Canada: Alberta Court Clarifies Builders’ Lien Registration When Contract Abandoned

On February 25, 2015, the Alberta Court of Appeal released its decision in Tervita Corporation v. ConCreate USL (GP) Inc. In that case, the court was required to determine whether a builders' lien registered by Tervita Corporation (Tervita) was valid. In rendering its decision, the Court of Appeal answered two questions of interest to both contractors and owners:

1. If a contract is abandoned, when does the lien claimant's time to register its lien begin to run?
2. If a lien claimant loses its lien because it fails to register a certificate of lis pendens, can it register a second lien for the same work?

BACKGROUND

ConCreate USL (GP) Inc. (ConCreate) was the general contractor on a construction project and Tervita was one of its subcontractors. In April 2012, before Tervita completed its work, ConCreate went into receivership. The receiver blocked the subcontractors, including Tervita, from accessing the project site. For a time there was a possibility that the landowner would hire Tervita directly to complete the remainder of its work, but on October 23, 2012, the landowner's consultant told Tervita that the landowner had decided not to do so.

Tervita registered a builder's lien on April 5, 2012. Tervita subsequently lost this lien because it failed to meet the requirement in section 43(1) of the Alberta Builders' Lien Act (BLA) to register a certificate of lis pendens within 180 days of registering the lien. On October 12, 2012, Tervita attempted to replace the lien it lost by registering a second, identical lien.

The validity of Tervita's second lien was decided by way of summary trial in the Alberta Court of Queen's Bench. The trial judge found that Tervita registered its second lien within the time prescribed by the BLA. However, the trial judge ultimately held that the second lien was invalid because Tervita's right to lien for the work it did was extinguished when it lost its first lien. Tervita appealed, and the Court of Appeal reversed the trial judge's decision on both points.

TIME TO REGISTER LIEN IF CONTRACT ABANDONED

The Court of Appeal found that Tervita registered its second lien out of time. Section 41(4) of the BLA provides that if a contract is abandoned, the time for registering a lien runs from the date on which the contract was abandoned. The trial judge found that Tervita's contract was not abandoned until October 23, 2012, the day the landowner's consultant told Tervita that the landowner had decided not to hire Tervita directly to complete its work. The Court of Appeal found that the trial judge erred in applying a "primarily subjective test" for abandonment, asking only when Tervita knew that it would not be called upon to complete its work under the contract. According to the Court of Appeal, a contract is abandoned "when the lien claimant knew or should have known that the other party would not complete the contract." Tervita knew or ought to have known that ConCreate would not complete the contract after ConCreate went into receivership and the receiver blocked access to the site, well in excess of 45 days before Tervita registered its second lien.

The fact that the Court of Appeal applied a mixed subjective/objective test for determining when a contract is abandoned is significant. Prior decisions from the Court of Queen's Bench on subsection 41(4) of the BLA have suggested that a court should consider only the lien claimant's subjective intention to complete its contractual work.

EFFECT OF FAILURE TO REGISTER CERTIFICATE OF LIS PENDENS

The Court of Appeal held that Tervita was not barred from registering a second lien after failing to register a certificate of lis pendens in respect of its first lien. The trial judge interpreted section 43(1) of the BLA as blocking a lien claimant from registering a second lien for the same work if it lost its first lien for failure to register a certificate of lis pendens. The relevant portion of section 43(1) reads as follows:

The trial judge reasoned that a lien claimant's right to lien "ceases to exist" if it does not register a certificate of lis pendens within 180 days, a second lien for the same work will be invalid. The Court of Appeal found that the trial judge read subsection 43(1) too broadly. "A lien that has been registered" refers only to the statement of lien itself; the underlying right to lien continues to exist until it expires pursuant to section 41 of the BLA. Tervita's second lien was invalid in any event, as it was registered after its right to lien expired under section 41 of the BLA.

CONCLUSION

This decision reinforces the importance of timing in the builders' lien context. Owners and contractors must both ensure that they are aware of the relevant rights and timelines under the BLA as soon as a payment issue arises to ensure that they are well positioned to prosecute or defend against lien claims.

In the case of contract abandonment, parties to a project must keep in mind that the period of time for filing a lien runs from the date on which "the lien claimant knew or should have known that the other party would not complete the contract."

Parties should also be aware that it may be possible in the right situation for a lien claimant to lose a lien for failure to register a certificate of lis pendens—or, potentially, for failure to commence an action or file an affidavit to prove lien in the timelines provided under sections 45(1) or 48(3) or the BLA—and to register a second lien before its right to lien expires under section 41 of the BLA.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.