Lien Pitfall – Liening the Wrong Interest

Author: Corbin Devlin

A common pitfall for lien claimants is the risk of liening the wrong interest in land. The most common example of this error is the lien against the owner’s title (fee simple) in relation to work performed at the request of a tenant.

Liens Against Tenants
 
When work is done for a leasehold tenant, a lien may be claimed against the leasehold estate. This is because a builders’ lien relates to the interest of an “owner” as that term is defined in the Alberta Builders’ Lien Act (the "Act"). Confusingly, the definition of “owner” in the Act is not necessarily consistent with other legal concepts of ownership or common sense.

In section 1 of the Act, “owner” is defined as follows:

"owner" means a person having an estate or interest in land at whose request, express or implied, and

1. on whose credit,
2. on whose behalf,
3. with whose privity and consent, or
4. 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.

This wordy definition means that when a registered landowner hires a contractor, the contractor has the right to lien the title of the land. However, when a tenant hires a contractor, the contractor has the right to lien the tenant’s lease. (It is usually the case, when work is performed for a tenant, that the tenant meets the statutory definition of “owner,” while the actual registered legal landowner does not qualify as an “owner” as defined in the Act.)

Liens Against Landlords
 
Fortunately (for lien claimants) that is not the end of the story. There may be multiple “owners” for lien purposes – with the consequence that multiple interests in land can be liened.

A lien in relation to work done for a tenant may also be claimed against the estate of the holder of the fee simple title (i.e. the registered landowner, or landlord) in two circumstances:

1. if the lien claimant gives notice under section 15 of the Act; or
2. if the landlord also qualifies as an “owner” as defined in section 1(g) of the Act (i.e. if the work was done at the landlord’s request, etc.).

Section 15 Notice
 
When the lien claimant is working for a tenant, he may want the ability to lien the landlord’s interest for additional security. The Act allows the contractor or material supplier to serve a notice upon the landlord and, if the landlord does not respond, the landlord cannot later object when its interest is liened. (Per section 15(1) of the Act: …”if the person doing the work or furnishing the material gives to the person holding the fee simple, or that person’s agent, notice in writing of the work to be done or materials to be furnished, the lien also attaches to the estate in fee simple unless the person holding that estate, or that person’s agent, within 5 days after the receipt of the notice, gives notice that the person holding that estate will not be responsible for the doing of the work or the furnishing of the materials.”)

Landlord Requesting Work Done For A Tenant
 
Quite often, however, the question of liening the landlord’s interest will not arise until much later when problems develop. If no statutory notice has been provided, or if the landlord objects to the statutory notice, the only way a landlord’s interest is subject to lien claims (in respect of work contracted by a tenant) is if the landlord falls within the definition of owner provided in the Builders’ Lien Act. Yes, it is possible that both landlord and tenant meet the statutory definition.

The critical question is usually whether the landlord expressly or impliedly requested the work. If the landlord was sufficiently involved in the construction effort, the lien claimant may have a right to lien the landlord’s interest. The case law is clear however that mere knowledge of the work (on the part of the landlord) is not enough to give the contractor a right to lien the landlord’s interest. Lighting World Ltd. v. Help-U-Build (Edmonton) Inc. is an example where the landlord occasionally visited the construction site to observe the ongoing work, and loaned money to the tenant for the purpose of the construction, but did not provide any direction to the contractor, and did not provide any direction to the tenant as to how the construction should be done; she was held not to be an owner and the lien claim was dismissed. In another case, the lease agreement bound the tenant to have certain specific renovations carried out. The plans for the renovations had to be submitted to the landlord for approval. The court nevertheless concluded that the landlord did not expressly or implied request the work. Generally, the courts do not allow a lien against a landlord’s interest in respect of work done for a tenant unless the landlord actively participates in the work, typically by directing either the contractor or the tenant regarding the work.

Practical Points 

In sum, a contractor working for a tenant has the right to lien the tenant’s lease, but this may be inadequate security for payment. The contractor working for a tenant does not automatically have the right to lien the landlord’s interest; it depends on the use of a section 15 notice or unusual involvement by the landlord in the tenant’s construction project.  The contractor concerned about security for payment may not want to rely exclusively on his lien rights in any event, but this may be a particular concern where work is performed for a tenant such that lien rights are limited.

And getting back to the lead point of this article, the contractor working for a tenant must be sure to identify the correct legal interest when registering a lien; specifying the landlord’s interest in the Statement of Lien, when the contractor only has lien rights against the tenant’s interest, results in a lien that can be declared invalid.