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.