Red Flags That Your Lien Rights May Be Worthless

By Corbin Devlin

In some circumstances, builders’ lien rights are worthless. Contractors are well advised to look out for these circumstances before entering a contract, and seek alternate security for payment if necessary.

Public highway projects – Public highways are exempt from liens pursuant to the express provisions of Alberta’s Builders’ Lien Act. (Fortunately, the Public Works Act provides a measure of alternate protection, provided the project qualifies as a public work.)

Irrigation district lands – For historical reasons, lands held by an irrigation district are also immune to liens, per the express provisions of the Act.

Provincial government lands – By operation of the Interpretation Act, lands held by the Crown in right of the Province are not lienable. (However, subsidiary interests in Crown lands, such as a private lease of Crown mineral rights, may be liened.)

Federal government lands – Lands held by the federal government are not subject to provincial lien legislation, by operation of federal/provincial division of powers.

Crown agency lands - The federal/provincial immunity to liens extends to lands held by Crown agencies. What constitutes a Crown agency depends on the degree of control exercised over the agency by the Crown; legal advice may be required to determine if a particular agency is immune to lien claims.

Municipal reserves – Municipal governments are not generally immune to liens. However, municipal reserves, school reserves, environmental reserves, conservation reserves, and public utility lots are immune to liens pursuant to the Municipal Government Act.

Areas of federal jurisdiction (e.g. airports) – Pursuant to the doctrine of federal paramountcy, provincial legislation (such as the Builders’ Lien Act) may be inoperative where it conflicts with federal legislation in respect of a subject that is within exclusive federal authority. Airports are an obvious example of a matter within exclusive federal authority. However, that is not to say that all liens relating to airport development projects are invalid. This is a complex area of law, and legal advice is recommended to determine if lien rights exist in respect of any project that may be within federal jurisdiction.

Developers without a legal interest in the lands – Some recent cases have highlighted the fact that lien rights do not exist if the party requesting the work does not have a legal interest in the lands, such as where a developer contracts to begin construction but fails to complete an agreement to purchase the project lands, for example Georgetown Townhouse GP Ltd v Crystal Waters Plumbing Company Inc. Particularly in the case of new developments, trade contractors may want to make inquiries to determine if the developer actually owns the project lands.

No equity – As a very practical matter, lien rights may exist but may prove worthless if there is no equity in the project lands (i.e. if the lands are fully encumbered, such as by a prior registered mortgage that equals or exceeds the land value).

This is not an exhaustive list, but it represents the most frequent circumstances we encounter. Advance consideration as to the existence or adequacy of lien rights can sometimes prevent a total failure of payment.

It is worth noting there may be certain provisions of the Builders’ Lien Act that apply even if the project lands are not subject to lien rights; e.g. trust provisions.

Municipal Reserve Lands – Validity of Lien Disputed Post-Payment of Security

By Richard Wong and Corbin Devlin

Have you wondered whether you can dispute the validity of a lien after alternate security has been paid into Court?  The Court of Queen’s Bench recently confirmed that municipal and/or school reserve lands are not lienable. The liens at issue were determined to be invalid after security was posted into Court for payment of the liens.

Determination of Validity, Post-Security

The Court in Golden Triangle Construction Management Inc v Nuwest Interior Systems Inc, 2019 ABQB 292, was tasked with determining whether, after a contractor has caused liens to be discharged by posting alternate security, the contractor has abandoned its ability to later challenge the validity of those liens.

Four liens were registered by subcontractors against lands designated as “Municipal and School Reserve” and “Municipal Reserve". Pursuant to section 48 of the Builders’ Lien Act, the general contractor, Golden Triangle, posted security for payment of the liens which were then discharged from title.

Section 48 of the Builders’ Lien Act states the Court may order that the registration of a lien be removed from the title to the land concerned where security is given, or payment is made, into court for the amount of the claim. Where this is the case, the money or security stands in the place of the land. But what does “stands in the place of the land” mean?

The Court, like many of us, found the wording of the legislation to be ambiguous. “Stands in the place of the land” was narrowed down to mean one of two things:

1.      Once the lien is discharged from title, the Court can consider the nature of the land (in this case, being a municipal reserve) in evaluating the validity of the lien; or

2.      The security held by the Court was to be treated as if it were proceeds from the sale of the land.

The Court ultimately found the former interpretation to be more appropriate, as it better aligns with fairness to the parties and upholds the objective of the Builders’ Lien Act – protecting those supplying labour and materials, and limiting the liability of owners. This interpretation clarifies that an owner or contractor can post security without abandoning any argument with respect to the validity of the lien. This allows for the speedy clearing of title upon posting alternate security and resumption of progress payments.

Municipal/School Reserves Are Not Lienable

After finding that the validity of the liens could be determined even after the liens were discharged from title, the Court confirmed the Alberta Court of Appeal’s decision in McFarlane Oil Co v Sturgeon (Municipal District No. 90), 1990 ABCA 72.  McFarlane held that liens registered against reserve lands are unenforceable as the Planning Act takes away the Court’s power to grant an order for sale of such lands.

The purpose of the Planning Act is to provide orderly planning and to maintain and improve the quality of the physical environment, without infringing on the rights of individuals except to the extent that is necessary for the greater public interest.  Although the Planning Act will permit the sale of municipal reserve lands, the general scheme of the statute with respect to reserve lands shields the lands from a Court ordered forced sale.  A statutory procedure is in place governing the disposal of reserve lands and the purposes for which the proceeds will be employed. The Planning Act was replaced in 1994 by Part 17 of the Municipal Government Act, but the principles stated in the McFarlane decision remain valid.

In comparison, the Builders’ Lien Act creates a charge on land as security for services rendered or materials furnished.  This, in effect, creates an interest in the land which can be sold and vested by the Court, unless alternate security is paid into Court. Where payment is made into Court, security other than the lands exist to satisfy potential claims. 

Considering this, the Court confirmed that the validity of a lien can be assessed, notwithstanding security or payment is made to discharge the lien. The Court then determined that Nuwest’s lien was invalid because, as determined by the Court of Appeal in McFarlane, municipal reserve lands are not lienable. The security posted by Golden Triangle was ordered to be returned to them.

Considering the significant number of school construction and renovation projects in Alberta,  it is noteworthy that some but not all schools are built on municipal reserve lands; i.e. some school projects may be lienable and some may not. Perhaps future case will consider if an agreement for sale of lands from a municipality to a school board is an interest in land that can be liened.