequently entered into between the subcontractor and the owner directly, which required the subcontractor to complete the final inspection.
The owner’s position was that the work associated with the liens fell under the first contract (between the subcontractor and the contractor). If that was the case, the subcontractor had missed the 45-day window within which a lien could be filed. The subcontractor took the position that the contract it subsequently entered into with the owner directly also covered the work that was requested under the original contract, and as such, the liens were registered in time. At the initial trial before a Master of the court, the court agreed with the owner’s interpretation and dismissed the subcontractor’s claim.
Court Found Owner Accepted Responsibility for Payments Owed to Subcontractor
The subcontractor appealed on the grounds that there was a “prevenient” (or preceding) agreement between the subcontractor and the owner that included all of the subcontractor’s work on the buildings. This was based on the fact that the owner dealt directly with the subcontractor from the outset of the project and continued to do so until the last service, which was provided within 45 days of the day the liens were registered.
At the time the owner terminated its agreement with the contractor, it retained the subcontractor to complete the project’s final inspection. The owner advised the subcontractor that due to ongoing refusals by the contractor, the owner could not pay the outstanding amounts owed to the subcontractor by the contractor. The subcontractor agreed to perform the final inspections and provided a cost estimate despite this. Correspondence between the parties suggested that the subcontractor was under the impression that someone would be paying its outstanding fees, though the owner had not openly offered to do so.
Upon completion of the inspection, the subcontractor sent the owner a new invoice for all of its outstanding payments, including those owed by the original contractor. The owner denied having any responsibility for the amounts owed to the subcontractor from the contractor.
The court reviewed how the owner and subcontractor conducted business throughout the project. The court found the correspondence between the parties demonstrated that the owner accepted responsibility for the payments owed to the subcontractor and contractor’s original agreement. It noted the owner requested and received specific services covered by that agreement and the owner did not establish an intention for the subcontractor to conduct the final inspection pursuant to the original agreement.
The lower court’s decision was overturned and the liens were found to be valid as they were registered within 45 days of the completion of the subcontractor’s work under its agreement with the owner. In addition to the right to register the liens, the subcontractor was also awarded costs amounting to $1,350.
Upcoming Changes to Alberta’s Builders’ Lien Act
The timeline currently provided by the Builders’ Lien Act will undergo substantial changes in the summer of 2022. Bill 37: The Builders’ Lien (Prompt Payment) Amendment Act, 2020 is scheduled to come into force on August 29, 2022 and will overhaul the rules regarding lien registration in Alberta.
The amended Act, which will be renamed the Prompt Payment and Construction Lien Act, increases the 45-day lien registration timeline to 60 days for the construction industry and 90 days for the concrete industry. The Act also sets strict deadlines for payment of building contracts and subcontracts.
Contact Calgary Construction Lawyers for Reliable Advice on Construction Disputes
Given the substantial changes to Alberta’s construction laws coming in summer 2022, it is more important than ever to ensure all parties to a construction project understand their rights and obligations relating to payment. At HMC Lawyers, our construction lawyers offer exceptional legal advice to parties regarding all construction matters, including builders’ liens and related issues. We can help you make well-informed decisions regardless of whether you are an owner, supplier, contractor, or subcontractor seeking payment for completed work. Our knowledge of regulatory requirements and the governing law gives our clients the comfort of knowing that their liens are registered properly and in time. Contact us at 403-269-7220 or reach out online for advice about your legal rights and responsibilities in construction transactions and disputes.