This is intended to be the first of a series of articles about builders’ liens. 

Registering a Builders’ Lien

Alberta legislation permits a person who has not been paid for a claim in excess of $300, the right to register a Statement of Lien against title to the property upon which the improvement is being made so long as they have:

a) done or caused to be done any work on or in respect of an improvement; or

b) furnished any material to be used in or in respect of an improvement

for an owner, contractor or subcontractor.

Statement of Lien-Form

The lien must be registered against title to the lands upon which the improvement is being made and it must be registered in a form that is prescribed by law.  If the project involves more than one title, the Statement of Lien must be filed on all titles to land upon which work or materials were actually provided.

Under section 40 of the Act, a person who registers a lien for an “amount grossly in excess of the amount due to the person” or registers a lien when the person knows or ought reasonably to know that the person does not have a lien, is liable for legal and other costs and damages incurred as a result of it.

General Contractors (“GC”) and owners of land should beware of Statements of Lien that include a quantum meruit claim in the Statement of Lien against the GC or the owner even when the lienholder had no direct contract with the GC or the owner.  From my perspective, including a quantum meruit claim in a Statement of Lien is a clear attempt to circumvent the Act and is not a preferred practice.  GC’s and owners of land should read Statements of Lien carefully when effecting a settlement of any lien claim to ensure that appropriate releases are obtained not only from persons with whom the GC or owner had a contract but also from any lienholder that may have included a quantum meruit claim against the GC or the owner of the land under the Statement of Lien.

Time for registering the Lien

A lien for materials or services may be registered at any time within the period commencing when the lien arises under the Act (i.e. when work or materials is provided and at least $300 is owing to the lienholder) and terminating 45 days from the day that the last of the materials is furnished or the services are completed or the contract to furnish the materials or services is abandoned.  Section 42 of the Act specifically provides that if the lien is not registered within the time limited by section 41, the lien ceases to exist.

Registering a lien is not the end of a lienholders’ work.  Within 180 days of registering the lien, the lienholder must commence an action under the Act and must register a Certificate of Lis Pendens against title to the lands upon which the project was carried on failing which, the lien can be cancelled under Section 47 of the Act.  It is also important to note that a trial of the action should be held within 2 years of the filing of the Certificate of Lis Pendens failing which, an application can be made to the Court to cancel the registration of the lien.

Priorities

Builders’ Liens enjoy some priorities over other instruments and those are set out under Section 11 of the Act.  One priority found under Section 11(4) of the Act is worthy of note:

“11(5)  Advances or payments made under a mortgage after a statement of lien has been registered rank after the lien, but a mortgagee who has applied mortgage money in payment of a statement of lien that has been registered is subrogated to the rights and priority of the lienholder who has been so paid to the extent of the money so applied.” (sic)

The Act also speaks to priorities among lienholders.  For example, a lien for wages of a labourer has priority, to the extent of 6 weeks wages, over all claims on that portion of the lien fund that applies to or through the contractor or subcontractor for whom the work was carried out.  All such labourers rank without preference among themselves.

Practical Effects of the Registration of a Lien

The practical effect of registration of a lien is that it typically prevents mortgage funds from being advanced because of the priority that a builders’ lien enjoys over any mortgage advances made after the lien is registered.  As a GC, this means that construction draws will dry up if the source of the funding for the project is the mortgage.

Typically, once a builders’ lien is registered against title, the owner will also discontinue making any payments under the construction contract even if there is no mortgage funding the project because to do otherwise would expose the owner of the land to increased risk which will be described in a subsequent article when we discuss the calculation of the Major and Minor lien funds and the liability of the owner to ensure the establishment and retention of those lien funds.

Registering a Statement of Lien is the statutory right of any person entitled under the Act to register a lien.  That having been said, contractual relations will be strained or, in certain circumstances, may even be severed when liens are registered.  Considerable effort should be made by the parties to negotiate a settlement to the dispute prior to anyone considering the filing of a Statement of Lien.  Contractors should immediately consult their contract for dispute resolution mechanisms spelled out in the contract and follow those steps where appropriate and timely.

In my next article I will canvass the options open to a GC or owner of land who is met with a Statement of Lien being registered against title to the project and the negative effects that can be suffered by a lienholder who fails to respond on a timely basis to notices served upon the lienholder.

Michelle Simpson is an Edmonton lawyer, arbitrator and mediator practicing in the areas of construction, business, workplace and insurance issues.

7/Nov/2012

Posted in: Article

Posted by: Michelle

Leave a Comment

Search